South Africa’s benchmark stock index reached its most oversold level in 17 months following a near $100 billion rout in September. The FTSE/JSE Africa All-Share index slumped 6.7% that month, with precious metals miners falling over 17% as gold and platinum prices dropped, wiping more than 1.61 trillion rand ($97 billion) from market capitalization, according to Bloomberg data. The 14-day relative strength index dipped below 30 for the first time since April last year, a technical signal some analysts interpret as a potential rebound opportunity.
The last time the RSI fell below 30, it preceded an 11-month, 57% rally that ended with the Iran war outbreak. South African stocks have underperformed emerging-market peers due to elevated oil prices and falling metal prices affecting the country’s terms of trade. While a technical bounce is possible, Robert Naess, portfolio manager at Nordea Investment Management, noted a sustained recovery would require a softer dollar, lower real yields to support gold, and stronger Chinese economic growth, as China is South Africa’s largest commodity importer.
Naspers Ltd., a major index constituent, is highly correlated to Tencent Holdings Ltd., in which it holds a 23% stake. Naess added that selling appears driven by sentiment and flows rather than fundamentals, as earnings expectations have held up better than share prices. The benchmark erased a loss of up to 1.5% on Friday to trade 0.3% higher as of 2:14 p.m. in Johannesburg.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing