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The weight of bad news about the economy has proved too much for bank stocks traded in Johannesburg, pushing a sector index to technically oversold levels for the first time in more than two years.<\/p>\n
While the index was 1.2% higher Tuesday, rising for the first time in six sessions as a stronger rand brought some relief, it has dropped 15% since president Cyril Ramaphosa pledged a relentless focus on growth in his 20 June state-of-the-nation address.<\/p>\n
That\u2019s dragged its 14-day relative strength index below 30, a reading that signals the decline may be too steep and one not seen since April 2017.<\/p>\n
Gross domestic product contracted the most in a decade in the first quarter, while unemployment is the highest in 11 at least years, ratcheting up the strain on South African consumers.<\/p>\n
The government is pledging billions of dollars to keep the state power utility afloat and two of the three major credit-ratings companies assess South Africa\u2019s debt as below investment grade. Investors have been punishing shares in lenders over the bleak picture.<\/p>\n
\u201cBanks, more so than retailers, have been seen as a proxy for South Africa Inc. exposure,\u201d said Nolwandle Mthombeni, an analyst at Mergence Investment Managers in Cape Town. \u201cAs such, they have reacted to the poor sentiment around the economy.\u201d<\/p>\n
Valuations reflect reduced expectations for profits as the grim South African economic outlook weighs on lenders.<\/p>\n
The average ratio of share price to estimated earnings for the banks has dropped to 9.2 times, compared with a 5-year average of 10.5. The FTSE\/JSE Africa Banks Index\u2019s has fallen 6.6% this year, compared with a decline of 1.1% for an index of emerging-market peers.<\/p>\n
Nedbank bemoaned a worse-than-expected economy Tuesday as it reported first-half results, cutting its forecast for 2019 GDP growth to 0.5% from 1.3%. More urgency is needed in structural reforms to stem economic and fiscal deterioration, the country\u2019s fourth-largest lender said.<\/p>\n
\u201cThe banks\u2019 performance is a classic sell-off due to our macro environment,\u201d said Casparus Treurnicht, a money manager at Gryphon Asset Management. \u201cConsumers and South African business are taking strain and investors understand this will filter through to the banks.\u201d<\/p>\n