South African Stocks Post Worst Week in Four Years as Bonds Drop

  • Naspers, MTN, Steinhoff are biggest contributors to decline
  • Bond yields rise in week amid disappointment with ECB measures

South African equities tumbled on Friday for the biggest weekly decline since August 2011 before credit-rating reviews that may see the country move a step closer to junk.

The FTSE/JSE Africa All Share Index declined for a sixth day to the lowest level since Sept. 11 as more than five securities fell for every one that gained. Yields on benchmark rand-denominated government debt climbed for an eighth day to the highest since February 2014 as disenchantment with the European Central Bank’s stimulus decision reverberated across global markets.

There is “a lot of nervousness across the market and when the market gets nervous it sells off, particularly when there’s quite a lot of uncertainty,” Michele Santangelo, a money manager at Vunani Private Clients, said by phone from Johannesburg. “Risky assets are not in favor, particularly because of the localized issues that are being focused on.”

Twelve of 13 analysts surveyed by Bloomberg see Fitch Ratings Ltd. downgrading South Africa to BBB-, one level above junk, later on Friday. While Standard & Poor’s should keep its rating for South Africa at BBB-, some analysts are predicting the company will lower its outlook to negative. Disillusionment with the ECB’s decision, which involved a rate cut and an extension in asset purchases, even caught the attention of Federal Reserve Chair Janet Yellen, who said in an address to the U.S. Congress that “the market expected some actions that were not forthcoming.”

The benchmark South African equity gauge dropped 2.3 percent to 49,261.08 by the close in Johannesburg, bringing the weekly decline to 4.6 percent, the most since the five days through Aug. 5, 2011. Yields on South Africa’s December 2026 bonds were little changed at 8.65 percent, by 5:30 p.m. in Johannesburg, up 10 basis points this week. The rand, which fell to a record low of 14.4930 per dollar on Dec. 1, strengthened 0.6 percent to 14.2786.

The biggest drag on the index came from Naspers Ltd., Africa’s largest company, which sold shares to fund further investments, which dropped 4.5 percent. Steinhoff International Holdings NV, an investment company with interest in furniture retail and manufacturing, fell 7.2 percent after its German offices were searched by tax authorities, while MTN Group Ltd., Africa’s largest mobile-phone operator which is embroiled in a dispute with Nigerian regulators over a $3.9 billion fine, slid 3 percent.

Vunani’s Santangelo said he is looking to buy “quality, defensive businesses that have been unfairly sold off,” including Johannesburg-based private-healthcare operators Netcare Ltd. and Mediclinic International Ltd., as well as stocks that earn income in dollars to hedge against the rand, such as Brait SE, a private-equity company.

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