JSE, rand fall on risk aversion

CIPS 26 September 2011

JSE, rand fall on risk aversion

Rand falls as much as 2,8% in morning trade as the JSE slips 1,62% on persistent concerns in the euro zone

The JSE moved straight into the red this morning while the rand fell as much as 2,8% against the dollar hit by persistent debt concerns in the euro zone.

The JSE dipped below 30,000 points, in line with trading in Asia, amid investor uncertainty over how leaders in Europe hope to tackle the debt crisis besetting the region.

By 09:12 local time, the JSE all-share index had lost 1.62%. Platinum miners dropped 4.17%, gold stocks gave up 3.03% and resources fell 2.46%. Banks lost 1.80%, and financials were down 1.15%. Industrials were 1.10% lower.

The rand was the worst performer out of a basket of 20 emerging market currencies.

Government bonds were also weaker, nudging yields higher, with the softer currency likely to cap any gains the market had anticipated on the back of bargain hunting after the recent heavy sell-off of local debt.

The rand weakened to a session low of 8,3470 to the dollar and was at 8,3380 by 0646 GMT, down 2,68% from Friday's close of 8,12.

The domestic currency's weakness was largely a factor of global trends, and was in line with moves in the euro, which fell to an eight-month low against the greenback, while the Australian dollar hit a 10-month trough.

"Asian stocks are lower, precious metals sold off agressively in Asia and risk is again very much on the back foot after the short reprieve into the New York close (on Friday)," Absa Capital trader Duncan Howes said.

The yield on the four-year bond was up one basis point from Friday's closing levels at 7,15% while that for the 2026 issue edged up two basis points to 8,69%.

"On account of Friday's performance on the rand, the techs on the bonds have turned to favour a slight recovery. However, this would assume that the rand recovery is a sustained one," said Tradition Analytics in a note.

"So far this morning this has not been the case with uncertainty over the European debt crisis still weighing on liquidity and risk aversion levels and still expected to keep foreign investors shying away from emerging market assets."

The rand has shaved off 26% of its value against the dollar so far this year, a victim of its high liquidity which renders it vulnerable to swings in portfolio flows in and out of South African assets when global markets are volatile. I-NET BRIDGE

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