JOHANNESBURG - The downgrading of South Africa’s sovereign debt by Moody’s to BA1 (junk status) a fortnight ago, as well as the joint junk grading by agencies Moody’s and Fitch of the five big commercial banks to sub-investment late last week, had a huge negative effect on the rand.
Together with the drive of foreign investors to sell emerging market currencies and buy developed market ones, especially the dollar, euro and the pound led to the rand depreciating to unprecedented levels.
Against the dollar, the rand traded on R18.80 at the close of the JSE on Friday afternoon. This is 123cents or 7.1percent weaker than at the same time the previous Friday.
Against the pound, the rand had depreciated by 140c (6.5percent) from R21.67 to R23.07 last week and against the euro, the rand had tumbled by 96c (5percent) from R19.38 to R20.34
On world equity markets, the volatility continued as investors were not certain if the stimulus packages of the various countries would soften the expected recession prospects and devastating unemployment prospects due to the lockdown affecting most of the globe.
Covid-19 infections had topped 1million with more than 53000 deaths by Friday, with countries like Spain (almost 1000) and the UK (684) reaching their highest daily deaths.
In New York, the total deaths neared the 2000 level with total infected in the US more than 100000.
On Wall Street, the volatility in equity prices continued but in a downward trend. The Dow Jones industrial index opened at 21074 points, or 2.6percent, lower than a week ago and more than 20percent lower than a month ago.
On the JSE, equities improved somewhat last week, although volatility still prevailed.
The all share index gained 1659 points (3.86percent) over the week to close Friday on 44598.7 points.
The resources 10 index traded up by 5.03percent and industrials 25 index stronger by 6.13percent.
Financials also moved positive, gaining 1.3percent while listed property continued to contract as the index retreated 3.2percent.
The oil price again started to increase strongly and Brent oil traded late Friday afternoon at $33 (R620) a barrel, almost $10 higher than earlier last week.
Given the weaker rand and the higher oil price, the over recovery for petrol that was still 280c a litre last Thursday, is expected to come down considerably in weeks to come.
Dr Chris Harmse: Economist and chief investment officer at Rebalance Fund Managers.