A staggering 103 JSE-listed counters of a total of nearly 400 listed companies hit 52-week lows on Friday, following the shock sacking of finance minister Nhlanhla Nene on Wednesday evening.
South African banks and other financial services groups are bearing the brunt of this significant selloff as investors seemingly flee to the sidelines, due to the uncertainty created by Nene’s dismissal.
At the close on Friday afternoon Barclays Africa was down 3.00% after falling by nearly 11% in early trade. Nedbank (-5.00%), RMB Holdings (-7.31%), Standard Bank (-4.17%) and FirstRand (-8.30%) were also under significant pressure. These declines follow significant falls between 10% and 15% on Thursday.
At 14:50 the Financial 15 index was down 5.59%, which has pulled the JSE All Share index down by 1.79%. The gold index seems the only real winner and has gained nearly 5.98%.
Virtually all the leading banks hit 52-week lows. Other financial institutions that were also hit include Alexander Forbes (-9.66%), Sanlam (-8.32%), Sygnia (-5.74%) MMI Holdings (-9.48%), PSG Konsult (9.29%), Coronation (-4.63%), Liberty (-6.96%) and Santam (-6.30%).
Kokkie Kooyman, a financial specialist at Denker Capital, says the current price movements are extreme, although he doesn’t label it as panic selling. “Normally prices come back after such extreme drops, but it is evident that investors are getting out of the banking sector.”
He says the South African banking sector has been expensive relative to other emerging markets, due to the sound financial management within government.
“In the past the financial sector traded at a premium due to good corporate governance (at the National Treasury), but the totally irrational conduct of President Jacob Zuma has changed this and we are now trading at a discount due to sudden unpredictability. It is evident that investors are getting out of the banking sector.”
Kooyman adds that there is much uncertainty, as it is unclear what the new finance minister will do. “Next year will be a nightmare as the budget deficit will increase and we pay more towards interest. The economy will worsen even more due to higher interest rates.”
Wayne McCurrie, head of of Momentum Wealth, says the aggressive selloff in financial shares shows that the market is very worried that Nene’s dismissal will lead to more than one credit downgrade, and that this in turn will cause the cost of funding for banks to skyrocket.
“The market is saying that the prospects for the banking sector today are as bad, if not worse, than the prospects were at the height of the financial crisis. There might be an actual liquidity crisis going forward in the market and [there are concerns] that they may not be able to raise money in the short- to medium term at anything approaching a reasonable funding rate, which is something we have never seen before. This is now reflecting in the share prices.”
McCurrie says he does not agree with the market view that the market is far too negative. “Whatever outlook you take on South Africa, certainly in the short- to medium term, cannot be as bad as the prospects in the short- to medium term at the height of the financial crisis. Shares are now as cheap as they were then.”