Emerging market shares saw their biggest jump in two months yesterday, as a small rebound in oil prices and a rally in Chinese stocks drew investors back in after the worst start to a year for the asset class.
The sudden return of risk appetite came despite the news that China’s economy grew at its weakest pace in a quarter of a century last year, though it bolstered hopes of more stimulus from Beijing as well as there being relief the data was not worse.
MSCI’s 23-country emerging market stocks index leapt 1.6% in its biggest rise since mid-November, while battered currencies from Shanghai to South Africa also saw gains.
The surge in shares was led by a 3-3.25% rise in Chinese bourses, 3-4% jump in Russia and even bigger 3.5% and 5% rallies in Saudi Arabia and Qatar as oil prices bounced back towards $30 a barrel. Meanwhile, the rand gained more than 1% against the dollar yesterday, but some quarters argued that the reality is that the local currency has lost almost 11% in the first two weeks of January, indicating that the rand is a currency in crisis.
The rand firmed 1.34% in the early trading of yesterday to R16.62/$, but about 3.46pm it lost the gains to R16.65/$. US stocks rose early yesterday, joining the global rally. The Dow Jones Industrial Average stood at 16101.45, up 113.37 points (0.71%), 30 minutes into trade. The broad-based S&P 500 rose 11.87 (0.63%) to 1892.20, while the tech-rich Nasdaq Composite Index gained 26.81 (0.60%) at 4515.22.
Ian Cruickshanks, chief economist at the Institute of Race Relations, said it’s true that the currency strengthened somehow to the US dollar but it is almost 11% down to the dollar.
“It is terrible. It just says it’s a currency in crisis. It’s very bad news for consumers. About 11% down on the currency in one week is a lot.”
Toni Fritz, the head of vehicle and asset finance, business and commercial at Standard Bank, said the weaker rand poses huge challenges for the transport sector this year.
“Already the sector is beset by fluctuating fuel prices, increased operating costs and ever-shrinking margins, the industry has had additional operat ional burdens placed on it this year. The fluctuating rand, which is testing new lows against the world’s major currencies is a serious concern,” he said.
Neil Roets, CEO of Debt Rescue, said South Africans are losing out where the rest of the world is benefiting hugely from the lower Brent crude oil, now at $28 a barrel since new year, with Reuter