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Resources stocks star on JSE

Johannesburg - Sometimes the share market does not make sense at first glance, as was the case on Monday morning when resources stocks were the star performers despite all indicators being negative for the sector.

By midday the Resources index was 1.47% higher and the Gold index up 2.96%, despite a rampant dollar providing a strong headwind for commodity prices.

READ: Global markets: Dollar squeezes commodities

Not even bad news from the Chinese economy, which spoilt the mood on Asian markets, could derail the recovery in resources stocks.

READ: Asian stocks take breather after previous surge

The expected weakness in financial and industrial shares on the back of Friday’s incredibly strong run did occur on Monday morning, but the boost in resources shares was enough to keep the All-share index at Friday’s elevated levels at midday. It traded virtually unchanged at 49 721.

The Top 40 index, which breached the important resistance level of 43 600 convincingly on Friday, was marginally (0.08%) higher at 44 419.

The only explanation is that resources stocks stayed behind in Friday’s strong run, which was caused by the Bank of Japan’s decision to expand its monetary stimulus programme even further.

For bargain hunters it was the only opportunity left, as resources stocks did not rise as sharply as the rest of the market.

And gold shares in particular reached the lowest levels since 2001 on Friday, due to a record low gold price which dropped even further on Monday to $1 717.

READ: Gold struggles near 4-year low, dollar shines  

However, the Gold index recovered by almost 3% on Monday morning after AngloGold Ashanti [JSE:ANG] announced plans to reduce its debt by $1bn by selling some of its assets.

READ: AngloGold hit by price, inflation pressures

By midday the gold mining group’s share price increased as much as 7.5% to R10.51 after trading at a 52-week low of R93.50 on Friday. At one stage the share price was as high as R101.87.

The higher prices of resources shares do not mean the industry's prospects have improved. With US markets again at record levels on Friday due to better than expected company results the dollar improved even further against the yen, putting pressure on commodity prices.

The news from China, the most important market for South African commodity producers, is also not good.

A survey showed that China's services sector grew at its slowest pace in nine months in October as a cooling property sector weighed on demand.

That followed an unexpected dip in China's factory activity to a five-month low in October, underlining the uncertain outlook for world's second-biggest economy.

Among the big resources shares BHP Billiton [JSE:BHP], which reached 52-week lows last week, was 1.78% higher at R288.21 and Anglo American [JSE:AGL] gained 1.24% to R288.21. Glencore [JSE:GLN] improved by 1.06% to R54.68.

Iron ore producer Kumba [JSE:KIO], which sells most of its production in China, did not join the ride and traded 0.10% lower atR275.18.

The drop in financial and industrial share prices was expected. The technical analysts at Imara SP Reid said in their daily Market Snapshot on Monday morning that these shares are now in overbought territory, particularly banking shares which are now at record levels.

By midday the Financial index was 0.48% weaker and the Industrial index retreated by 0.36%.

Among the banking shares Capitec [JSE:CPI], which increased by more than 13% last week, lost 1.68% to R26.07 and Barclays Africa Group [JSE:BGA], which gained more than 9% last week, was 1.925% weaker at R170.81.

FirstRand [JSE:FSR] and Nedbank [JSE:NED] both improved by almost 9% last week, but on Monday morning Nedbank was 1.14% softer at R237.49 and FirtsRrand lost 0.95% to R46.75.

 - Fin24

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