JSE kisses R1.6 trillion goodbye in a month

A near R1.6 trillion rout in September has left South Africa’s benchmark stock index at its most oversold level in 17 months, according to a momentum indicator that measures the speed and magnitude of recent price moves.

The FTSE/JSE Africa All-Share index slumped 6.7% in September, with precious metals miners plunging more than 17% as prices of gold and platinum fell.

That wiped more than R1.61 trillion from the gauge’s market capitalisation, according to data compiled by Bloomberg.

The gauge’s 14-day relative strength index dipped below 30 this week for the first time since April last year, signalling to some technical analysts that it may have fallen too far, too fast and is due for a rebound.

The last time the RSI dipped below 30 preceded an 11-month, 57% rally that only ended at the outbreak of the Iran war. 

South African stocks have underperformed their emerging-market peers in recent months as elevated oil prices and the decline in metal prices weighed on the country’s terms of trade.

While the benchmark could rebound based on technical signals, a sustained recovery would require a softer dollar and lower real yields to support gold, according to Robert Naess, a portfolio manager at Nordea Investment Management.

China’s economic growth is also key, as the Asian country is the biggest importer of South African commodities, while Naspers, one of the gauge’s largest constituents, is highly correlated to Tencent, in which it owns a 23% stake, Naess said.

“The selling looks driven by sentiment and flows rather than fundamentals, as earnings expectations have held up far better than share prices,” he said.

“A technical bounce is likely, but a lasting recovery depends on the dollar, gold and China.”

The benchmark erased a loss of up to 1.5% on Friday to trade 0.3% higher as of 2:14 p.m. in Johannesburg.