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Johannesburg - Financial shares were the star performers on the JSE on Tuesday morning, supported by prospects of low interest rates and strong capital inflows for a while longer.
By mid-morning on Tuesday the Financial index was more than 1% higher, with most of the other indices, including the All-share and Top 40 indices, also in the black.
Global markets were also higher on Tuesday after Federal Reserve governor Lael Brainard calmed global markets on Monday with remarks that appeared to reduce the prospects of a near-term interest rate hike. On Monday Wall Street saw the strongest gain in two months as Brainard’s remarks halted raising bond yields.
Future traders are now pricing in just a 15% chance of a hike at the Fed's policy-setting meeting next week, down from 21% earlier on Monday, according to the CME Group's FedWatch Tool.
If US interest rates stay low for longer, emerging markets like South Africa would benefit longer from investors seeking higher yields than the ultra-low interest rates currently available in the developed world.
Financial shares in particular received another boost, with the news that South Africa’s current account deficit narrowed to 3.1% of gross domestic product in the second quarter of this year from a revised deficit of 5.3% in the first quarter. Economists surveyed by Reuters had expected a 3.6% deficit for the second quarter.
Exports surged during the quarter, resulting in a trade surplus of R33bn compared with a revised R48bn deficit in the first quarter, the Reserve Bank said in its September Quarterly Bulletin.
READ: SA current account deficit narrows significantly - Sarb
By mid-morning the All-share index was 0.32% in the black at 52 972 points, and the Top 40 index had gained 0.24% to 46 405 points. The Financial index traded 1.25% higher.
The Industrial index, which includes most of the dual-listed shares, was only 0.12% higher, in line with European markets which were mostly flat after three days of losses. The Resources index was unchanged, but the Gold index was 0.71% firmer.
FirstRand [JSE:FSR] traded a solid 4.23% higher at R48.05, which means the share price has almost recovered the loss of 5.23% over the previous 30 days. FirstRand delivered strong results last week for the financial year ended June 30, with an 8% increase in dilutued normalised headline earnings per share to R4.074.
Standard Bank [JSE:SBK] also gained 2.31% to R68.83, while Nedbank [JSE:NED] was 1.32% higher at R214.33. Barclays Africa [JSE:BGA] was however 0.05% lower at R147.60.
Sanlam [JSE:SLM] and MMI Holdings [JSE:MMI], the two insurance giants which suffered big losses last week after disappointing results due to difficult economic conditions, both recovered. Sanlam was 2.13% stronger at R63.83 and MMI Holdings gained 1.73% to R14.17.
The resources sector was pulled down by Kumba [JSE:KIO], which dropped to the lowest in seven weeks after saying that it faces an additional tax liability of more than R1bn.
READ: Kumba slapped with another R1bn tax bill
The South African Revenue Service has sent Kumba a letter indicating “potential adjustments to the company’s taxable income” for 2011 that could result in an additional tax liability of about R1bn.
The share price dropped as much as 5.7% to R125, the lowest intraday level since July 27, and at mid-morning traded 4.85% lower at R126.07.
Anglo American [JSE:AGL], Kumba’s holding company, traded 1.63% softer at R154.67 and BHP Billiton [JSE:BIL] lost 1.04% to R186.92.
Among the bigger shares Naspers [JSE:NPN] traded 0.31% higher at R2 460.00. MTN [JSE:MTN], which lost more than 17% over the previous 30 days, gained 2.21% to R188.29. In October last year the share was high as R190.84.
Steinhoff [JSE:SHF] lost 1.29% to R81.96 and British American Tobacco [JSE:BTI] 0.51% to R897.50.
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