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Johannesburg - Share prices on the JSE were given a massive boost when European markets made a strong recovery on Tuesday morning after the worst two-day fall in world markets since the collapse of US investment bank Lehman Brothers during the 2008 financial crisis.
The recovery was led by the London Stock Exchange where 97 of the 100 shares in the FTSE 100-index traded higher in early trade. The FTSE-index was already 2.3% higher by midmorning after losing more than 5% over the previous two days. Other European markets were also higher by midmorning.
READ: European stocks rebound an investor speculation
The biggest gainers in London were financial shares after European bank shares had their worst two-day fall on record, with British banks losing more than 16%. The financial index was also the strongest performer on the JSE after losing more than 5% of its value on Tuesday.
By midmorning on Tuesday the financial index on the JSE was already 2.64% higher with all the big losers on Monday among the top performers. The All-share index gained 1.62% to 50 897 points and the Top 40-index traded 1.81% stronger at 44 940 points. The industrial index was 1.64% higher and the resources index 1.08% stronger.
The only loser was the gold index which gave up 4.27% after the gold price dropped more than 1% to $1 310.40 as risk aversion in the market subsided. Harmony Gold [JSE:HAR] traded 7.09% lower on R50.47.
The general consensus is that the market fall-out in reaction to the British voters’ decision to leave the European Union (Brexit) is not over yet, but that the initial reaction to the shock news was overdone. Investors are also speculating that policy makers may take action to shore up markets after the recent rout.
READ: UK Treasury chief tries to calm markets amid Brexit fears
"Markets already appear to be pricing in a full-blown recession in the UK and rising recession risk in the rest of Europe," said David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management.
Ratings agency Standard & Poor's also stripped Britain of its last remaining top-notch credit rating on Monday, warning that more downgrades could follow. The agency said in a statement the outcome of the referendum is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the UK.
The biggest loser in the financial index on the JSE, Investec [JSE:INP], which lost almost 10% on Friday and Monday, recovered strongly and traded 4.36% higher on R89.21. Analysts said the decline in Investec’s share price is overdone, as the bank, with its primary listing in London, earns only about 40% of its income outside South Africa.
Old Mutual [JSE:OML], whose primary listing is also in London, was the busiest share on the JSE in terms of volume and more than 3 million shares were traded for more than R113m. The share price gained 3.41% to R37.64 after it lost more than 7% on Friday and about 5% on Monday.
The company said it is going ahead with plans to split its operations into its four main businesses. Part of the plan, which should be completed by 2018, could be the listing of two separate entities on both the London and Johannesburg stock exchanges.
One of the entities would mainly comprise the group’s wealth operations and the second listed entity would be made up of its emerging markets operations, set up as a new South African holding company.
A major part of Old Mutual’s shareholding in Nedbank [JSE:NED] would also be distributed amongst shareholders. Nedbank gained 1.91% to R181.28. The share was remarkably resilient during the current turmoil and was before Tuesday’s trade only 0.38% softer over the previous seven days.
A strong recovery in the price of Barclays on the JSE helped Barclays Africa [JSE:BGA] to gain 3.06% to R143.42. Standard Bank [JSE:SBK] was 2.07% higher on R123.00 and FirstRand [JSE:FSR] traded 1.61% higher on R43.66.
Among the insurers with sizable businesses in Britain, Sanlam [JSE:SLM] gained 3.17% to R59.07 and Discovery [JSE:DSY] was 2.90% higher on R117.05. MMI Holdings [JSE:MMI] traded 1.82% stronger on R21.79.
Steinhoff [JSE:SHF], whose primary listing is in Frankfurt, was the best performer in morning trade on Tuesday among the big industrial shares, when it gained 4.10% to R80.94. Richemont [JSE:CFR]was 2.58% stronger on R87.38 and British American Tobacco [JSE:BTI] gained 1.28% to R923.95.
In the resources sector Kumba [JSE:KIO] traded 6.34% higher on R99.17 and Anglo American [JSE:AGL] was 2.54% higher o R131.11.
