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Johannesburg - The longest continuing drop on record in JSE share prices entered its tenth consecutive day on Tuesday morning, and the descent seems to be picking up momentum.
On Tuesday morning all the major indices were more than 1% lower than Monday’s close, with the exception of the Industrial index which at one stage was 0.97% weaker.
Analysts continued to say the market is incredibly oversold and that a technical spike is possible, but the technical indicators of future movements have turned distinctly negative. Imara SP Reid said in its daily Market Snapshot that the 65-day moving average for both the All-share index and the Top 40-index has turned negative for the first time in nine months.
By midday on Tuesday the All-share index was already 1.41% lower at 51 478 and the Top 40-index had lost 1.02% to 45 708 points, well below the important resistance level of 45 800 to 46 200 points.
The All-share index closed just above 52 000 on Monday evening but plummeted to below that level. The index is now almost 4 000 points or 8% below the all-time high of 55 188 reached as recently as April 26 this year. The Top 40-index is more than 30 000 points or 6% lower than the high of 48 965 reached in April.
Among the other indices, oversold financial shares lost another 1.22% while the Industrial index was 0.97% lower. The negative sentiment towards resources shares continued and the Resource 10 index lost 1.13%. The Gold index was 2.72% softer as the gold price dropped further to $1 87 per ounce, after the dollar reached the highest level in 12.5 years.
READ: Gold dips further below $1 200 on robust US data
Valuations continued to be a serious worry amid concerns about South Africa's growth prospects due to load shedding and uncertainties about government economic policies.
According to Bloomberg the All-share index is currently trading at a record premium over the MSCI Emerging Markets Index, based on estimated earnings over the next 12 months, after rallying almost 50% over the prior three years.
Sentiment towards emerging markets such as South Africa is also turning negative because of continuing uncertainty about the situation in Greece, as the country seems unable to reach an agreement with its creditors about a bail-out package to stay afloat.
Greece is likely to be one of the key talking points at the meeting of the European Central Bank on Wednesday, but commentators are expecting the bank to maintain a hard line on Greece.
The rampant dollar is also continuing to discount a possible hike in interest rates, despite efforts from monetary authorities to play down expectations of such a possibility.
A higher interest rate and a stronger dollar will encourage investors to return money invested in emerging markets - where it is chasing higher yields - to developed markets where the risk is perceived to be lower.
The strong dollar also suppressed commodity prices such as the gold price. Gold initially rose in the prior session after US consumer spending growth unexpectedly stalled in April, but gave up those gains after data showed manufacturing activity picked up in May for the first time in seven months and construction spending surged in April to a near six-and-a-half year high.
It is therefore no surprise that some of the big capitalisation shares on the JSE - such as Naspers [JSE:NPN], Richemont [JSE:CFR] and SABMiller [JSE:SAB] - which are popular among foreign investors, have been drifting aimlessly sideways for the past month.
Naspers lost 1.11% to R1 803.76 on Tuesday morning but the share is only 0.55% lower over the past 30 days. SABMiller gained only 1.56% over that period and Richemont 1.06%. SABMiller was 0.54% lower at R641.86 and Richemont gained only 0.29% to R105.46.
MTN’s [JSE:MTN] share price is showing remarkable resilience this week despite the strike by workers demanding higher pay, which has forced the group to close some of its South African customer help centres. Africa’s No 1 telecoms firm said it would not bow to union demands and the share price responded by gaining 0.56% to R218.71.
Hundreds of entry-level workers led by the Communication Workers Union rejected MTN’s latest offer of an 8% pay rise, because it is tied to specified performance targets.
The resources sector would have been weaker were it not for the softer rand, which ensures that mining groups receive more in rands for their dollar-based products.
Imara SP Reid said however there are no immediate prospects of improvement in the near-term technical indicators for resource shares, as the negative sentiment towards the sector overrides the encouragement offered by the weaker rand. BHP Billiton [JSE:BIL] was another 1.41% lower at R251.34 but Anglo American [JSE:AGL] regained 0.69% to trade at R188.91.
The oversold banking sector continues to offer opportunities for bargain-hunting, but on Tuesday morning Standard Bank [JSE:SBK] lost another 1.67% to R157.49. FirstRand [JSE:FSR] dropped 1.15% to R51.40; it is now 4.67% lower for the past seven days and 8.61% for the past 30 days.
