It was always going to be interesting to see how the JSE did today following on from yesterdays rejected $700bn bailout in the US. The all share index ended 3.24% higher. Resources gained 2.78%, the gold and platinum mining index added 2.16% and 3.52% respectively. Industrials strengthened 3.52%, financials gained 3.75% and banks rallied 6.24%. All looked positive on the JSE today but traders have said that global markets, including the JSE, remained troubled after US lawmakers voted down a proposed $700bn rescue plan for that country’s financial sector.

It is going to be interesting to see what positions investors in South Africa take in reaction to what is happening in the US. Some have decided to opt for long term investment plans whilst some see this as an opportunity to invest short term.

In a move that will reverberate from Wall Street to Main Street, the U.S. House of Representatives yesterday (Monday) voted to reject a compromise $700 billion banking-bailout bill, an act of stunning defiance that eradicated $1.2 trillion in shareholder wealth as U.S. stocks endured their biggest one-day point loss in history.

The blue-chip Dow Jones Industrial Average Index plunged 777.68 points, or 6.98%, to close at 10,365.45. The tech-laden Nasdaq Composite Index plummeted 199.61 points, or 9.14%, to close at 1,983.73. And the broader Standard & Poor’s 500 Index plunged 106.59 points, or 8.79%, to finish the day at 1,106.42.

All sectors were gutted, but energy and financials were among the hardest hit, plummeting 11.02% and 10.55%, respectively.

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As we await the decision on the $700bn bailout in the US, the local markets were hit hard as many players are awaiting on news from the US. The all-share index was 5.76% lower, with resources sinking 8.22%; platinum miners were 4.04% down and gold stocks were in the red 4.42%. Industrials shed 3.60%, financials slumped 4.45% and banks lost 3.66%. Old Mutual caught the eye today as it lost close to 10%. A lot of attention has been focused on Old Mutual in recent weeks, with the company coming under fire following write-downs in its US life operations and exposure to failed US financial services firms such as AIG, US mortgage lenders Freddie Mac and Fannie Mae and Lehman Brothers. We have to wait and see what decision is reached in the US later on tonight and see how that will affect the local markets.

Trevor Manuel will remain as Minister of Finance after being appointed in the cabinet led by South Africa’s new President, Kgalema Motlanthe. After the announcement of this news, the rand started to strenghthen against the US dollar. Could it just have been a coincidence or does Trevor Manuel have the ‘power’ to dictate which way the rand goes? Earlier in the week when Manuel had said he was going to resign from his position after Thabo Mbeki resigned, the rand took a knock with many saying that loosing Manuel as Minister of Finance would leave a lot of uncertainty in the South Africa economy. But Manuel was quick to say he would be available to the new leaderhsip if chosen. And today we have just seen Manuel being included in the new cabinet as Minister of Finance showing signs of stability in the governance of the country. 

At 17:21 the rand was bid at R8.1085/$ from a previous close of R8.1543. It was bid at R11.8746/€ from a previous R11.9075 and at R14.9670/£ from R15.0346 before. Is this all due to Manuel staying or because the US dollar is just under a lot of pressure as the US seeks a rescue plan?

Kgalema Motlanthe has been voted as the new president of South Africa this afternoon. Motlanthe received 269 votes from MPs in the National Assembly against Democratic Alliance candidate Joe Seremane’s 50. There were 41 spoilt ballots. Motlanthe will act as interim head of state until after next year’s general election. He succeeds Thabo Mbeki, who was asked to step down last week by the ANC’s National Executive Committee.

Motlanthe will be watched closely to see how he handles the South Africa economy. Motlanthe has already come out today and said, “In a turbulent global economy, we will remain true to the policies that have kept South Africa steady, and that have ensured sustained growth.” This is a sign the he looks set to continue doing things as they were and not try rock the boat with new economic policies that could potentially see investors turn away from South Africa. For now many think that Motlanthe is going to go with the old saying, “If it is not broken, then do not fix it.”

There are still concerns with regards to the South Africa economy. Statistics released today show that the consumer price index excluding mortgage rate changes (CPIX) for metro and other areas, which is used by the South African Reserve Bank (SARB) for its inflation target, was up 13.6% year-on-year (y/y) in August from 13.0% y/y in July. Forecasts had expected inflation to come in at 13.2% so the 0.4% differential has many worrying.

It is thought that inflation is not going to come down as quickly as many may think, as food and electricity prices continue to rise. In the long term, as fuel prices start to ease, we may start to see a decline in the rate of inflation. It will be interesting to see how the reserve bank looks at these new figures and if they decide to increase interest rates again. The general consensus is that the central bank will not hike rates any time soon as we all hope that the rate of inflation will start to come down in early 2009.

South Africa’s President, Thabo Mbeki resigned yesterday (21 September 2008). The writting was on the wall for this resignation after the ruling ANC party had asked the president to step down following allegations he abused power in the corruption case against new party leader Jacob Zuma. Mbeki told the nation in a live televised broadcast last night he had tendered his resignation which would become effective from a date to be determined by Parliament, which is meeting on Monday. The question on many peoples lips right now is, how will Thabo Mbeki’s resignation affect the economy? Read the rest of this entry »