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Johannesburg - Concern about the possible dilution effect of Glencore’s [JSE:GLN] plans to reduce its debt level by issuing new shares was the centre of attention on the JSE on Tuesday morning.
Since the group announced plans last week to decrease its debt by almost $10bn, the share price recovered some of the sharp losses of the past few months. However, it seems investors are beginning to have doubts about the issuing of shares when the stock is at record lows.
The share price lost more than 7% in early trade in London, and by midday it was 6.94% lower at R24.94 on the JSE. Before Tuesday’s rout the share price recovered 3% over the past seven days, but is still 33% lower over the past 30 days and 51.76% over the past 90 days.
The sharp drop is the result of a rout in commodity prices which has eroded profits, raising concern that credit agencies may cut their rating on Glencore’s debt.
Among the other commodity conglomerates BHP Billiton [JSE:BIL] traded 2.30% lower at R218.00 as the resources sector on the JSE dropped another 2.24%.
Trading on the JSE is still overshadowed by nervousness about the US Federal Reserve’s policy meeting on Wednesday and Thursday, and the influence a rate hike could have on emerging markets like South Africa.
By midday all the major indices were down, with the All-share index losing 1.03% to 48 863 points and the Top 40 index trading 1.04% softer at 43 358 points. The Industrial index was 0.92% down and the financial sector 0.85%.
The mood was spoilt by another drop in Chinese share prices on concerns about the negative effect of a possible US rate hike on an economy already under pressure, with negative effects for exporters worldwide. The Chinese market lost more than 3%, which pulled major European markets lower after a decent start.
Higher US interest rates could lead to an outflow of capital back to the US, where risks are perceived to be lower. There are also concerns about the borrowing cost of dollar loans on the developing world and its impact on growth.
In Britain, inflation data gave another signal of an economy inching back to health, supporting expectations the Bank of England will follow the Federal Reserve in raising interest rates next year.
The news that South Africa posted its smallest current account deficit in four years in the second quarter, which was announced shortly before midday, did not have an effect on the share market although the rand started to strengthen somewhat.
READ: SA current account gap eases to 4-yr low
The gap on the current account, the broadest measure of trade in goods and services, eased to 3.1% of gross domestic product from a revised 4.7% in the previous three months, as the rand’s 14% slump against the dollar this year helped to offset a slide in gold, platinum and other commodity prices. This boosted export income and lessened the demand for imports.
The retail sector, which made strong gains on Monday, was more subdued on Tuesday. Truworths [JSE:TRU], which rose sharply on Monday on news that it was in talks with privately-owned shoe chain Office about acquiring the British company, traded 0.65% lower on Tuesday at R89.00.
Woolworths [JSE:WHL] was one the busiest shares on Tuesday but lost 1.63% to R97.63. Pick n Pay [JSE:PIK], which has been trading on a 52-week high for the past couple of days, edged 0.15% higher to yet another record of R68.41.
Among the top industrial shares SABMiller [JSE:SAB] lost 1.74% to R604.89 but Naspers [JSE:NPN] traded only 0.28% softer at R1 678.89. Sasol [JSE:SOL] was 0.42% higher at R415.60, despite the price of Brent crude oil dropping back to $46 per barrel.
Two of Monday’s strong performers, Trans Hex [JSE:TSX] and Sibanye [JSE:SGL], gave up all Monday’s gains on Tuesday morning. Trans Hex lost 9.21% to R2.17 and Sibanye traded 7.22% lower at R17.09.
