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Port Elizabeth - Our pension funds will take a serious knock if people stop smoking and drinking: it seems that it was only the increases in the share prices of SABMiller [JSE:SAB] and British American Tobacco SA [JSE:BTI] that propped up the market during the last week.
The food sector helped as well, but eating does not seem to be that important.
SABMiller increased by just less than 1.5% during the week and BAT by 3.6%, while food producers such as Astral [JSE:ARL], AVI [JSE:AVI] and Pioneer Foods [JSE:PFG] each added a few percent as well.
These were just about the only shares that increased and kept the decline in the benchmark JSE Top 40 index to some 1% for the week.
The rest of the market suffered under the weight of bad news.
International markets remained nervous due to ongoing political tensions such as the crisis in the Ukraine and in Israel. Meanwhile, the referendum this week to decide if Scots want to live in an independent Scotland – apart from the UK and EU – has raised fears of a new financial crisis in Britain and Scotland.
Several studies by economists and financial experts have concluded that an independent Scotland will be economically ruined and will most probably push the UK into a severe financial crisis as investors move funds out of Britain to safer and more lucrative financial centres.
The outcome of the Scottish poll will be decided this week – by the undecided and ill-informed minority of voters.
The US Federal Reserve added more nervousness to financial markets due to its timing of open market committee meeting this week.
In indications are that meeting members might push for more restrictive monetary policy compared to the very relaxed policy of low interest rates and aggressive repurchasing of bonds during the last 5 or 6 years.
Local economic news did little to support confidence in the market. Stats SA announced that mining production during July were some 7.7% lower year-on-year after a decline of 5.4% in May.
The huge culprit was a reduction of around 45% in the production of platinum group metals, as well a reduction in the base metals mined as by-products by platinum companies.
These include chrome, cobalt, nickel and a bit of gold.
Stats SA announced that manufacturing output declined as well during July, by nearly 8% compared to the same month last year.
The strike by members of different metal workers unions was to blame. Luckily, production in these sectors can recover quickly.
A huge increase in the deficit of SA’s current account – to R222bn compared to the previous deficit of around R160bn – underlined the problems of low production and high consumption.
This bodes ill for the rand over the longer term, especially coupled with a consistently high inflation rate.
That we need to pay more than R11 for every dollar to purchase imported goods and views that the US might start to increase its interest rates might just tip the scales at the SA Reserve Bank to opt for another interest rate as well.
The monetary policy committee is having its next meeting on Wednesday and Thursday.
Companies offered investors a mixed bag of news during the last week. Sasol [JSE:SOL] announced solid results for the year to June on the back of a weak rand and stronger chemical prices.
The increase of around 13.5% in headline earnings per share compares very good for a share on a price/earnings ratio of 10.3 times.
International furniture manufacturer and retailer Steinhoff International [JSE:SHF] announced that profits increased by 30% in its financial year to June, although its subsidiary JD Group [JSE:JDG] announced a loss of R1.2bn in the same period.
Steinhoff’s share price increased by 10% this week and JD Group bounced back nearly 8% from recent lows.
AngloGold Ashanti [JSE:ANG] fell 12% last week as investors took a dim view on its plans to raise more than R20bn in a rights issue to enable it to split its SA and international assets into two separate companies.
Other gold and mining shares declined as well.
Industrial and financial shares showed similar declines of around 2% during the week with little news to excite investors.
The week ahead
Richemont [JSE:RCH], producer of beautiful luxury items none of us can afford, will give a trading update of its sales during the last few months.
The recent strength in the dollar is good for profitability, depending on the level of physical sales.
Apart from the significant SA Reserve Bank meeting this week, Statistics SA will announce consumer inflation figures for July on Thursday and retail sales data.
Inflation is expected to remain around 6%, while retail sales are bound to let investors in retail shares – and management – reach for beer and cigarettes.
* 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
