South African Assets Slump on Weak Data, Waning Risk Appetite

  • Rand drops, bonds fall for third day, stocks extend decline
  • Current-account deficit wider than economists had forecast

South African assets fell, tracking declines in emerging markets as investors showed an aversion to risk. They extended losses after the domestic current account balance showed a wider-than-expected deficit in the first quarter.

The rand weakened as much as 1.6 percent against the dollar, while government bonds declined for a third day. Stocks fell for a fifth day in Johannesburg, the longest losing stretch since Jan. 4 and set for the worst month in three years.

In its first quarter current account report Tuesday, the South African Reserve Bank said the shortfall on the account widened to 5 percent of gross domestic product, compared with expectations for a 4.1 percent deficit and from a gap of 4.6 percent previously. The bigger-than-expected hole added to weakness in local assets caused by investors avoiding risk before central-bank meetings in the U.S. and Japan this week and amid uncertainty about the outcome of the U.K.’s June 23 vote on staying within the European Union.

“Risk-off dominates,” said Mohammed Nalla, head of strategic research at Nedbank in Johannesburg. “There’s lots of global-event risk. Liquidity has been thin as position sizes are rationalized lower ahead of the risk.”

By 5:25 p.m. in Johannesburg, the rand was 1.1 percent weaker at 15.3407 per dollar, its lowest closing level since June 2. Yields on benchmark government bonds due December 2026 rose 9 basis points to 9.19 percent, while the Johannesburg FTSE/JSE Africa All Share index dropped 2.1 percent, extending losses this month to 4.7 percent.

“Retailers and banks are down, it’s not one particular sector, and we’re seeing big knocks on the mining sector as well,” said Ferdi Heyneke, money manager at Johannesburg-based Afrifocus Securities. “It’s a sign of the times in terms of the economy.”

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