Stocks approach six-month low as recession fears rise

File: The rand weakened to 15.3821 per dollar, as concerns about the global economy overshadowed improved local retail sales data.

File: The rand weakened to 15.3821 per dollar, as concerns about the global economy overshadowed improved local retail sales data.

JOHANNESBURG - South African stocks slipped to a near six-month low on Wednesday after the US Treasury bond yield curve inverted for the first time since 2007, reflecting concerns over the outlook for the world's biggest economy.

Both of the country's major stock indexes weakened more than 2 percent following the inversion in the US debt market, a situation where shorter-dated borrowing costs are higher than longer ones.

READ: Rand continues to plunge

"When that yield inverts, historically, its quite a strong recession signal in the US. That's what's spooking markets and creating this risk-off environment," said Mark Loubser, a fund manager at Northshore Capital.

Risk-off refers to a shift in investor sentiment towards safer assets over riskier opportunities in emerging markets such as South Africa.

The rand weakened to 15.3821 per dollar, as concerns about the global economy overshadowed improved local retail sales data.

READ: US stocks fall after Trump rips China on trade

Prior to the inversion, weak economic data and fears of inflation, global trade tensions and other risks such as the impact of Brexit had fuelled worries about the global economy to which South Africa is a major supplier of commodities.

South African gold stocks, however, bucked the trend as investors fled to safe-haven assets.

Harmony Gold was up 5.47 percent to R45.35, Gold Fields rose 5.34 percent to R88.66 rand Sibanye Stillwater gained 4.71 percent to R19.97.

Bonds also weakened, with yields on the benchmark 10-year bond adding 6.5 basis points to 8.475 percent. 

Source
Reuters