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JSE set to rise despite weak economy

Johannesburg - Strong global markets and increasing commodity prices pushed the JSE to its highest ever close on Friday, with indications that the market will continue to rise – in spite of shares already standing on demanding ratings amid the reality of SA’s worsening economic outlook.

The JSE All-share index has increased by close to 35% during the past year.

According to recent estimates, a full-blown strike by the more than 200 000 workers in the metal industry can affect up to 30% of the country’s manufacturing sector and a prolonged strike has the potential to push the fragile economy into a recession.

Public statements by officials and members of the National Union of Metalworkers of SA (Numsa) indicate that workers are full of bravado after the long strike in the platinum mining industry seemingly secured large pay hikes.

Rating agencies have already warned of further deterioration of SA’s debt ratings, most of which just inched in above the do-not-invest-here mark. Rating agencies have also flagged their recent ratings with warnings that they are keeping a close watch on SA.

But the market steamed ahead last week, driven to new highs on the smallest morsel of good news.

Among these snippets of good news were the small increase in the demand for credit from the private sector and a smaller than expected trade deficit.

The announcement that South Africans were buying fewer cars again during June – after a hefty drop in new cars sales in May – and a downward revision of the economic growth rate for 2014 by the finance ministry did little to stifle optimism.

A quick scroll through the weekly market figures shows that it was mostly mining shares which pushed the market higher. Anglo American [JSE:AGL] increased by nearly 8.4%, partly driven by an announcement that the mining group had taken the official decision to sell some of its platinum mines.

Investors are obviously expecting that somebody will be willing to pay premium prices to get hold of some operational mines that produce such strategic metals.

BHP Billiton [JSE:BIL] rose by just less than 7% during the week after good economic news from the rest of the world pushed up the prices of most base metals.

The other big push to the market was the increase in Naspers’ [JSE: NPN] share price, which closed the week 7% higher. Stocks in other sectors could only achieve small increases, which were just about overshadowed by slightly larger drops in share prices.

Steinhoff International [JSE:SHF] announced that it raised R7.8bn from foreign investors as part of its bid to list in Frankfurt.

The week ahead

The week ahead will be interesting, ironically due to a lack of local news and announcements which might force investors to once again consider fundamental factors. The rand will probably dictate the direction of the market.

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Rand - Dollar
19.09
-1.0%
Rand - Pound
24.06
-0.7%
Rand - Euro
20.58
-0.5%
Rand - Aus dollar
12.39
-0.3%
Rand - Yen
0.13
-0.9%
Platinum
894.64
-0.3%
Palladium
992.99
-0.9%
Gold
2,196.85
+0.1%
Silver
24.44
-0.8%
Brent Crude
86.09
-0.2%
Top 40
67,964
+0.4%
All Share
74,173
+0.4%
Resource 10
56,465
+1.4%
Industrial 25
103,617
+0.3%
Financial 15
16,480
-0.3%
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