Financial stocks the biggest losers as JSE pares gains

Johannesburg - Indications that the strong run in the global bond market is fast approaching its end are beginning to put a damper on share prices globally, including the JSE.

Asian markets reached a six-week low on Wednesday morning after sharp losses overnight on Wall Street, and by mid-morning most of the indices on the JSE were in the red, with financial shares the biggest losers. The local market recovered somewhat in later trade.

The turnaround in the bond market is the result of a realisation that there is very little scope left for further relaxation in monetary policy because of the limited impact of current measures. Investors are now watching out for a likely fiscal expansion in the world's major economies where monetary stimulus has reached its limits.

They are therefore adjusting their exposure to emerging markets after inflows into emerging market equity funds of more than $24bn dollars over the past 10 weeks, on the back of super low yields in the developed markets.

Yields on 30-year Japanese debt reached the highest levels in six months and 10-year US Treasury yields lifted to a three-month high of 1.75%, having risen more than 20 basis points from a week ago.

By mid-morning the All-share index lost 0.32% to 52 635 points, and the Top 40-index traded 0.42% lower at 46 079 points. The biggest loser was the Financial index which was 0.94% lower by mid-morning, after a strong performance on Tuesday.

The Industrial index was 0.74% down after Richemont [JSE:CFR] dragged the index lower with more bad news about the sales of luxury goods.

The Resources index was however 1.16% higher on the back of stronger commodity prices, which supported international mining shares. The copper price in London is close to three-week highs on Wednesday after brighter economic indicators in the United States and China offered more evidence of a global recovery, and platinum and gold also traded higher.

The big news of the days was Richemont’s warning that its first-half operating profit will probably decline about 45%, as waning demand in the Far East for its Cartier jewellery led to a drop of 13% in revenue in the five months through August. Hermés International also abandoned its annual sales growth target, adding to the gloom spreading across the luxury goods industry.

Richemont traded 3.9% lower at R85.19. The share price recovered 6% over the past 30 days after it reached a 52-week low of R79.54 on August 7, but is still more than 16% lower over the past six months.

The biggest share on the JSE, Anheuser-Busch InBev [JSE:ANB], traded 1.41% lower at R1 774.00 and Naspers [JSE:NPN] was 0.21% softer at R2 443.72. Steinhoff [JSE:SHF] gained 1.76% to R81.96.

There was also strong demand for MTN [JSE:MTN], after Africa’s biggest cellphone operator said it entered three loan agreements, raising more than $1.3bn as the company markets a potential bond. The share was the busiest on the JSE in terms of turnover and traded 2.36% higher at R121.82, after losing more than 13% over the previous 30 days.

Banking shares were lower despite a report by PwC indicating that South Africa’s four major banking groups reported solid results for the first half of the year, delivering value to shareholders which compares favourably to European counterparts. The banks posted combined headline earnings of R34.6bn - up 5.7% compared to the same period in 2015. Total operating income lifted 13.3% and operating expenses rose 12.6%.

“It is exceptional that our banks have been able to increase operating income by what they have in the last six months,” said Johannes Grosskopf, financial services industry leader for PwC

Standard Bank [JSE:SBK] was the biggest loser, trading 2.58% lower at R137.45. FirstRand [JSE:FSR] lost 0.99% to R47.07 and Nedbank [JSE:NED] gave up 0.40% to R212.36. Barclays Africa [JSE:BGA] gained 0.36% to R146.42.

There was a strong demand for South 32 [JSE:S32] and Glencore [JSE:GLN] in the resources sector, and both these shares gained more than 3%. The two big diversified miners will be added to the All-share index from Friday. Glencore will take its place as the fourth-largest share in the index, while South32 will come in as the 24^th biggest.

Glencore traded 3.50% higher at R35.15 and South 32, which gained more than 30% over the past 90 days, added 3.6% to trade at a new intraday 52-week high of R14.16. Anglo American [JSE:AGL] gained 1.96% to R154.15 and BHP Billiton [JSE:BIL] 1.56% R188.41.