The JSE building in Sandton. Photo: Elvira Wood

The JSE has just had a nightmare day – as coronavirus concerns, coupled with pre-Budget and economic jitters wreak havoc.

The JSE’s index of the forty biggest shares ended the day almost 4.5% weaker – the fifteenth biggest loss since 2000:

Source: Sharenet Investments

The JSE's all-share index was down 4% to 54,881 points, while the rand weakened a percent to R15.15/$.

Markets were bleeding as the coronavirus spreads from China, which already has almost 80,000 cases, to Europe. Within two days, Italy’s number of confirmed cases rocketed from three to 150 by Sunday.

Investors had assumed the coronavirus would have a short term impact and that recovery will come quickly, says Rudi van der Merwe, portfolio management principal at AdviceWorks. “These assumptions are being challenged.  There will almost certainly be some co-ordinated action from central banks – whether this results in decreased or increased market stability remains to be seen.”

“At this stage the spread of the disease outside of China is accelerating and confidence that authorities have it under control seems a long way off.  For the moment is looks like it will get worse before it gets better.

The coronavirus has caused a rush into gold, which is seen as safe haven investment. On Monday, it gained 2% to $1,674/oz. The gold price has jumped 10% so far this year, and is at its highest level in seven years. In rand terms, it's around record highs.

Gold miner Harmony rocketed 14% on Monday, with its share price reaching R67.80.

But the platinum producers, which depend on demand from the vehicle industry, suffered amid fears about a global economic slowdown. Anglo Platinum was down 8.5%, while Sibanye slumped more than 11%.

South African worries

The coronavirus concerns have been compounded by worries about what lies ahead in Wednesday’s national Budget, says JC Louw, CEO of Sharenet Investments. There is talk of a capital gains tax increase, once-off tax levies on individuals and companies, and a VAT hike, he adds – all of which will hurt a bleeding economy even further.

Government is desperate for new tax income as state coffers are being drained by constant bailouts of state-owned enterprises like Eskom and SAA. Gross government debt has now reached 61% of the GDP - from only 24% a couple of years ago.

“Investors continue to be worried about a lack of political certainty and whether President Cyril Ramaphosa has a clear grip on power. Talk of a sovereign wealth fund and National Health Insurance – which are not things South Africa can afford right now – and expropriation without compesation have added to the negative sentiment,” Louw said.

Van Der Merwe says there is a great deal of nervousness about our upcoming Budget and whether government is likely to produce rational policy solutions to address the domestic funding issues around SOEs and the lack of confidence in our economy.

Our expected credit downgrade is looming and the size of the resultant flows in our capital markets are uncertain, making investors reluctant to be exposed to risk.”

State of the JSE

The JSE has a tough start to 2020, with Sasol losing 35% over the past two months. 

Some of the other big losers so far this year included Tiger Brands (-25%), Woolworths (-22%) and Redefine Properties (-22%).

On average, the biggest forty shares listed on the JSE are now trading at an average price earnings ratio of 16 times - as recently as 2016 it was trading at 24 times. (The price earnings ratio calculates  what investors are willing to pay for a rand of the company’s profits. The PE is calculated by dividing the share price by profit). 

The domestic market is exceptionally cheap based on historic metrics - especially banks, Van Der Merwe says. 

“However if there is going to be a broad based global slowdown we will most definitely be impacted and our market could get cheaper.  If we do not address the crisis of confidence we are experiencing through well considered, rational policy decisions and continued fiscal discipline our market will come under further pressure."

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