African Assets Slump as Brexit Vote Triggers Commodity Decline

Currencies, stocks and bonds across Africa plunged 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 stock index fell the most since January, led by shares of banks and 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 gained the most in four months as the precious metal, seen as a haven in times of turmoil, soared.

"We're going into a very difficult, very volatile time with prices moving in all sorts of directions; lots and lots of uncertainty," Ron Kiplin, a money manager at Cratos Capital in Johannesburg, said by phone. "And we still need to see what impact really, from a South African perspective, it has on emerging markets."

QuickTake Why Britain Voted to Leave the EU

The victory for the "Leave" campaign may weigh on African economies as prices of raw materials fall, with the Bloomberg Commodity Index dropping 1.2 percent on Friday as crude oil fell 3.9 percent to below $50 per barrel. Gold gained 4.7 percent to $1,316.37 an ounce, the highest on a closing basis since January. 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 3.6 percent weaker at 14.9484 by 10:57 a.m. in Johannesburg. The currency fell 6.6 percent to 6.8728 yen after plunging as much as 14 percent. It gained 2.7 percent against the pound to 20.8682.

Most Volatile

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.

"The rand will be affected in the short term with a general knee-jerk risk-off perception," Philip Saunders, co-head of multi-asset management at Investec Asset Management Ltd., which oversees $116 billion, said by phone from London on Friday. "The initial reaction is probably going to be one whereby you see markets becoming somewhat disorderly and South Africa is going to be caught up in that backwash."

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South African bonds fell the most since March, with yields on benchmark rand bonds due December 2026 climbing 15 basis points to 9.03 percent. Yields on Nigerian dollar debt due July 2023 soared 37 basis points to 7.45 percent.

The Johannesburg Stock Exchange All-Share Index fell 3.4 percent, led by Naspers Ltd., SABMiller Plc and BHP Billiton Plc. The Johannesburg Banks Index dropped 4.1 percent as shares of lenders including FirstRand Ltd. plunged. Gold shares surged surged 14 percent, the most since 2008. The MSCI Emerging-Markets stock index fell 3 percent.

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Source: African Assets Slump as Brexit Vote Triggers Commodity Decline