• South African markets have been hit hard, with the JSE’s top-forty index down almost a third since the start of the year.
  • Some of South Africa’s largest companies have suffered enormous losses.
  • The scale of the wealth destruction on world markets due to coronavirus concerns has been quite breath-taking.
  • For more stories visit Business Insider South Africa.

The scale of the wealth destruction on world markets due to coronavirus concerns has been quite breath-taking.

South African markets have been hit hard, with the JSE’s top-forty index down almost a third since the start of the year. The rand has lost a quarter of its value in the same time, and was on Thursday trading around R17.40/$.

Some of South Africa’s largest companies have suffered enormous losses.

Trader Simon Brown of the investment education platform JustOneLap has compiled a list of the bigger losers with market values of more over R10 billion:

Source: Simon Brown

Apart from Sasol (-90%) – which has been hit by the oil implosion and concerns about its R121 billion debt burden - the selling has been largely indiscriminate.

The South African property sector has lost half of its value in less than three months, with Hammerson (-67%), Redefine Properties (-65%) and Nepi Rockcastle (-57%) among the largest fallers.

Mining shares dropped more than 40%, with Amplats (-65%) and Implats (-60%) reversing some of their last gains over the past year.

Brown believes the market now looks cheap, especially banks, where selling has been over-done. In the past week alone, Capitec has lost almost half of its value. (This is not reflected in the table, which tracks prices to 18 March.)

If you are hoping to buy a bargain at these levels, what matters now more than anything is how much debt a company has, he adds.

This is because earnings will collapse this year due to coronavirus pressures. “That puts high-debt companies at real risk of default.”

“But truthfully we have no idea how bad this crisis is going to get, we only know it will still get worse,” Brown said. “So for now, I'm buying nothing except my monthly ETF [exchange traded fund] purchase and I have doubled that value.” He’s invested in the Ashburton Global 1200 Equity, which invests in 1 200 shares across the world.  

Is now a good time to get out of the market?

History shows that those who lose their nerve and bail out during times of volatility will miss out on large market returns, says Schalk Louw,  portfolio manager and strategist at PSG Wealth Old Oak. According to his research,  the average return in the US two years after a period of heightened volatility was more than 40%.

He expects that coronavirus will disrupt markets and businesses for some time, but he is optimistic about the prospects for South African-focused stocks like Shoprite and Mr Price.

This is because of the likelihood of increased consumer spending in the economy in coming months, thanks in part to R2 billion worth of cuts in personal income tax, announced in February’s Budget. Also, local interest rate cuts are expected to put more money in consumers’ pockets, while the large slump in oil prices, now at the lowest levels in 17 years, may be a game changer, Louw expects.

Oil prices have fallen 40% in rand terms so far this year. Petrol prices look set for a R1/litre cut in the first week of April, and he expects that this may just be the start.

Given that transport costs represent a sizeable chunk of food prices, this could bring lower prices and allow consumers to spend more.

He expects that another driver of share prices following the crisis will be enormous amounts of stimulus.

This week alone, the European Central Bank launched the new “Pandemic Emergency Purchase Programme” that will use 750 billion euro to purchase securities, and the White House proposed $1 trillion coronavirus relief and economic stimulus plan. 

 “Once the crisis lifts, there will be a lot of money sloshing around in the world economy – the market could recover as quickly as it crashed,” Louw said.

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