Brexit Vote, African Assets Slump, Triggers Commodity Decline

Currencies, stocks and bonds plunged across Africa after the U.K.’s vote to leave the European Union triggered a slump in oil and other commodities and sent investors scurrying for safe assets.

South Africa’s benchmark share index fell the most since May 2010 to a third weekly decline, led by stocks with listings in London and by diversified mining companies. The rand dropped to a record against the yen and by the most since 2008 against the dollar before paring the decline, while yields on dollar bonds from Ghana to Kenya rose. Gold miners rallied by the most since 2008 before trimming gains as the precious metal, seen as a haven in times of turmoil, soared.

The victory for the “Leave” campaign may weigh on African economies as prices of raw materials fall, with the Bloomberg Commodity Index dropping 1.5 percent on Friday as crude oil fell 4.5 percent to below $50 per barrel. Gold rose 4.6 percent to $1,314.20 an ounce, the most on a closing basis since January 2009. The debate over the U.K.’s EU membership has dominated investor sentiment throughout June, with appetite for riskier assets having built up over the past week as bookmakers’ odds suggested the chance of a so-called Brexit was less than one in four.

The rand slumped 8 percent against the greenback before paring the decline to trade 3.3 percent weaker at 14.9010 by 5:16 p.m. in Johannesburg. It fell 6.6 percent to 6.8647 yen after plunging as much as 13 percent. It gained 4.4 percent against the pound to 20.5404.

South Africa’s currency is the most volatile among 24 emerging-market peers, according to data compiled by Bloomberg, suggesting it often trades as a proxy for risk sentiment.  A British exit from the EU could shave about 0.1 percentage point off South Africa’s economic growth, according to researchers from North-West University. The U.K. is the fourth-biggest destination of South African exports, according to data compiled by Bloomberg.

Kenya’s benchmark equity index ended 1.8 percent lower, the biggest drop since Oct. 15. The East African country’s finance minister said the vote may slow inflows to Africa, while the central bank said it would intervene in the money and foreign-exchange markets to reduce volatility.

“The kind of volatility being witnessed is crazy,” Faith Atiti, a research analyst at Nairobi-based CBA Capital, said by phone. “Equities are coming down like crazy.”

The Johannesburg Stock Exchange All-Share Index fell 3.6 percent, led by SABMiller Plc, Naspers Ltd., and BHP Billiton Plc. The Johannesburg Banks Index dropped 3.7 percent as shares of lenders including FirstRand Ltd. plunged. Gold shares surged 11 percent, the most in four months. The MSCI Emerging-Markets stock index fell 3.5 percent.While Nigerian market remains a shaky as stock market drops 1.36%.

Credit:Bloomberg