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China stimulus boosts JSE resources

Johannesburg - The share price of Richemont [JSE:CFR] fell more than 4% on the JSE on Wednesday morning after the company said ahead of its annual general meeting that weakness in Asia-Pacific, its biggest market, weighed on sales growth in the five months to August.

This drop was enough to force the Industrial index marginally lower, but not enough to drag down the rest of the market.

The disappointing news about Richemont was offset by a report that the Bank of China would inject $81bn into the five top state-owned banks, with a view to boosting lending to businesses. This would help the Chinese economy after a series of disappointing data indicating that the world’s second-biggest economy is losing momentum fast.

By Wednesday midday the All-share index was 0.35% stronger at 51 358 points while the Top 40 index gained 0.29% to 46 016 points. The Industrial index was 0.15% weaker, but the Resources index improved by 0.89% and the Financial index was 0.91% higher.

The China stimulus is particularly good news for the resources sector, which depends on China to buy their commodities.

Analysts said luxury watch makers are grappling with political instability in Hong Kong, the leading market for Swiss watches, and weak demand in China, where the government's fight against illegitimate gifts has hurt sales of expensive timepieces.

Richemont said sales were lower in Hong Kong, Macau and mainland China, which represent 40% of its total sales, and that offset positive developments in other markets.

The overall pace of sales growth slowed to 4% in the five months to August on a constant currencies basis, against 9% in the same period last year. Sales were up 1% at actual exchange rates.

By midday Richemont was 4.07% lower at R99.5. This meant that the share price is now only 1.6% higher for the last month and 5.8% higher for the last 12 months.

The news of a financial stimulus in China not only helped Asian markets, with Hong Kong leading the way with a rise of more than 1%, but also gave Wall Street a boost.

Read: Asian shares mostly up on China bank report

The American market was also boosted by a feeling that the Federal Reserve will possibly not announce a significant shift in its monetary policy after its meeting on Wednesday.

Read: US stocks gain on China stimulus reports

The news that South African inflation increased to 6.4% in August, compared to 6.3% in July, was a surprise but did not affect the market much by midday.

Read: SA's August inflation quickens

The major industrial shares, which have a big influence on the indices, were a mixed bag on Wednesday morning. British American Tobacco [JSE:BTI] improved by 1.19% to R649.03, but SABMiller [JSE:SAB] lost another 1.97% to R641.92. Investors are taking profits after SABMiller gained almost 13% on Monday after rumours of a possible takeover bid for the company.

Read: SABMiller shares soar on takeover news

Naspers [JSE:NPN], which has a 34% stake in the Hong Kong-listed internet giant Tencent, benefited from Hong Kong's stronger market. The share rose by 2.48% to R 1281.00.

 - Fin24


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