In a state of the nation address to the nation, on 13th February 2020, President Cyril Ramaphosa delivered a candid and brutally honest message to the South African public. Echoing through the halls of the parliament in Cape Town, the nation knew covid-19 was in the nation but the President’s tone on the day gave away more on the treacherous road to recovery.
It is imperative to have context in any covid-19 impact as a whole and the South African economy was already struggling (if not on life support). Just at the beginning of this month, South Africa’s statistics body released GDP results which revealed that the economy was in a recession in the last half of 2019 (as it contracted for two consecutive quarters) contracting 1.4 percent quarter-on-quarter in the last three months of the year after dropping by a revised 0.8 percent in the third quarter.
May the most agonising truth about South Africa’s woes is that shocks are coming in both from the usual suspects and the rather unexpected ones such as covid-19. The recession at the end of last year was attributed to load-shedding which dragged down both the retail and transport sectors attested by a contraction of 3.8 and 7.2 percent respectively. Like I’d mentioned, this was already an economy in hashes on the eve of covid-19’s arrival.
Following President Ramaphosa’s state of the nation address, South African banks on the JSE were already in the red- the financials index shedding 10.40%. One of the major losers on the day being Investec which is cross listed on the London Stock Exchange whose share price fell 42.14% to R37.60 (and intra-day share price for Investec on the London stock exchange by 18/03/2020 revealing a 17.39% drop) But this was not only a financials’ fight as even Naspers was struggling to cope.
Shockingly, even mining counters were affected covid-19 as by the close of last week, Gold Fields dropped 6.6%, Harmony Gold, -9.8% and more noticeably, AngloGold Ashanti shed-8.8%.
Away from the gold, Sibanye-Stillwater which has spent the better part of the last two years in stand offs with trade unions was not spared despite its relative diversity. One would have thought that Sibanye’s platinum group metals divesture would spare it from the mining tremble but the miner also lost over 10% on by the close of last week (may be even sounding more woes for Sibanye as the price of platinum was 15% lower on the day). Petrochemicals powerhouse Sasol, arguably had the worst week of all with the week’s losses at 80%.
By last Thursday the JSE ALSI was down 9.7% which was the largest single-day drop since 1997. The pressure felt in the carry on trade as by 18/03/2020, the Rand has breached R17.00/$ with ease as the sell-off on the back of the Covid-19 virus pandemic continued to wreak havoc across financial markets.
As the world braces for the anticipated global economic fallout of the pandemic, the continued sell-off also saw bond yields skyrocket, as investors unloaded South African and other emerging market assets in a bid to de-risk their holdings.
Covid-19 taunts consumer confidence
With the effects of the virus now felt worldwide, it now came down to the consumer. Bearing in mind that consumer confidence is a leading indicator of for the business cycle, expectations for the future or in coming months, it is now quite clear what the South African consumer is most worried about. Consumer confidence in South Africa fell sharply in the first quarter to hit its lowest level since the second half of 2017, as shoppers stayed away from buying durable goods in a bleak economy as the latest consumer confidence index revealed. The index which was compiled by the Bureau for Economic Research registered at -9 in Q1 2020 which is a far cry from the 7 score reported in Q4 2019.
An unlikely winner from the covid-19 pandemic however could be the retailer as only earlier this week, the country’s three largest retailer – Pick n Pay , Shoprite and Massmart implored on the public not to ‘panic buy’. This came as shelves in Pretoria and Johannesburg were cleared of sanitiser, flours and non-perishables. Covid-19 acting as an unexpected catalyst for the retailers who have long battled inflation which is ahead of wage growth which impedes lower end consumption. But in any event, with the rather accommodative monetary across the world, the world is returning to easy money and much of this will trickle in to the cheap emerging and frontier market assets. Just be sure to have washed your hands of the covid-19 pandemic to enjoy the flood.