strategist John Cairns, speaking in a
conference call.
He described the events as a severe
shock to SA with other commodity
exporters including Brazil and
Australia being hit as hard. “Falling
commodity prices have been a
major negative factor for the rand
since 2011. Commodities are the
channel through which a weak
China is feeding into the rand.”
By Colin Anthony
with few signs of any turnaround in
demand to support falling prices.
The 19-commodity Thomson
Reuters/core commodity CRB
index fell 2.7% on August 24 to its
lowest level since 2002. That took
year-to date losses to nearly 20%,
according to Reuters. Platinum was
at its lowest level since 2008.
One bright spot for SA is the gold
price, which has attracted quite a
bit of safe-haven buying. The gold
price climbed from $1 091.90/oz to
$1 156.50/oz in the first three weeks
of August while the rand tested
R14/dollar, having started August
at around R12.60/dollar. As a result
the rand gold price of gold shot
up to above R15 000/oz, levels last
seen in January 2013.
While this is a short-term boon for
SA’s gold miners, there is not much
optimism around that the gold
rally will be sustained. “Gold is not
long-term buy but it might be in
the short term,” said RMB currency
What's up in International markets
While China’s economic woes
caused a tumultuous month
on the markets with its stock
market refusing to toe political
exhortations, Japan’s economy has
now also slumped.
Japan’s GDP shrank in the second
quarter by 1.6% year on year, with
sluggish exports, weak consumer
demand and low corporate
spending the main culprits.
But, as has become the norm
of late, the stock market initially
responded positively to the news
on the prospect of further stimulus
measures from the Japanese
government, which is in the thick of
its quantitative easing programme.
The Nikkei stock average had been
losing ground over the past month
before bouncing on the GDP data.
But it then succumbed to the
global sell-off sparked by China’s
meltdown.
Wall Street also had a bad month,
suffering its biggest weekly decline
since 2011 in the week ending
August 22 on the back of the
meltdown in China’s stock market.
Until then, US stocks had remained
largely unscathed with defensive
sectors holding things together on
the back of strong interest in high
dividend-paying stocks, healthcare
and consumer companies.
Of more direct concern to SA is that
China’s days of pulling emerging
markets up by their bootstraps
are over. In fact, China’s woes are
now having the opposite effect,
contributing to sharp declines in
emerging market currencies.
curb the Shanghai index’s fall. These
include devaluing its currency and
investing in equities through state
agencies – but those measures look
like they are failing and there were
always questions as to how long
that could be sustained. Sooner or
later, market forces will overpower
artificial ones.
Traders will be hoping for some
positive news to shift sentiment
for the month ahead. Domestically,
there’s not much that will help, with
the plummeting rand supporting
share prices but not helping the
real economy. Globally, the US
and Europe are going to have to
deliver some good news to change
sentiment, and that does not look
likely. It’s been a bleak month with
no prospect of change.
The Chinese government has taken
dramatic steps in its attempts to
ISSUE 6 – SEPTEMBER 2015
29