Equities: Hitting a Chinese Wall
A last-ditch volte-face agreement by Greece to EU austerity measures and disappointing Chinese manufacturing data coupled with economic contraction from Russia, Brazil and South Africa provided multiple risk-off triggers for market participants this quarter. The People’s Bank of China also fired the currency war bazooka, which led to a rout in both emerging market and commodity producing country currencies and a sharp retracement of the Shanghai Composite by over 22% this quarter alone. Global equities experienced their worst quarter in four years, down close to 10%. Disappointing global growth, falling commodity prices, extreme market whiplash and a weakening rand all contributed to a sharp pull-back of the JSE this quarter, with emerging markets seeing half a trillion dollars in capital flee out – the first net outflow from emerging economics since the 1980s. Our estimate of fair value for the rand is between 10.50 and 11.50 to the US dollar. The SARB added fuel to the fire by hiking rates despite an SA economy which contracted in the second quarter (qoq) with macroeconomic imbalances not being helped by mining and manufacturing sectors hamstrung by load shedding and labour unrest.