South African capital markets posted significant losses and saw unprecedented activity following the announcement by President Jacob Zuma, to replace minister of fiance, Nhlanhla Nene, with unknown David van Rooyen.
Investors, ranging from individual retirees to huge pension funds, have seen the value of their holdings plummet.
Businesses already under pressure now face increases coming from rising borrowing costs and a weaker Rand which devalued from R14.53 to R15.89 (9.36%) against the USD and from R15.94 to R17.45 (9.47%) against the EUR in the two subsequent days, the Johannesburg Stock Exchange (JSE) said.
Thursday 10 and Friday 11 December 201 saw exceptional trading volumes across most platforms of the JSE:
- Average daily value traded in the Equity Market on those two days, at R47.8 billion, was more than double the year to date average for 2015 (R19.9 billion)
- Average daily number of trades in the Equity Market on those two days of 589 721 (both of which were record trading days) was more than double the year to date average of 246,338 trades
- The FTSE/JSE Financial15 Index (FINI) dropped 13.36% from 15,600 to 13,515
- The FTSE/JSE Banks Index lost 18.54% dropping from 6,556 to 5,340
- The FTSE/JSE All Share Index (ALSI) dropped 1,456 points in those two days, closing at 48,068 on Friday, down 2.94%
- The FTSE/JSE Top 40 Index shed 987 points over the same period, closing at 43 558 on Friday
- The entire market cap fell R169.6 billion from R11.35 trillion to R11.18 trillion (1.49%)
- Activity in Equity Derivatives also peaked – value traded on 10 December (R51.1 billion) was double that of the daily average of the year and on 11 December (R129.7 billion) was 5 times the daily average of 2015
- In the bond market, the benchmark R186 started the week at a yield of 8.66% and closed on 10.40%. By contrast, on 29 January 2015 the yield was 7.055%.
JSE CEO Nicky Newton-King said that while the JSE systems were able to handle the unprecedented activity, South Africans should be mindful of the longer term impact on the financial stability of the economy.
“Market losses put strain on credit extension and interest rates, and raise borrowing costs for companies and individuals. As cost of capital becomes more expensive, this in turn constrains the growth stimulus which we desperately need.
“The outlook for much needed job creation opportunities diminishes. And higher lending rates make everyday life more expensive for ordinary South Africans. Continued currency depreciation will have a profound impact on fuel prices and on inflation overall, which will hurt companies, small businesses, and individuals,” Newton-King said.
“We should remember that behind the daily statistics are the life savings of ordinary South Africans which are likely to be negatively impacted. This will put pressure on the ability of people to fund their health and housing requirements, their household budgets, their children’s education and their entrepreneurial aspirations.”
On Sunday evening, the presidency said it had decided to replace David van Rooyen with former finance lead, Pravin Gordhan, a move that sparked an immediate recovery in the rand.
At 10h15 on Monday, the local unit traded at R15.12 against the dollar.
“I have received many representations to reconsider my decision. As a democratic government, we emphasise the importance of listening to the people and to respond to their views,” the Presidency said in a statement.