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Johannesburg - Selling pressure on the JSE continued on Thursday morning, despite the fact that the market is currently trading in its most oversold position in months.
There are much stronger indications that the current selling pressure might be a case of foreign investors dumping South African shares, which may well be reason for the rand trading at the lowest level in 11 weeks against the dollar.
READ: Rand touches 11-week low on downgrade fears
The dollar is currently losing ground against the euro. When that happens the rand usually improves in tandem with the euro, but this time the unit's descent has continued which is a strong indicator of foreign capital leaving the country.
The value of a currency is the result of the in- and outflow of money and many of the reasons given for the weak rand - such as concerns about power shortages, unclear economic policies, weak business confidence and poor economic growth - are actually the reasons why foreigners are ditching South African shares.
By midday on Thursday all the major indices on the JSE were strongly lower again after similar losses on Wednesday, with the Resources and Gold indices again the biggest losers.
At that stage the All-share index was another 0.92% lower at 51 732 points, while the Top 40-index was again 0.90% softer at 45 669 points to trade again below the important support level of 45 800 points.
Imara SP Reid said in its daily Market Snapshot that the Top 40-index currently trades at its most oversold position in around eight months. However, indications are that the index might head towards the next support level of 45 460 points, which must be held to stop the rot. The index's recent lows created further weakness in the 65-day moving day average.
There is currently further uncertainty in the market as traders wait for the latest update by international credit rating agency Fitch on the state of the South African economy.
“Mounting fears that South Africa could be downgraded by Fitch later in the week help explain the market's relative underperformance,” Barclays Africa said in a note. Most analysts expect Fitch to retain South Africa's current rating with a negative outlook. Fitch held its BBB rating for South Africa last December.
The resources sector continued its descent, despite a weaker dollar which is normally good for commodity prices and mining shares. By midday the Resources index was another 2.09% lower and the Gold index lost 2.09%. The index remains below the 65-day moving average by a small margin.
The big oversupply of commodities in some markets, such as iron and coal, continued to hang over the markets. BHP Billiton [JSE:BIL] chief executive Andrew McKenzie said in a speech in Canberra, Australia on Thursday morning that the oversupply may persist for some time.
UBS Group said in a report that expansion by the biggest iron ore producers, including BHP Billiton and Vale, will see the global surplus swell to 215 million tonnes in 2018 from 45 million tonnes this year.
BHP Billiton lost another 1.51% to R353.70, while Kumba Iron Ore [JSE:KIO] reacted to the news by dropping 3.01% to R162.42.
Among the big industrial shares Naspers [JSE:NPN] lost 0.955% to R1 781.68 and Sasol [JSE:SOL] traded 1.63% weaker at R418.87. The Industrial index was 0.76% softer by midday on Thursday.
The Financial index lost another 0.64%, with Standard Bank [JSE:SBK] losing 0.80% to R155.46 and Capitec [JSE:CPI] 0.55% softer at R482.35. The stock has lost almost 9% over the past seven days.
Sanlam [JSE:SLM] bucked the trend by gaining 0.87% to R68.20, by reporting a 17% jump in earnings for the first four months of this year as its personal finance division sales grew.
Sanlam said sales of its personal finance products rose by 20% and new business grew by 15% to R68bn for the period to end-April.
In the retail sector Woolworths [JSE:WHI] was 2.98% lower at R87.61.
