Johannesburg - Financial shares led the JSE lower on Tuesday morning and it seems investors are becoming nervous about Wednesday’s budget speech, regarded as the most significant in many years.
Weaker financial shares also pulled the rest of the market down, with the exception of gold shares which gained more than 3% on a stronger gold price. Gold Fields [JSE:GFI], Sibanye [JSE:SGL] and Harmony [JSE:HAR] were all more than 4% stronger.
By mid-morning the Financial index had already lost 1.49%. This meant the All-share index was 1.46% lower at 48 659 points and the Top 40 index traded 1.08% down at 43 221 points, with the Industrial index 0.77% softer.
The star performer of the last few days, the Resources index, was also lower after BHP Billiton [JSE:BIL] cut its payout for the first time in 15 years. By mid-morning the index was already 1.46% down on the previous day’s close.
The attention of investors worldwide will be on the budget speech to see if Minister of Finance Pravin Gordhan will be able to curb spending enough to keep South Africa’s debt under control, and if there are any measures to promote economic growth.
READ: Matthew Lester: Gordhan’s budget critical – biggest comeback since Lazarus
There are serious concerns that if Gordhan’s speech does not meet expectations, credit ratings agencies could downgrade South Africa to junk status, with grave implications for financial institutions.
Some commentators have warned that high expectations from Gordhan’s speech might be unrealistic, as the ANC’s policy framework in an election year does not allow him the freedom to do what is really necessary.
READ: Wikus Furstenberg: Pravin must show business he’ll walk his talk
Among the banking shares, Standard Bank [JSE:SBK] lost 2.39% to R111.25 and Barclays Africa [JSE:BGA] traded 1.95% lower at R150.61. FirstRand [JSE:FSR] was also 1.16% softer at R45.31.
Insurance group Discovery [JSE:DSY] lost 1.83% to R116.72, and the share lost 7.47% over the past seven days before Tuesday’s trading. Sanlam [JSE:SLM] was 1.78% softer at R54.63.
BHP Billiton’s ability to keep its dividend intact meant that the share price was less volatile than the other commodity groups. At one stage on Tuesday morning however the stock was almost 5% down after the dual-listed group announced its first-half dividend would be cut to 16 cents from 62c a year earlier. The company said it would adopt a policy to provide payouts at a minimum of 50% of underlying attributable profit.
This was done to protect the balance sheet of the world’s biggest mining company as well as its credit rating amid a price collapse that saw first-half profits tumble 92%. By mid-morning the share price had recovered somewhat but was still 2.94% softer at R164.99.
The other dual-listed commodity conglomerates were both lower, but the losses were far more modest. Anglo American [JSE:AGL] lost 1.28% to R101.04 after the share price gained 24.11% over the previous seven days. Glencore [JSE:GLN] at mid-morning was 1.11% softer at R27.50.
The Kumba [JSE:KIO] success story continued and the share price gained another 4.82% to R68.13. Before Tuesday's trade the stock was already 122.3% higher over the past 30 days.
The share price is not only regarded as undervalued, but is also supported by a spike in the iron price. Spot iron ore for immediate delivery to China's Tianjin port jumped 7% on Monday to hit its highest level since late October.