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Rand, stocks tumble as China virus wrecks risk sentiment

Fears around the potential economic damage of the coronavirus outbreak intensified as the death toll rose to 81, with investors fretting over the impact on travel, tourism and broader economic activity.

South African rand.  Picture: Christa Eybers/EWN

JOHANNESBURG - The rand plunged to a one week-low while stocks sank by more than two percent on Monday as the outbreak of a deadly virus in China worsened, dimming demand for risk assets globally.

At 1400 GMT the rand was 1.1% weaker at R14.5510 per dollar, a touch better than a session-low of R14.5820 that represented its weakest since 20 January, with the selloff largely driven by investors dumping emerging market assets.

Fears around the potential economic damage of the coronavirus outbreak intensified as the death toll rose to 81, with investors fretting over the impact on travel, tourism and broader economic activity.

The flight from risk and heightened volatility in currencies hit the rand harder than its emerging market peers, underlining impact of fragile economic outlook and possible downgrade to junk by Moody’s.

“EM currencies are weaker in general, but the rand has been most negatively affected as concerns over SA’s debt projections raise fears of a Moody’s downgrade,” said chief economist at Investec Annabel Bishop in a note.

Finance Minister Tito Mboweni gives his budget speech on 26 February, with Moody’s, the last of the top three agencies to still rate the country at investment level, due to issue a credit review a week later.

Bonds were also weaker, with the yield on the benchmark 2026 government issue up 4 basis points to 8.135%.

Stocks were also thumped by the run on risk, with the Johannesburg Stock Exchange’s Top-40 index down 2.45% to 49,957 points and the broader all-share index sliding 2.35% to 55,917 points.

Retailers, platinum miners and banks suffered in the broad based slide with only gold shares helping to limit the fall as the global price of bullion rose more than 1% as investors looked for safe-haven assets.

Upmarket grocer and clothes seller Woolworths warned on Monday that half-year earnings could drop by as much as 20%, knocking shares more than 4%, partly due to weak sales over the critical December period when consumer spending on non-essentials normally jumps.

“The Woolies results show some pressure on clothing, but what stands out is the food division. It tells you a lot about the consumer and the economy,” said analyst at Unum Capital Lester Davids.

Food sales increased by 8.1% compared to a 2.2% rise in fashion, beauty and home sales.

“Look at Shoprite results a few weeks ago, that showed sharp revenue growth in the food section too. This tells you people are spending but only the things they really need. Consumers are cautious, they’re under a lot of pressure,” Davids said.

Telecoms giant Naspers and logistics firm Bidvest were both down more than 3%, while in resources Anglo American Platinum slipped 4% followed by Impala Platinum, down 3.56% on the day.

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