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Port Elizabeth - Share prices dropped by some 2% during the last week as months of bad news seemed to have started to affect the market. The blame for the week’s declines was put on lower international markets and the strength of the US dollar against most currencies around the world.
The dollar appreciated on more positive economic news in the US. Last week, US authorities announced that the economy has grown more than expected by most economists, with the gross domestic product increasing by 4.6% in the second quarter compared to forecasts of 4.2%. This was the best GDP figures in some 2 years. Employment figures showed a further decrease in unemployment due to the strong US economy.
A strong American economy will most probably keep the dollar strong. The worries about the end of monetary stimulus and concerns off reducing bond buy-back in the US seemed to have disappeared overnight. Investors appear to be happy with the Federal Reserve running the money printing presses a bit slower.
The strong dollar pushed commodity prices down, from oil to gold to iron ore. The gold price is stuck at just above $1 200 per ounce with concerns of further weakness seeing gold mines world-wide re-looking their operational structures and costs.
It is this not surprising that mining and commodity shares were the biggest losers on the JSE during the last week. Manganese producer Assore [JSE:ASR] has the dubious honour of achieving the biggest weekly decline of 11.2% amongst base metal suppliers. Arcelor Mittal [JSE: ACL] and Kumba Iron Ore [JSE: KIO] were close on it’s heals with declines of nearly 8%.
Third largest platinum producer Lonmin [JSE: LON] fell 11.7% and AngloPlats [JSE: AMS] and Implats [JSE: IMP] fell 5.4% and 6% respectively.
Paper and pulp companies Sappi [JSE: SAP] and Mondi [JSE:MND] and [JSE:MNP] also fell sharply in contrast to their strength of the last few months.
Gold shares declines somewhat less, but they have been declining for quite a while already. Anglogold [JSE:ANG] retreated 3.2% and Harmony Gold [JSE:HAR] by 2.2%. Anglo American [JSE: AGL] fell 3.6% and African Rainbow Minerals [JSE:ARI] ended the week 6.3% lower.
Consumer sensitive counters were also weak, giving the impression that investors are eventually realising the effect of low economic growth and high inflation on companies’ earnings and dividends. The weak rand is likely to put renewed upward pressure on consumer inflation, even if latest producer inflation showed signs of decreasing.
Stats SA announced last week that the producer price index increased by a lower 7.2% during August compared to 8% during July. This is still much higher than consumer inflation and worrisome as the CPI has lagged the PPI for at least the last year. The weak rand – reaching R11.23 per dollar – will put further pressure on inflation and interest rates.
Packaging companies, like Nampak [JSE:NPK], serves as a good indicator for investors’ and fund managers’ views on consumer spending throughout the economy.
Nampak’s shares declined by 6.6% last week, while up-market retailer Woolworths [JSE:WHL] dropped by 7%. PicknPay Stores [JSE:PIK] dropped 7.6%.
The so-called defensive consumer shares looked a bit better, but declined as well. Banks and other financial shares dropped by around 3.5% to more than 5%. Standard Bank fell 5.3%.
Shares in fund managers and life assurers declined as their earnings are based on the assets under management, i. e. the value of their portfolios. Coronation Fund Managers [JSE:CML] fell 4.5% and Sanlam ended the week more than 5% lower.
It look like as if investors should focus on rand hedge counter for the foreseeable future as revenues will be boosted by stronger world economies and earnings in rand terms will benefit from a rand that is bound to stay the other side of R10 per dollar.
SABMiller [JSE:SAB] gave back some of the previous week’s 5% gain and dropped by 2.9%, while Richemont [JSE:RCH] dropped by only 2%, even after its less than exciting trading update some 10 days ago.
The week ahead
Capitec Bank [JSE:CPI] and Astrapak [JSE:APK] will announce earnings for the 6 months to June. Capitec’s results will be scrutinised with a magnifying glass by investors, speculators and regulators alike.
Labour figures from Stats SA and new car sales data from the National Association of Motor Manufacturers of SA (Naamsa) will probably attract lots of attention as well to see if there are signs of improvement of the previous bad figures.
*After chasing money on the JSE for 15 years, Adriaan Kruger is now living a relaxed lifestyle in Wilderness and lectures economics part-time at NMMU.
- Fin24
