Johannesburg - South African stocks surged more than 2% on Monday, buoyed by a last-minute short covering on mixed news out of Europe, while gold miners such as Harmony Gold were lifted by stronger bullion.
Shares of Vodacom, the South African unit of Vodafone,, bucked the trend, ending down 0.8 percent after it cautioned second-half growth was likely to slow.
Talk that Italian Prime Minister Silvio Berlusconi could resign, which was subsequently denied, helped lift European shares and sent Johannesburg investors scurrying to close out short positions at the end-of-trade auction.
“It was a big short squeeze here,” said Devin Shutte, a trader at Newstrading.
“The topsy-turvy news flow from the euro zone... (caused) a big push at the auction.”
Investors buy back shares to “cover”, or close out, existing short positions -- bets that the price of a security will decline.
The benchmark Top 40 (Tradeable) [JSE:J200]
index finished up 2.2% at 29,178.13, marking its highest close in six sessions. The broad All Share [JSE:J203]
index ended up 1.9% at 32,514.38. Rand softer
The rand weakened for the second consecutive session, trading around
the big 8 figure for most of the day, but came back in the last hour of trade as
the euro firmed and the rand in turn showed some recovery but with little
impetus in a thin market.
The local unit traded 0.65 percent weaker against the dollar to
7.9564 by 1550 GMT, recovering from 7.99 levels seen most of the session but
still fluctuating within its recent range as it moves on investor sentiment
dictated by euro zone developments.
Trading volumes were at their lowest in over two months on Monday
as investors mostly stayed away and importers were only seen in earnest at the
7.80 levels, dealers said.
“It’s probably the levels not enticing importers, and the market is
also unsure. We had an interesting weekend (with euro zone developments) and
people are still nervous so it may be a case of wait and see,” Ion de
Vleeschauwer, dealer at Bidvest Bank said about the thin conditions.
The local market has experienced liquidity problems linked to the
European crisis and the slowing global economy, seeing a significant amount of
investors wait it out on the sidelines until a clear picture emerges.
“Volumes are very thin, liquidity is a major problem. There is no
interest so whatever trades we get we clear immediately, we don’t try to hold
onto them,” said a currency trader at a local bank.
Rate cut hopes
Government bond yields had nudged 1.5 basis points higher at the
official close to 6.45 percent on the 2015 note and 8.29 percent on the 2026
The yield differential between the 2026 and 2015 benchmark bonds
was trading at Friday’s record 184 basis points, pushed higher by the market
pricing in a slight chance that the South African Reserve Bank might follow the
ECB in reducing the policy rate.
Economists polled by Reuters mostly think the central bank will
keep it repo rate steady at 5.5 percent on Thursday, but the bond and futures
markets have nevertheless priced in the possibility of a cut.
“The ECB rates last week is seen reflected in the front end of our
curve which increased the chances for a rate cut,” said Daniel Sabiston, a bond
trader at Absa Capital.
“If the market is pricing in an increased chance for a rate cut
then the front end outperforms and the (yield) curve steepens, the R186/R157 is
a function of that steepening.”