South African markets closed deep in the red on Friday, with the rand and stocks tanking to their lowest in more than two months on the back of softer emerging markets and a firmer US dollar.
President Cyril Ramaphosa's failure to impress investors about concrete solutions to end the energy crisis during his State of the Nation Address (Sona) on Thursday also added bitterness to the markets.
The rand on Friday plunged 0.8% to close R17.90 against the greenback, its lowest since 2 December, when Ramaphosa was rumoured to be considering resigning on the back of a damning report about his possible culpability in the Phala-Phala scandal.
Citadel Global director Bianca Botes said the rand was mostly affected by international monetary decisions and events and less so by local factors, although these were contributing factors.
Botes said the strong employment data from the US last week reignited fears for further possible tightening from the Federal Reserve, dampening risk appetite and sending the rand back into a decline against major currencies.
“The rand continues to feel the pressure of uncertainty around the power crises, and now the newly implemented state of disaster, while the global backdrop also continues to weigh on risk appetite,” Botes said.
On Thursday, Ramaphosa announced that the government had decided to implement the National State of Disaster on Eskom with immediate effect in a bid to fast-track measures to deal with crippling power cuts.
This is expected to enable the government to provide practical support to businesses, including the rollout of generators, solar panels, and exempt critical infrastructure such as hospitals and water treatment plants from power cuts while limiting regulations to accelerate energy projects.
But the most surprising announcement was the establishment of the Minister of Electricity in the Presidency who will be responsible for the speedy implementation of the Energy Action Plan.
In a note, Nedbank economists said the proposals of this year’s Sona remained economically sound, the challenge now was to enact these reforms quickly and effectively.
They found fault in how Ramaphosa has created several committees on a variety of challenges over the past few years, as progress on structural reforms has been slow and conditions on the ground had deteriorated.
“Rather than creating a complex web of overarching committees, it seems more constructive to simplify reporting lines, thereby avoiding a situation where too many cooks spoil the broth,” they said.
Meanwhile, stocks on the JSE fell to 1-month low on Friday as investors weighed the risks to growth of the continued monetary tightening by major central banks.
The JSE All Share Index plunged 1.3% to close at a one-month low of 78 985 points, mainly pushed down by resource-linked sectors and financials.
Investec chief economist Annabel Bishop said the markets were uninspired by Ramaphosa’s Sona as many of the same topics of previous years stretching back further than 2016 were repeated.
Bishop said South Africa’s slow, and often poor implementation of its promises has been the key determinant of its weak economic growth rate, and hence of exacerbating unemployment.
“The Sona was comprehensive and positive in its messaging but did not inspire markets, who take a wait and see approach to delivery,” Bishop said.
“But after over a decade of costly expenditure on electricity and a poor-quality result, markets fear additional cost and debt for the state and a deterioration of state finances.”
BUSINESS REPORT