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Port Elizabeth - The good news is that share prices did not drop as much during the past week as they did in the preceding ones - indicating that shares dropped to levels where investors are unwilling to continue selling. All we need are buyers willing to fire up their computers and enter some orders to start buying.
This might take a while after Finance Minister Nhlanhla Nene said during his mini budget that government needs more money to spend. He is looking to obtain this from taxpayers, as investors in bonds are getting cautious about lending the government more money. Taxpayers do not have the luxury of choice like the unwilling investors in the capital market.
READ: Tough tax measures to hit salary earners
Higher personal tax is the obvious place to look for more money. Individuals make the largest contribution to state coffers and an increase in VAT would be politically unacceptable as it hits poorer households hardest.
In essence, analysts will relook their profit forecasts for any company exposed to consumer spending and economists need to reconsider the effects of higher taxes on total disposable income and economic activity during a rising interest rate cycle.
Lower demand is already evident in the surprise decrease in inflation. Inflation slowed to 5.9% in September compared to economists’ forecasts of 6.1% and the much higher figure of 6.4% in August.
READ: Inflation slows to under 6%
The official economic growth forecast was also revised downwards last week, with the treasury department expecting growth of only 1.4% in 2014 compared to forecasts of gross domestic product growth of close to 3% at the beginning of the year.
READ: SA sees slight budget shortfall, low growth
Investors seem to be focusing on bad news at the moment and not acting on the good news, while a recovery in the rand to below R11 to the dollar affected valuations negatively.
A case in point was that Anglo American [JSE:AGL] declined another 5.8% last week, despite a trading update showing strong operational results in the quarter to September. Iron ore production increased sharply, while lower output of platinum group metals and all its byproducts would have been expected. Diamond production rose by some 6% and De Beers predicted that yearly sales volumes would be higher.
BHP Billiton [JSE:BIL] ended the week 4.4% lower despite its management team telling investors at the annual general meeting that the commodity giant is on track to continue achieving production records. Profitability is bound to increase as Billiton’s programme to reduce operation costs is progressing according to plan. Investors can also expect some unlocking of value with the upcoming demerger.
Metal producers Kumba Iron Ore [JSE:KIO], Arcellor Mittal SA [JSE:ACL] and Assore [JSE:ASR] all ended the week lower. Assore fell nearly 12% and the others around 5%. Kumba also published an upbeat operational update, saying production was higher, although sales volumes were lower due to planned maintenance by Transnet and slower return to full operation to move ore to the harbour.
Gold shares continued to fall. Harmony Gold [JSE:HAR] announced that it suffered a loss of nearly R1.8bn in the year to September, and other gold mine quarterly results are not expected to be that good either. Harmony fell 9.5% and Gold Fields [JSE:GFI] slipped nearly 6%.
Platinum shares declined in line with the stronger rand and little news from leading economies to signal higher car sales and higher use of platinum, rhodium and palladium. Anglo American Platinum [JSE:AMS] dropped around 3.6% during the week with a positive trading update doing little to appease investors.
Management said that production is recovering faster than originally expected after the long strike and they increased their production estimate for the current financial year to June 2015.
READ: Amplats operations shake off strike blues
Industrial and financial shares had quite a boring week, with few changes and even less exciting news. Clicks Stores [JSE:CLS] announced solid results – headline earnings per share increased by nearly 13% in the 12 months to August, with management pointing out that the stores were able to keep inflation on its shelves to 3.2%. The share added 3% while most of its peers retreated slightly.
The only share to attract attention was that of Ellies Electronics [JSE:ELI], which increased by 33% on news that e.tv boss Marcel Golding was “secretly” buying shares in the television aerial company. Speculators got a whiff of insider knowledge in the air and nearly 12 million shares changed hands during the week. Ellies published a cautionary announcement two weeks ago.
The week ahead
Very few company results are due until those companies with September or March year-ends start to announce their annual and interim figures. Nedbank Group [JSE:NED] is due to publish a quarterly update, as well as a few mining companies.
Economic news to watch out for is the producer price index on Thursday and SA’s unemployment figures. The SA Reserve Bank will announce growth in credit extension and money supply figures.
Very important is the US Federal Reserve’s open market committee meeting, which will tell us if the monetary authorities of the world’s biggest economy will continue expansionary policies.
- Fin24
*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.
This might take a while after Finance Minister Nhlanhla Nene said during his mini budget that government needs more money to spend. He is looking to obtain this from taxpayers, as investors in bonds are getting cautious about lending the government more money. Taxpayers do not have the luxury of choice like the unwilling investors in the capital market.
READ: Tough tax measures to hit salary earners
Higher personal tax is the obvious place to look for more money. Individuals make the largest contribution to state coffers and an increase in VAT would be politically unacceptable as it hits poorer households hardest.
In essence, analysts will relook their profit forecasts for any company exposed to consumer spending and economists need to reconsider the effects of higher taxes on total disposable income and economic activity during a rising interest rate cycle.
Lower demand is already evident in the surprise decrease in inflation. Inflation slowed to 5.9% in September compared to economists’ forecasts of 6.1% and the much higher figure of 6.4% in August.
READ: Inflation slows to under 6%
The official economic growth forecast was also revised downwards last week, with the treasury department expecting growth of only 1.4% in 2014 compared to forecasts of gross domestic product growth of close to 3% at the beginning of the year.
READ: SA sees slight budget shortfall, low growth
Investors seem to be focusing on bad news at the moment and not acting on the good news, while a recovery in the rand to below R11 to the dollar affected valuations negatively.
A case in point was that Anglo American [JSE:AGL] declined another 5.8% last week, despite a trading update showing strong operational results in the quarter to September. Iron ore production increased sharply, while lower output of platinum group metals and all its byproducts would have been expected. Diamond production rose by some 6% and De Beers predicted that yearly sales volumes would be higher.
BHP Billiton [JSE:BIL] ended the week 4.4% lower despite its management team telling investors at the annual general meeting that the commodity giant is on track to continue achieving production records. Profitability is bound to increase as Billiton’s programme to reduce operation costs is progressing according to plan. Investors can also expect some unlocking of value with the upcoming demerger.
Metal producers Kumba Iron Ore [JSE:KIO], Arcellor Mittal SA [JSE:ACL] and Assore [JSE:ASR] all ended the week lower. Assore fell nearly 12% and the others around 5%. Kumba also published an upbeat operational update, saying production was higher, although sales volumes were lower due to planned maintenance by Transnet and slower return to full operation to move ore to the harbour.
Gold shares continued to fall. Harmony Gold [JSE:HAR] announced that it suffered a loss of nearly R1.8bn in the year to September, and other gold mine quarterly results are not expected to be that good either. Harmony fell 9.5% and Gold Fields [JSE:GFI] slipped nearly 6%.
Platinum shares declined in line with the stronger rand and little news from leading economies to signal higher car sales and higher use of platinum, rhodium and palladium. Anglo American Platinum [JSE:AMS] dropped around 3.6% during the week with a positive trading update doing little to appease investors.
Management said that production is recovering faster than originally expected after the long strike and they increased their production estimate for the current financial year to June 2015.
READ: Amplats operations shake off strike blues
Industrial and financial shares had quite a boring week, with few changes and even less exciting news. Clicks Stores [JSE:CLS] announced solid results – headline earnings per share increased by nearly 13% in the 12 months to August, with management pointing out that the stores were able to keep inflation on its shelves to 3.2%. The share added 3% while most of its peers retreated slightly.
The only share to attract attention was that of Ellies Electronics [JSE:ELI], which increased by 33% on news that e.tv boss Marcel Golding was “secretly” buying shares in the television aerial company. Speculators got a whiff of insider knowledge in the air and nearly 12 million shares changed hands during the week. Ellies published a cautionary announcement two weeks ago.
The week ahead
Very few company results are due until those companies with September or March year-ends start to announce their annual and interim figures. Nedbank Group [JSE:NED] is due to publish a quarterly update, as well as a few mining companies.
Economic news to watch out for is the producer price index on Thursday and SA’s unemployment figures. The SA Reserve Bank will announce growth in credit extension and money supply figures.
Very important is the US Federal Reserve’s open market committee meeting, which will tell us if the monetary authorities of the world’s biggest economy will continue expansionary policies.
- Fin24
*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.
