African markets

South African markets sink into new variant of COVID-19

A street changer counts the South African Rands in Harare, File. REUTERS / Philimon Bulawayo

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  • The rand falls to its lowest since October 2020
  • Hotel stocks lead stock fall
  • Ten-year government bond yield exceeds 10%

JOHANNESBURG, Nov.26 (Reuters) – The South African rand hit its lowest level since October 2020, government bond yields briefly hit 10% and stocks fell more than 2% after the discovery in the country of a variant of COVID-19 described as the most concerning yet sent investors scrambling for safety.

Hospitality actions, which have fallen sharply, Britain and some other countries have banned flights from South Africa and its neighboring countries and placed restrictions on their citizens traveling there. Read more

South African scientists say they have detected a new variant that exhibits a “very unusual constellation” of mutations of concern because they could help it evade the body’s immune response and make it more transmissible. Read more

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“It is devastating for the tourism industry which was hoping for a record December as borders opened. We expect a wave of cancellations from UK travelers to be received over the past two years. next few days, “said Lloyd Miller, research analyst. at ETM Analytics in South Africa.

“Certainly this is not just a local issue, emerging markets sell strongly in the Asian session, but the news makes the rand and by extension other regional currency pairs more vulnerable as a result,” he said. Miller added.

The announcement of the variant sparked a wave of selling risky assets in emerging and developed markets. Traders sought safety in US and Eurozone government bonds and the Japanese yen. Read more

The rand fell to 16.368 against the dollar – levels last seen before vaccine breakthroughs were announced in November 2020. The rand was at 16.258, down 1.8%.

On fixed income, the yield on the 2030 benchmark local government bond jumped above 10%, its highest since early May 2020. Yields then fell back to 9.9%, up by 17.5 basis points.

The country’s dollar-denominated bonds came under pressure, with the 2041 issue losing 2.3 cents to trade at 100.274 cents, according to data from Tradweb. Five-year credit default swaps – the cost of insuring the country’s bonds against default – rose 21 basis points from nearly 244 bps on Thursday, according to data from IHS Markit.

The South African Reserve Bank hiked interest rates last week for the first time in three years and is expected to continue tightening until 2022 to curb inflation. But JP Morgan economist Sonja Keller said “the downside risk to near-term growth” could limit more aggressive tightening than a 25 basis point per meeting hike.

DUE TO A CORRECTION

Stocks suffered, with the benchmark all-stock index (.JALSH) closing 2.75% at 68,615 points and the blue-chip 40-largest companies index (.JTOPI) falling 2.58%. % to finish at 62,411 points.

“The new new variant is a trigger for a correction that was waiting to happen,” said Wayne McCurrie, portfolio manager at FNB.

The markets are currently expensive and interest rate hikes and inflation fears are dragging the market down, he said. But news of the variant has advanced downward, he added.

Leading the losses were City Lodge Hotels (CLHJ.J), down more than 15%, and Tsogo Sun Hotels (TGOJ.J), down 14% at market close.

The shares of Sun International (SUIJ.J), owner of the largest chain of casinos and a network of hotels including the Sun City Resort, have lost nearly 6.5% of its market value.

The news from South Africa reached wider emerging markets. The MSCI Emerging Markets Equity Index fell 2.7% (.MSCIEF) while the MSCI EM FX Index fell 0.4% (.MIEM00000CUS), putting it on track for its worst day since August.

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Reporting by Olivia Kumwenda-Mtambo and Promit Mukherjee in Johannesburg and Tommy Wilkes in London, editing by Shailesh Kuber, Raissa Kasolowsky and Toby Chopra

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