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Johannesburg - The reality that the South African economy is in dire straits seems to be hitting home at the JSE.
Not even the fact that the rand was flirting on Wednesday morning with a level of R11.00 to the dollar could boost the prices of dual-listed stocks of companies which earn most of their income abroad, like it did on Tuesday.
By mid-morning on Wednesday all the major indices was down, with the biggest loser again the Gold index after the strong dollar pushed the gold price even further down. This index lost 3.69% in early trading and AngloGold Ashanti [JSE:ANG] lost almost 10% of its value after announcing a major restructuring.
The All-share index was at that stage 0.58% lower at 51 408 and the Top 40 index lost 0.67% to 46 033. Imara SP Reid said in its daily Market Snapshot that there is a strong possibility that the Top 40 index can fall back to below 46 000.
Of the other indices the Industrial index - which includes big capitalisation shares like SABMiller [JSE:SAB], Richemont [JSE:CFR] and Naspers [JSE:NPN] - lost 0.86% and the Financial index 0.41%.
Resources, which should benefit most from a weaker rand, was still 0.25% lower. One wonders however what would have happened were it not for the weaker rand, because there is real concern about the level of commodity prices, particularly iron ore.
The rand hit its weakest level in seven months against the US dollar on Wednesday as investors continued to dwell on the wider current account deficit.
Read: Rand sinks on current account shock
At one stage on Wednesday morning the rand fell to below R11.00 to the dollar, but by mid-morning the unit recovered to R10.98.
The wider current account deficit has many implications for the economy, including the possibility that the South African Reserve Bank (Sarb) will have to raise interest rates to attract foreign capital to finance the deficit. This could have serious implications for the economy.
Read: Rate hike won't help current account deficit
The weaker rand also has serious implications for inflation, which further increases the possibility of higher interest rates.
The increase in the country’s trade deficit, one of the reasons for the deficit on the current account, also highlighted the fact that international demand for South Africa’s commodities is under pressure, with a negative effect on commodity prices.
It is therefore understandable that investors utilised the opportunity after Tuesday’s mini-run to take profits on Wednesday morning.
Of the big double-listed industrial shares, Naspers lost almost 3% on Wednesday and by mid-morning was 2.94% softer at R1 300.65. Richemont dropped 0.94% to R102.53 and SABMiller was 0.6% softer at R610.14.
Steinhoff International [JSE:SHF], which is preparing for a listing in Frankfurt, advanced with 0.34% to R52.88 after the company announced a change in dividend policy to return a third of its profits in future to its shareholders.
Read: Currency swings boost Steinhoff profits
The latest dividend was increased to 150c. Steinhoff was once again the busiest share in terms of volume.
In the financial sector MMI Holdings [JSE:MMI] advanced by 1.25% to R28.39 to edge past the previous 52-week high, after the company announced an increase of 27% in headline earnings.
In the gold sector AngloGold Ashanti traded 9.58% lower after it said on Wednesday it was restructuring its mining and exploration operations outside South Africa under a new UK-based company, and that it is also seeking $2.1bn in a rights issue.
Read: AngloGold UK listing to split global, SA units
The company has already received approval from Sarb for the restructuring.
- Fin24
