South African stocks sink over two percent

South African stocks dropped over 2 percent on Friday with Murray & Roberts among the worst performers after the construction firm warned of a loss. The rand fell more than 1.6 percent to 9-week lows against the dollar, extending earlier losses after Finance Minister Pravin Gordhan said the currency remained overvalued.
Johannesburg's Top-40 blue chip index fell 2.01 percent to 28,232.10 points, a level last seen on January 10. The broader All-share index was off 1.85 percent at 31,543.05. Murray & Roberts featured on the downside after the construction company, with operations in the Middle East, warned it was likely to swing to a first-half loss due to a write-down of previously recognised revenues.
In reaction, shares in the company slumped 12.74 percent to 34.60 rand. Miners also fell as gold surrendered gains after data showed the US economy expanded in the last three months of 2010. Gold Fields lost 1.61 percent to 111.82 rand and AngloGold Ashanti was down 0.72 percent to 309.70 rand. At 1616 GMT the rand traded at 7.1699 against the dollar, after earlier tumbling to a session low of 7.18, its weakest level since November 29.
"The latter factor is a game changer for how the market will treat rand in future. In the past rand has pushed against very strong levels without the market fearing central bank intervention; we are now in a different environment." Market players say the South African Reserve Bank (SARB) has entered the market frequently to buy dollars in an apparent attempt to weaken the rand after it gained about 12 percent against the greenback in 2010. On Friday South Africa's Finance Minister Pravin Gordhan said the rand remained overvalued despite measures taken to counter capital inflows.
RBC Capital Markets concurred, saying in a note: "There is little dispute that the rand is overvalued, we estimate by around 20 percent against the dollar." "The SARB's intervention policy and heavy investor positioning argues for some rand weakening during the course of the year. We expect the exchange rate to slip to around 7.50 by December."
Government bonds also sold-off sharply on Friday, extending last week's losses after the central bank left interest rates unchanged, signalling an end to a monetary loosening cycle that began in December 2008. Yields, which move inversely to the price, jumped, with the 2015 bond and the 2026 each adding 14 basis points to 7.915 percent and 8.775 percent respectively.