Risk-off sentiment grips the market amid continued virus fears

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Yesterday, we saw a massive sell-off in the stock markets and all risk assets, as fears of the coronavirus spreading faster and further than anticipated made investors reconsider their positioning. This came after the number of cases in Italy and South Korea soared. The World Health Organisation (WHO) made a statement that this is not yet a pandemic, yet countries should be ready and able to act if need be. 

The virus and South Africa

On the local front we have seen the Rand trade rangebound over the past week as global factors remained the main movers in the market. Moving between risk-on and risk-off sentiment has resulted in the Rand moving up and down in tandem with global sentiment. As South African exports are so highly correlated with Chinese production, the virus outbreak in China and the subsequent shutdown of many Chinese factories have had a massive influence on the South African economy.

For South Africa, the main event this week will be the Budget Speech on Wednesday by Finance Minister Tito Mboweni. We expect him to try and sooth Moody’s view of the country as well as show fiscal discipline by the government. In addition to the global factors at play, we have the gigantic burden of state-owned enterprises which aren’t showing any sign of turnaround. 

With the global economy taking a hit in the first quarter, we don’t foresee the South African economic picture to be all that rosy. Keep a very close eye on the market as movements could be compounded by global sentiment over the next week or two. 

On the data front, there is not much happening this week. Global risk sentiment will continue to move the markets. 

Market event calendar

Tuesday 25 February

• German GDP data
• US consumer confidence data

Wednesday 26 February

• South African Budget Speech

Thursday 27 February

• US GDP data

Friday 28 February

• German CPI data