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African assets slump as Brexit vote triggers commodity decline

Jun 24 2016 12:23
Xola Potelwa and Neo Khanyile

Johannesburg - Currencies, stocks and bonds across Africa plunged after the UK’s vote to leave the European Union triggered a slump in oil and other commodities and sent investors scurrying for safe assets.

South Africa’s benchmark stock index fell the most since January, led by shares of banks and diversified mining companies.

The rand dropped to a record against the yen and by the most since 2008 against the dollar before paring the decline, while yields on dollar bonds from Ghana to Kenya rose.

Gold miners gained the most in four months as the precious metal, seen as a haven in times of turmoil, soared.

"We’re going into a very difficult, very volatile time with prices moving in all sorts of directions; lots and lots of uncertainty," Ron Kiplin, a money manager at Cratos Capital in Johannesburg, said by phone.

"And we still need to see what impact really, from a South African perspective, it has on emerging markets."

The victory for the "Leave" campaign may weigh on African economies as prices of raw materials fall, with the Bloomberg Commodity Index dropping 1.2% on Friday as crude oil fell 3.9% to below $50 per barrel.

Gold gained 4.7% to $1,316.37 an ounce, the highest on a closing basis since January.

The debate over the UK’s EU membership has dominated investor sentiment throughout June, with appetite for riskier assets having built up over the past week as bookmakers’ odds suggested the chance of a so-called Brexit was less than one in four.

The rand slumped 8% against the greenback before paring the decline to trade 3.6% weaker at 14.9484 by 10:57 a.m. in Johannesburg.

The currency fell 6.6% to 6.8728 yen after plunging as much as 14%. It gained 2.7% against the pound to 20.8682.

Most volatile

South Africa’s currency is the most volatile among 24 emerging-market peers, according to data compiled by Bloomberg, suggesting it often trades as a proxy for risk sentiment.

A British exit from the EU could shave about 0.1 percentage point off South Africa’s economic growth, according to researchers from North-West University.

The UK is the fourth-biggest destination of South African exports, according to data compiled by Bloomberg.

"The rand will be affected in the short term with a general knee-jerk risk-off perception," Philip Saunders, co-head of multi-asset management at Investec Asset Management, which oversees $116 billion, said by phone from London on Friday.

"The initial reaction is probably going to be one whereby you see markets becoming somewhat disorderly and South Africa is going to be caught up in that backwash."

South African bonds fell the most since March, with yields on benchmark rand bonds due December 2026 climbing 15 basis points to 9.03%. Yields on Nigerian dollar debt due July 2023 soared 37 basis points to 7.45%.

The Johannesburg Stock Exchange All-Share Index fell 3.4%, led by Naspers [JSE:NPN], SABMiller [JSE:SAB] and BHP Billiton [JSE:BIL].

The Johannesburg Banks Index dropped 4.1% as shares of lenders including FirstRand [JSE:FSR] plunged.

Gold shares surged 14%, the most since 2008. The MSCI Emerging-Markets stock index fell 3%.

WATCH: Bloomberg uncovers the winners and losers of Brexit

brexit  |  economy  |  africa economy
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