Johannesburg - The past month's strong recovery in resources shares on the JSE, led by Anglo American [JSE:AGL] and its subsidiaries, continued on Monday morning and pulled the rest of the market higher.
The rally continued on Monday morning despite a drop in the prices of some commodities, a stronger dollar on the back of higher inflation in the US and a relatively strong rand, usually not favourable for commodity shares.
Investors are however seeing value in commodity stocks, which were heavily oversold in the past year. Some of the shares made spectacular progress over the past month, but they are still far below the levels of a year ago, indicating further room for improvement.
The general mood on global markets was also better, with most Asian and European markets higher by mid-morning.
As a result the Commodity index was 1.73% higher by mid-morning, which helped push the All-share index 0.35% up to 49 114 points. The Top 40 index was at that stage 0.65% stronger. The Financial index was only marginally in the black (0.10%) and the Industrial index was 0.22% stronger.
The dollar, which plays a major role in the commodity market, was underpinned by data last Friday showing underlying US consumer price inflation accelerated by the most in nearly four-and-a-half years in January, supporting the view that the Federal Reserve could raise US interest rates gradually this year as forecast.
The gold price lost $19 or 1.55% to $1 207 per ounce in reaction to the stronger dollar, and platinum traded $14 or 1.49% down at $923/oz. The Gold index lost 4.64% with DRD Gold (R5.15) [JSE:DRD] and Gold Fields (R57.71) [JSE:GFI] both more than 6% lower than Friday. The major platinum shares also traded lower.
The rand continued to be relatively strong and traded at R15.40 to the dollar by mid-morning. A strong rand is not necessarily positive for commodity producers, whose output is priced in dollar.
However, none of these factors could deter investors who piled into buying Anglo American shares and pushed the stock back to above R100 per share. By mid-morning the stock was 4.76% higher at just over R101.48.
Anglo was the busiest share on the JSE in terms of volume and the second busiest in terms of value, as 1.55 million shares were sold for R154.55m.
The share price traded at a 52-week high of R219.84 a year ago, but dropped to only R53.30 last month. Since then it has made a strong recovery, gaining 66.27% over the past 30 days and an even more spectacular 37.5% over the past seven days. The share price is however far below the level of a year ago and is still 55% lower for the past year.
Three major credit rating agencies have downgraded Anglo’s debt rating to junk status because of the group’s high debt levels, but it announced a major restructuring over the last month to pay back some of its debt by selling all assets except for platinum, diamonds and copper.
One of the subsidiaries Anglo wants to sell is Kumba Iron Ore [JSE:KIO], which lost almost 90% of its value because of the sharp drop in the iron ore price when the share dropped from a 52-week high of R219.84 to only R25.35. Investors are however now queuing up to buy Kumba shares and the stock traded another 4.57% higher at R63.33.
Although the stock at its current level is still 73.44% lower than a year ago, it gained a massive 108.11% over the past 30 days before Monday. Anglo American Platinum [JSE:AMS], which Anglo wants to keep after selling some of its operations, traded 3.01% lower at R287.20. The share price also dropped from R384.37 to only R165.08 but has since recovered 57.2% over the past 30 days.
Impala Platinum [JSE:IMP] was 1.25% lower at R33.85.
Glencore [JSE:GLN], which recently dropped from R57.54 to only R15.41, also continued its recovery and traded 4.3% higher at R26.90. The share has now regained 28.2% over the past seven days and 35.8% over the past 30 days.
BHP Billiton [JSE:BIL] was also 4.86% higher at R168.37 and is now 10.21% higher over the past seven days' trade.
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