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JSE indices drop on weak GDP growth

Johannesburg - On Tuesday morning the JSE's All-share index was lower for the sixth consecutive day as investors came to terms with the reality of high valuations amid slow economic growth and political uncertainties.

With the prospect of higher interest rates in the US leading to a reversal of the capital inflow into emerging markets, some portfolio managers are now predicting very little growth in the equity market for the rest of the year.

By midday on Tuesday the All-share index was 0.72% softer than the previous day at 53 596 points and the Top 40-index traded 0.74% lower at 47 490 point.

All the major indices were down with the Financial index losing 0.68% and the Industrial index 0.6, while the Resources index was 1.56% lower and the Gold index lost a substantial 2.9%.

The disappointing growth in the local gross domestic product of only 1.3% announced on Tuesday morning highlighted investors' growing concern about high valuations on the JSE which will not be supported by economic activity.

READ: Load shedding contributes to GDP slowdown

This is because businesses are battling to cope with electricity shortages, possible interest rate increases that will dampen consumers' spending power and growing uncertainty about government policies.

Vaughan Henkel, an investment strategist for Stanlib Asset Management, said in an interview with Bloomberg published on Tuesday morning that gains on the JSE are over for 2015, with no more returns seen for the South African market for the rest of the year.

READ: Stretched stock valuations push Stanlib to cash

According to him South African stocks have never been more expensive relative to their emerging market peers, making cash a better investment choice for the country’s third-largest money manager.

The All-share index rose 8.6% this year, pushing the price to earnings ratio to 17 times estimated earnings and increasing the spread over the MSCI Emerging Markets Index to the highest on record.

The disappointing growth figures announced on Tuesday morning were ascribed to a significant drop in gross domestic product (GDP) in the agriculture sector as well as a drop in the manufacturing sector. The GDP increased by only 1.3% year-on-year (y/y) in the first quarter of 2015, Statistics SA said on Tuesday.

This was compared to the 4.1% y/y GDP increase in the fourth quarter of 2014 and 2.1% in the first quarter of 2014.

There was good news on Tuesday morning out of China which should have boosted resources shares, but buyers of commodities and commodity shares are at this stage more concerned about dollar strength.

The dollar hit a fresh one-month high against a basket of major currencies, extending a rally triggered by Friday's comments from Federal Reserve chairperson Janet Yellen, who rekindled expectations that the US central bank is gearing up to hike rates.

The news from China should however be positive for commodities in the long run. China's economic planning agency announced on Monday that it wants to attract private investment to more than 1 000 local public-private projects for ports and other transport facilities, the environment, and public services. 

The government also announced it would halve import taxes on clothing, cosmetics and some other goods in a new tactic to spur consumer spending and economic growth.

BHP Billiton [JSE:BIL] lost 1.24% on Tuesday morning to trade at R259.53 by midday, and Anglo American [JSE:AGL] was 1.77% lower at R194.48. Kumba [JSE:KIO], which could benefit directly from an increase in infrastructure spend in China, gained 3.06% on Tuesday to R143.06. The company lost 5.85% over the last month but is still 9.21% higher over the past 30 days.

Poor economic growth is not good for the banking sector’s growth prospects and banking shares have been moving sideways now for the past few weeks. FirstRand [JSE:FSR] only lost 0.28% to R54.37 on Tuesday, and is 1.11% higher for the week. For the past 30 days the share moved only 4.82% lower.

Standard Bank [JSE:SBK] lost 1.04% and traded at R166.33 on Tuesday.

In the industrial sector Naspers [JSE:NPN] was virtually unchanged and traded only 0.02% softer at R1 835.00.

        
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Rand - Euro
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