Rand, South African Stocks Decline as Commodity Prices Drop

(Bloomberg) -- South Africa's currency, bonds and stocks fell, bearing the brunt of a retreat in emerging markets as commodity prices slipped and investors shied away from riskier assets and commodity prices slipped.

The rand fell 1.4 percent to 14.7774 against the dollar, the second-worst performer among 24 emerging-market currencies tracked by Bloomberg, as of 5:39 p.m. in Johannesburg. The benchmark FTSE/JSE Africa All Share Index ended a five-day winning streak, dropping 1.5 percent to 52,670.16, with diversified miners Anglo American Plc and BHP Billiton Ltd. among stocks leading the decline. The drop in rand-denominated government bonds due December 2026 pushed yields 14 basis points higher to 8.83 percent.

“We've started seeing a bit of dollar strength and saw commodities coming lower, mainly gold and precious metals,” Paul Chakaduka, a trader at Johannesburg-based Global Trader, said by phone. “There's a bit of risk-off” sentiment among investors, he said.

The Bloomberg Commodities Index fell 2.8 percent as industrial and base metal prices dropped amid concerns about the strength of the global economy. The MSCI Emerging Market Index headed for its biggest drop in a week, while the MSCI Emerging Markets Currency Index declined.

“A lot of our miners, domestically, are fairly leveraged business and if there's any movements in underlying commodity prices, more than likely you're going to see a natural shift, firstly in the share prices of these companies and perceived future cash flows are going to be seen to be coming in at lower levels,” Chakaduka said.

Consumer Sentiment

A purchasing managers' index, compiled by Standard Bank and Markit Economics, dropped to 49.6 for June, below the 50 level that divides contraction from expansion and compared with 50.2 in May. A measure of consumer confidence in the second quarter also showed a decline.

“The mining sector still contributes significantly in terms of our foreign-currency earnings, at the same time it's also a very key source for employment,” Chakaduka said. “Decreased commodity prices could result in more lay-offs in the sector. Exports will also more than likely decline.”

The rand has continued to receive some support from inflows from foreign investors. Foreigners were net buyers of South African equities for a 22nd consecutive day on Monday, the longest stretch of such inflows since December 2004. Local bonds were also in favor, with a net 2.3 billion rand ($156 million) snapped up by foreigners Monday.

To contact the reporter on this story: Neo Khanyile in Johannesburg at nkhanyile@bloomberg.net. To contact the editors responsible for this story: Robert Brand at rbrand9@bloomberg.net, John Viljoen