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The SA Daily 19 March 2020

An unseen enemy

  • COVID-19 is still causing financial assets across the world to plummet. The Dow Jones Industrial Average lost 6.3% yesterday and is now down 30% since January. The rand is at R17.50/$ now, a 25% drop since January. SA’s 10-year government bond yield is at 11.34% (9.00% in January); the All Share Index (JALSH) shed 7.2% yesterday and has now lost 32% (18,479 points) since January — both have underperformed peers since the start of this year. The rand exchange rate is now also being knocked by dollar strength, while SA bonds are being hammered due to likely forced selling and sharply higher concerns about SA’s fiscal outlook.
  • The COVID-19 global health crisis has filled markets with fear, which is also severely affecting all economic activity. Companies’ revenues too will face strain, and concerningly this will have an undeniable impact on the paying of employees, suppliers, rentals to property owners, taxes that finance government’s social, economic and infrastructure spending, as well as any profits accruable to investors. 
  • The SA sectors being the most directly and immediately affected by COVID-19 and the related social distancing include: transportation (15.1% of total household spending); miscellaneous goods and services (11.4%, which comprises cinema, park, museum, and theatre entrance fees, licences and hiring of equipment); recreation and culture (4.5%, which comprises sport and camping equipment, games, hobbies, toys); and restaurants and hotels (2.7%) due to the steep drop in both domestic and foreign tourism. Nominal consumption expenditure (which can be interpreted as revenue) for these sectors amounted to just over R1.0tr in 2019 – about 34% of total consumption expenditure or about 42% of Q319 total salaries and wages.

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