The SA Daily
18 March 2020
The fear factor
- The gold-to-copper price ratio, a global economy health barometer, has now breached a three-year high, which reflects expectations of a much weaker global economy. The COVID-19 viral pandemic has curtailed industrial activity and other economic activity, and this could worsen should viral containment measures fail. However, we’re hopeful that recent measures such as rate cuts and liquidity injections will calm global financial markets. Still, uncertainty will likely continue.
- In a report last week, the International Institute of Finance (IIF) said that a global sudden stop in financing is beginning to emerge, and that the IIF tracker of non-resident portfolio flows to emerging markets (a usual gauge of risk appetite) now points to a widespread sudden stop as well. Note that the Philippines just yesterday shut their stock market; it has since reopened. The IIF now foresees 2020 as yet another challenging year for growth across emerging markets; their flows tracker is currently the most negative ever, with outflows exceeding both the 2013 taper tantrum and the GFC (Global Financial Crisis of 2008/9).
- An oil price collapse induced by price wars alone but in the absence of other global shocks would, theoretically, benefit oil-importing countries such as SA, but such benefit is being counteracted by the viral outbreak which has been hitting global supply chains and general economic activity.
- Against this backdrop, the rand is now around R16.61/$ and SA’s 10-year government bond yield has risen to 10.724%. The All Share Index too has been hit hard, and non-residents have been shedding SA bonds (-R39.8bn YTD) and equities (-R29bn YTD).
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