The South African stock market began the week on a slump amid fears of another round of hard lockdowns grip markets as Covid-19 case numbers spike in Europe.
Investors fear that the second European wave of Covid-19 will continue to be a risk to the global economic recovery.
After three months on a high, Monday saw the rand start the day at R16.28 to the dollar and end 3.1% down. The euro was at R19.31 and dropped 2.07%, and the pound opened at R21.09 and dropped by 1.9%.
The FTSE/JSE All-Share index dived by 2.48% to end the day at 53 319.08 points.
Market commentator Chris Gilmour says the performance of the markets on Monday indicates how disappointed investors are with the slow progress being made in finding a cure for the virus.
“Markets have been kept high in recent weeks and months on hopes that the virus would subside, coupled with hopes that a vaccine would soon be developed – but the high number of cases in the UK and Europe is defeating those hopes,” Gilmour says.
Only three rand hedge stocks in the Top 40 went up: British American Tobacco South Africa by 0.79%, South32 by 3.07%, and Prosus by 0.25%.
Bianca Botes, executive director at Peregrine Treasury Solutions, says: “Market sentiment has turned rapidly to risk-off, sending emerging markets tumbling after the recent rally.”
Hussein Sayed, chief market strategist at FXTM, says that apart from investors becoming increasingly worried about the momentum of the economic recovery given the resurgence in the number of global Covid-19 cases, equities kicked off on the back foot because of three weeks of consecutive declines in US stocks; the longest weekly losing streak since 2019.
“Although President [Donald] Trump signalled his readiness to back a bigger stimulus bill last week, the Supreme Court’s empty seat left by the passing of Ruth Bader Ginsburg is likely to complicate the matter,” Sayed adds.
He says the fight between Trump and Congressional Democrats on whether to fill the vacant seat now or wait until after the election is expected to lead to more delays in reaching middle ground on a new fiscal package.
“Hence we would expect that the much-needed stimulus will be pushed back until after the US elections, given that the list of uncertainties is growing, especially on the pandemic front. The risk is now skewed to the downside.”
“We have US elections just around the corner, hefty valuations in growth sectors despite the recent correction, and the high stakes of possible national lockdowns in the UK and elsewhere all pointing to waning momentum in the economic recovery,” says Sayed.
“All these factors indicate more volatile times for the next several weeks.”