South African Stock Index Faces Worst Month Since 2008

South African Stocks Plummet Amid Global Market Volatility

FTSE/JSE All Share Index has declined by 13% in the month through March 27, marking the worst performance since the height of the global financial crisis in September 2008. The precious metals and mining sector, which accounts for 25% of the index's weighting, has tumbled by 27% since the start of the Middle East conflict, wiping out this year's gains.

The decline is attributed to a double hit from plunging precious-metal prices, weighing on the country's miners, and a broad selloff of emerging-market stocks amid investor concerns about inflation and interest rate hikes. The precious metals sector has been particularly hard hit, with gold and platinum prices slumping.

South African Stocks had been one of the big winners of the past year, jumping by 43% in the 12 months through February. However, with oil prices topping $100 a barrel and the war in the Middle East putting a chill on investor sentiment, investors have quickly unwound their bullish bets. The losses now mean South African stocks rank among the worst in the world, with only Dubai, Indonesia, and Korea falling more since the start of the war.

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Sectors such as construction and materials, retailers, and banks have also fallen by more than 10% this month. However, some investors remain positive on South African stocks, seeing this month's decline as an opportunity to add exposure. SBG Securities reiterated its overweight view on South African stocks in March, pointing out that foreign investors were still net buyers of South African stocks year-to-date.

AXYS Group, a Mauritius-based investment firm, believes that the JSE usually reacts negatively in the first phase of a conflict but often holds up better than other African exchanges due to its depth, liquidity, and large resource exporters. However, an extended conflict in Iran would stymie any potential recovery, and sustained high energy prices would fuel inflation, leading to higher interest rates and weighing on economic growth.

South African Reserve Bank has already lifted its inflation forecasts and warned that a prolonged war would lead to higher interest rates, which would negatively impact sectors other than mining. Avior Capital Markets expects a deeper selloff to sectors such as retailers, banks, property, and insurers in a risk-off environment.