Global jitters as Silicon Valley and Signature Banks collapse

THE CONTAGION over the US banks collapse continued affecting global markets on Monday, with the South African banks index falling 1.6% to 9 215 index points as investors tried to assess the health of the global banking sector.

European bank shares have come under huge selling pressure, notably Credit Suisse, following the collapse of the Silicon Valley Bank and Signature Bank.

The market has been sniffing out weaknesses elsewhere after US authorities stepped in to prevent contagion and financial market turbulence, as the sale of the troubled Credit Suisse to rival UBS was not enough to calm markets.

Shares for local banks followed their global peers and plunged after the UBS takeover of Credit Suisse wiped out $17.3 billion (R319.3bn) in Credit Suisse AT1 bonds, spurring concerns about risks to other banks worldwide.

Nedbank led the losses at the JSE, falling 1.6% to R208.54 per share, followed by FirstRand which was 1.6% down to R60.47 per share.

Capitec lost 1% to R1 584 per share, Standard Bank was 0.8% down to R164.20 per share, and Absa eased 0.6% to R850 per share.

Old Mutual Wealth investment strategist Izak Odendaal, said that the current episode was not associated with rapid growth in borrowing, but rather a rapid increase in deposits that spoke to the underlying health of the private sector.

Odendaal allayed local fears, saying that South African banks were tightly regulated and well capitalised under the watchful eye of the SA Reserve Bank.

As a result, he said there had been no boom in lending given the depressed local economy and the big banks had all reported solid results.

“But while South African banks are not directly vulnerable to the kinds of stress experienced elsewhere, local markets do not escape global sell offs,” Odendaal said.

“The JSE fell in sympathy with global equities last week, and the flight to safety that boosted global bonds also benefited local bonds. If global markets regain composure, local shares are likely to follow suit.”

Meanwhile, investors braced for the US Federal Reserve’s monetary policy decision this week, where policymakers are expected to deliver a more moderate 25 basis point interest rate increase in light of easing inflationary pressures, and the recent banking turmoil.

The rand fell to R18.50 against the US dollar, approaching a nearly threeyear low on March 8, as risk appetite remained fragile.

In the commodity markets, gold jumped to a one-year high to $2 007 earlier on Monday, as investors fled to safe-haven assets upon further reassessment of the UBS takeover of Credit Suisse and emergency responses by major central banks.

However, the yellow metal slightly lost its shine and eased to $1 980 an ounce during late trade as co-ordinated action by major central banks to boost dollar liquidity faded, leading to a more cautious mood.

The oil price also eased on Monday, with the Brent crude down more than 3% to $70 a barrel, levels not seen since late 2021, as concerns mount that the banking turmoil could hurt economies and cause a recession, lowering fuel demand.

Traders were watching closely for any potential response to the rout from Opec+, though the group is expected to stay put for now.

Though the latest data from the Central Energy Fund for the week ending March 17 showed an increase on the cards, the projected hike of around 8 cents per litre is far lower than at the start of the month when a 56c per litre hike was on the cards.