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Johannesburg - New fears about the state of China's economy pushed resources stocks on the JSE sharply lower, with the rest of the market also weaker.
Investors in Asia are becoming increasingly nervous about the latest manufacturing purchasing managers' index (PMI) data to be released on Tuesday. There are growing fears that figures will come in below 50, which means that manufacturing is contracting and not growing any more. This expectation stemmed from a series of disappointing data released recently.
These fears not only put the skids under Asian shares on Monday morning, with Hong Kong the lowest in two months, but by midday the resources index on the JSE was 1.63% lower, despite analysts' opinion that resources stocks are oversold.
All the major indices were down, with the All-share index 0.74% lower at 51 080 and the Top 40 index 0.79% weaker at 45 798.
On Friday morning the All-share index was still above 51 700, but the mood changed on Friday afternoon with resources stocks losing steam.
Read: JSE ends lower as commodities weigh
On Monday morning the All-share index dipped briefly below 51 000 before recovering somewhat.
Among the other indices, financial shares lost 0.80%, industrial shares were 0.35% weaker and the Gold index dumped another 0.87%.
If investors’ worst fears are realised and the Chinese manufacturing sector is contracting, it will be devastating news for the producers of basic commodities such as iron ore and manganese which are the raw materials for steel production. Iron ore prices, already at record lows, are still falling.
"The psychological effect of a below-50 reading will be significant and consistent with the slew of softer Chinese data over recent weeks," Mitul Kotecha, head of FX strategy Asia-Pacific for Barclays in Singapore, said in a note to clients.
What makes matters worse is that there is no indication of any upcoming stimulus measure for the Chinese economy.
China will not dramatically alter its economic policy because of any one economic indicator, Finance Minister Lou Jiwei said on Sunday, in remarks at a meeting of finance ministers and central bank chiefs from the Group of 20 nations who met in the Australian city of Cairns.
His remarks came days after many economists lowered growth forecasts, having seen the latest set of weak data.
How low can they go?
The shares of companies producing iron ore, already at record lows, dropped sharply again on Monday morning and the question which can be asked now is how low they can go. It also affected the shares of mining holding companies with exposure to iron ore.
Even Anglo American [JSE:AGL] and BHP Billiton [JSE:BHP] were lower again; these shares have almost given up all the past year's gains over the last few months. Anglo American lost 2% to R260.35 and is now only 6.2% higher than a year ago after losing 7.1% over the last month.
BHP Billiton traded 2.3% lower at R319.33 and has lost 10.3% over the last month; it is now only 9.8% stronger than a year ago.
Kumba Iron Ore [JSE:KIO], which has already been at a 52-week low for some time, lost another 4.93% to R272.66 and has now lost 40.7% over the last 12 months and 17.6% over the last month.
Assore [JSE:ASR] fared equally badly and traded another 4.73% down at a new 52-week low of R238.00. This share has given up a massive 29.2% over the past month and is now 37.4% lower than a year ago.
Its holding company African Rainbow Minerals [JSE:ARM] is now 16.2% lower for the year. On Monday morning the share lost another 3.16% to another low of R156.98, which meant it has given up 17.2% over the last month.
In the industrial sector Naspers [JSE:NPN] was also 1.2% down at R1 321.95 after Chinese internet giant Tencent dropped more than 3% on the Hong Kong market on Monday morning.
Tencent, in which Naspers has an interest of 34%, is responsible for the major part of Naspers’ earnings and a drop in economic activity in China will have an effect on the local company.
Naspers opened more than 2% lower on Monday morning and deteriorated even further before starting to recover.
- Fin24
Investors in Asia are becoming increasingly nervous about the latest manufacturing purchasing managers' index (PMI) data to be released on Tuesday. There are growing fears that figures will come in below 50, which means that manufacturing is contracting and not growing any more. This expectation stemmed from a series of disappointing data released recently.
These fears not only put the skids under Asian shares on Monday morning, with Hong Kong the lowest in two months, but by midday the resources index on the JSE was 1.63% lower, despite analysts' opinion that resources stocks are oversold.
All the major indices were down, with the All-share index 0.74% lower at 51 080 and the Top 40 index 0.79% weaker at 45 798.
On Friday morning the All-share index was still above 51 700, but the mood changed on Friday afternoon with resources stocks losing steam.
Read: JSE ends lower as commodities weigh
On Monday morning the All-share index dipped briefly below 51 000 before recovering somewhat.
Among the other indices, financial shares lost 0.80%, industrial shares were 0.35% weaker and the Gold index dumped another 0.87%.
If investors’ worst fears are realised and the Chinese manufacturing sector is contracting, it will be devastating news for the producers of basic commodities such as iron ore and manganese which are the raw materials for steel production. Iron ore prices, already at record lows, are still falling.
"The psychological effect of a below-50 reading will be significant and consistent with the slew of softer Chinese data over recent weeks," Mitul Kotecha, head of FX strategy Asia-Pacific for Barclays in Singapore, said in a note to clients.
What makes matters worse is that there is no indication of any upcoming stimulus measure for the Chinese economy.
China will not dramatically alter its economic policy because of any one economic indicator, Finance Minister Lou Jiwei said on Sunday, in remarks at a meeting of finance ministers and central bank chiefs from the Group of 20 nations who met in the Australian city of Cairns.
His remarks came days after many economists lowered growth forecasts, having seen the latest set of weak data.
How low can they go?
The shares of companies producing iron ore, already at record lows, dropped sharply again on Monday morning and the question which can be asked now is how low they can go. It also affected the shares of mining holding companies with exposure to iron ore.
Even Anglo American [JSE:AGL] and BHP Billiton [JSE:BHP] were lower again; these shares have almost given up all the past year's gains over the last few months. Anglo American lost 2% to R260.35 and is now only 6.2% higher than a year ago after losing 7.1% over the last month.
BHP Billiton traded 2.3% lower at R319.33 and has lost 10.3% over the last month; it is now only 9.8% stronger than a year ago.
Kumba Iron Ore [JSE:KIO], which has already been at a 52-week low for some time, lost another 4.93% to R272.66 and has now lost 40.7% over the last 12 months and 17.6% over the last month.
Assore [JSE:ASR] fared equally badly and traded another 4.73% down at a new 52-week low of R238.00. This share has given up a massive 29.2% over the past month and is now 37.4% lower than a year ago.
Its holding company African Rainbow Minerals [JSE:ARM] is now 16.2% lower for the year. On Monday morning the share lost another 3.16% to another low of R156.98, which meant it has given up 17.2% over the last month.
In the industrial sector Naspers [JSE:NPN] was also 1.2% down at R1 321.95 after Chinese internet giant Tencent dropped more than 3% on the Hong Kong market on Monday morning.
Tencent, in which Naspers has an interest of 34%, is responsible for the major part of Naspers’ earnings and a drop in economic activity in China will have an effect on the local company.
Naspers opened more than 2% lower on Monday morning and deteriorated even further before starting to recover.
- Fin24
* Fin24 is part of Media24, a subsidiary of Naspers. Naspers
has a 34% stake in Tencent.
