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Markets: Yuan devaluation spurs investor jitters

Richemont suffers at the hands of the bearish sentiment.

It was a turbulent week in financial markets with volatility stemming predominantly from Chinese economic data and subsequent currency fixing initiatives. Weak export data from the region promptly saw a decision by the Peoples Bank of China (PBOC) to weaken the yuan against the dollar by 1.9% through the currency peg currently in place. The decision to devalue the yuan was perhaps an admission that the Chinese central bank is concerned over the current economic state of affairs in the world’s second largest economy. This currency was deliberately devalued further last Wednesday by 1.6% (following worse than expected industrial production data) and once again on Thursday by 1.1%.

Top decliners

Richemont would have suffered at the hands of the bearish sentiment induced from the yuan’s deprecation. Luxury goods (such as those offered by Richemont) become notably more expensive to the Chinese consumer as purchasing power diminishes.

Still in their first quarter of inclusion into the Jse’s Top 40 index, Capitec and Brait SE occupied the top decliners spots last week. While no new news has supported the weakness for both stocks over the period, the latter (Brait SE) extends the declines realised in the previous week following a disappointing response to a quarterly update.

Shoprite Holdings is set to report FY 2015 results on Wednesday, August 19.

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Top gainers

China’s currency devaluation has enhanced fears around the state of global economic growth and spurred a near-term surge in safe haven demand for dollar denominated gold. The move has also fuelled speculation that the the Federal Reserve’s decision to raise interest rates may be delayed as a result. Emerging market currencies have been largely weaker as a result of the yuan induced sentiment, which combined with the move in dollar gold, has provided more favourable conditions (short term) for local miners of the precious yellow metal.

AngloGold Ashanti, the last remaining gold miner in the Top40 index has as a result significantly outperformed fellow blue chip counters in the week gone by. The new week see’s AngloGold Ashanti gaining further following an update (for the interim period), in which all in sustaining costs have been reduced by 12% to $928/oz, gold production was ahead of guidance, while net debt to adjusted EBITDA has reduced to 1.95x.

The new week

The new week will have an elevated propensity for volatility on Wednesday when the details of the last US Federal Open Market Committee (FOMC) meeting are divulged to the public. On the same day markets will look to the CPI and Core CPI prints for further clues relating to when the US will look to tighten monetary policy.

Also of interest on Wednesday will be the release of domestic CPI and Retail Sales data.

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