South Africa’s benchmark equity gauge is flashing an oversold signal after a September sell-off erased more than R1.61 trillion from its market capitalisation, leaving technical analysts weighing how much further the market can fall without a change in the conditions that drove the decline.
The FTSE/JSE Africa All-Share index dropped 6.7% in September, a fall that removed roughly $97 billion in value according to data compiled by Bloomberg. Precious metals miners bore the brunt, plunging more than 17% as prices of gold and platinum declined. The scale of the retreat pushed the gauge’s 14-day relative strength index below 30 this week, its first such reading since April last year. That level signals to some technical analysts that the market may have fallen too far, too fast, and is due for a rebound.
History offers a precedent. The last time the RSI dipped below 30, it preceded an 11-month rally of 57%, a run that ended only with the outbreak of the Iran war. Whether a comparable rebound materialises now depends on factors well beyond chart patterns, analysts say.
Robert Naess, a portfolio manager at Nordea Investment Management, argued the selling pressure appears driven by sentiment and capital flows rather than deterioration in corporate performance. Earnings expectations, he noted, have held up far better than share prices, a divergence that suggests fundamentals are not the primary force behind the rout. “A technical bounce is likely, but a lasting recovery depends on the dollar, gold and China,” Naess said.
His assessment points to the macroeconomic conditions that would underpin any sustained recovery. South African stocks have underperformed their emerging-market peers in recent months, weighed down by elevated oil prices and falling metal prices, both of which have pressured the country’s terms of trade. A durable rebound would require a softer dollar and lower real yields to support gold prices, according to Naess.
Meanwhile, China’s economic trajectory is another critical variable. The Asian country is the biggest importer of South African commodities, making its growth outlook directly relevant to the fortunes of the mining shares that dominate the index’s recent losses. Naspers, one of the gauge’s largest constituents, adds a further layer of dependence: the company is highly correlated to Tencent Holdings, in which it owns a 23% stake, meaning conditions in Chinese technology markets flow through to Johannesburg’s benchmark.
The market showed some signs of stabilisation in the most recent session. The index erased a loss of as much as 1.5% on Friday to trade 0.3% higher as of 2:14 p.m. in Johannesburg, offering a tentative counterpoint to the momentum readings that have dominated the week.
For investors, the picture is one of a market oversold by technical measures but constrained by external forces. The RSI reading alone has historically preceded sharp recoveries, yet the analysts cautioning optimism frame the rebound as conditional. Sentiment-driven selling can reverse quickly, as Friday’s intraday recovery suggested, but a return to sustained gains requires the dollar to soften, real yields to fall and Chinese demand to firm. Until those conditions shift, the oversold signal marks a potential turning point in momentum rather than a confirmed end to the drawdown that cost the index R1.61 trillion in a single month.
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