Photo: sashares.co.za

SA financial markets feeling impact as Chinese coronavirus spreads

JSE experiences biggest drop in eight months and rand is at a six-week low as South Africa is hit by the global fallout.


Photo: sashares.co.za

As concern about the spread of China’s deadly coronavirus grows, financial markets in South Africa and around the world are increasingly feeling the impact. 

By close of business on Monday 27 January, the Johannesburg Stock Exchange (JSE) had experienced its biggest drop in eight months. As the JSE opened for business on Tuesday 28 January, analysts were expecting another day of pressure on the local market.

JSE-listed media and technology company Naspers was among the big losers due to its major investment in Tencent, the Chinese internet company.

Rand lowest in six weeks

The rand also felt the heat and dropped to its lowest level in more than six weeks. According to Bloomberg, the rand was the second-biggest loser among the 24 emerging markets that it tracks.

As a small but open economy, South Africa is highly susceptible to global currency and stock market swings caused by international events.

On Monday, the US markets had experienced their biggest drop in about four months. European markets were down by around 2%. 

Travel and luxury goods companies hard-hit

Travel industry stocks were particularly hard hit due to fears of a slowdown in global travel, as health authorities in China and worldwide seek to limit the spread of the virus by travellers.

Companies selling luxury goods, among them Burberry and Louis Vuitton’s parent company LVMH, also saw their shares fall sharply. Traditionally these brands do well during the Lunar New Year period as wealthy consumers in China buy more gifts.

Markets in Hong Kong and China are closed for the Lunar New Year holiday on Tuesday 28 January, but it is likely that they will continue to be hard hit when these markets open for business again, probably next Monday 3 February.

“The further this virus spreads, the worse it will be for Chinese economic output,” said a senior market analyst at the financial trading group IG, Joshua Mahony.

“We are also seeing commodity stocks slump, with the prospect of a decline in Chinese growth hurting expectations of demand in the sector.” 

Glimmer of good news for South Africa

In what could be a glimmer of good news for struggling South African consumers, the price of a barrel of oil fell by around 3% to below $60. 

South African-based gold mining companies should also be cheered by the news that gold closed on Monday at just under $1 600 an ounce, the highest level since April 2013.  Gold is traditionally a safe haven for investors in times of crisis.

Lessons from the SARS outbreak in China

According to a report in the London-based Guardian newspaper, after the SARS virus outbreak in China in 2002-03,  China’s annual GDP growth fell to 9.1% in the second quarter of 2003 from 11.1% in the previous three-month period, as the government imposed travel restrictions. However, GDP growth recovered to 10% in the second half of 2003.

“This time around, the Chinese economy is much larger and more connected to the global economy. However, analysts said the government response to the coronavirus outbreak appeared to be tougher and more transparent, which could help limit the impact,” the Guardian reported.