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Johannesburg - Share prices on the JSE tumbled on Tuesday morning shortly after the opening, as investors realised that the economic picture does not look too rosy at the moment.
After the sharp decline the market stabilised, but all the major indices moved sideways on a level that was still substantially lower than the previous day's close. The Resources index even recovered somewhat.
The trigger was probably another sharp drop in the oil price which fell by more than 4% to the lowest level in five years on worries of swelling supply glut. Brent crude for delivery in January reached an intraday low of $65.33 on Tuesday, the lowest since September 2009.
It pushed share prices down in Asia and Australia, with energy companies dropping the most and the trend later on continued in Europe and on the JSE.
By midday, the All-share index was still 1.19% lower on 49 002 points and the Top 40-index traded 1.30% lower, well below the important support level of 43 600 points.
The Financial index was 0.95% lower, the Industrial index lost 0.80% and the Resources index was 2.37% weaker. Earlier in the day the Resources index was almost 4% lower after sharp drops in the share prices of BHP Billiton [JSE:BIL] and Sasol [JSE:SOL], but the sector later on recovered somewhat as these shares are now becoming really cheap. Gold edged steadily higher to trade 2.2% stronger.
The drop in the oil price is the symptom of the going concern about the state of the world economy, with lower demand an indication of slack economic growth in most parts of the word, except the United States. The news earlier this week that China's imports dropped the most since March this year put extra pressure on the oil price. Analyst now talk of a level of $60 per barrel, as the Opec countries are not keen to curb production and American shale oil production still grows with 100 000 barrels per day.
The mood in South Africa is even gloomier with continuous load shedding by Eskom putting a serious damper on manufacturing and mining production. This means that South Africa will battle to decrease its high deficit on the current account as it does not produce enough to give exports a boost.
These concerns are also reflected in the weak rand which traded by midday at R11.48 to the rampant dollar. BHP Billiton, which is an important energy producer, was at one stage on Tuesday morning more than 4% lower than the previous day and reached in Australia the lowest level in five years. By midday the share price recovered and was then only 2.84% softer on R252.70, but was still trading on a new low. Sasol was almost 4% weaker shortly after the opening but also recovered and traded 2.62% softer on a new 52-week low of R406.48.
Both these shares are now becoming very cheap with Sasol trading at a price earnings ratio of 6.76 and BHP Billiton trading at a ratio of only 9.62.
South Africa's two top platinum producers, Impala Platinum and Amplats, both traded lower at new 52-week lows. Impala Platinum [JSE:IMP] (Implats) lost 1.98% to R333.79 after it said that it expected its earnings to be 20% lower for the second half of this year compared to the same period last year. Amplats was also 2.8% softer on R333.79.
Famous Brands [JSE:FBR], which reached a new high on Monday on the news that it has acquired a controlling 75% stake in Cater Chain Food Services, local business distributing primarily red meat products to customers, gained another 0.54% to R114.25.
