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Johannesburg - Indications that a hike in US interest rates is closer than most investors had expected caused havoc on global markets on Thursday morning, and the JSE was no exception.
Resources and gold shares were the biggest losers, as an interest rate increase will boost the dollar. By mid-morning the Resources index was already more than 3% down, and the gold index had lost more than 7%. All the other major indices were also lower at that stage.
Markets were caught off-guard on Wednesday when the minutes from the Federal Reserve's last meeting revealed most policymakers thought a June rise would be appropriate if the US economy continued its recent improvement.
It suggested the central bank is closer to lifting rates again than most investors had expected, and saw a scramble from traders to readjust.
After a volatile session in New York on Wednesday, the stock and bond markets in Asia and Europe followed suit with emerging markets losing ground.
A hike in US interest rates can lead to an outflow from emerging markets back to the US, where the risks are perceived to be lower. Emerging markets are currently propped up by investors from developed countries seeking higher yields than the record low rates in their own markets, but if the rates in their own markets rise, there would be no need to invest in emerging markets.
These foreign investors are also heavily invested in the big dual-listed shares on the JSE and any turnaround in investment flow can hurt the local market, the current account and eventually also the rand.
The local market will also be affected by the dollar, which strengthened against the top currencies to the highest level since March on the prospect of higher interest rates. A strong dollar is bad news for commodities, as it increases the price of those products in the buyers' own currency.
Gold, platinum and oil were among the commodities that were losing ground and investors responded by dumping shares in the producers of those commodities.
The Gold index was a bloodbath this morning, and the index was already 7.29% lower by mid-morning. The Resources index was trading 3.74% softer after a strong performance over the previous few days. Before Thursday’s trade the Resources index gained 6.9% over the past seven days and 17.5% over the past 30 days.
At mid-morning the All-share index was already 1.03% lower at 52 256 points and the Top 40 index had lost 0.98% to 47 177 points. The Financial index gave up 0.66%, but the Industrial index was only 0.35% softer as the big rand hedge shares - which earn most of their income abroad - are supported by a weak rand as they earn more in the local unit.
Gold Fields [JSE:GFI], which had a good run of more than 9% over the past seven days, gave up almost all those gains on Thursday morning as it lost 8.46% in morning trade. Among the other gold shares AngloGold Ashanti [JSE:ANG] traded 7.56% lower, Sibanye [JSE:SGL] lost 6.52% and Harmony [JSE:HAR] was 6.32% weaker than the day before.
The lower platinum price, which is heading back towards $1 000 per ounce, pushed Impala Platinum’s [JSE:IMP] price a substiantial 5.77% lower to R51.11. The stock was one of the busiest on the JSE and almost 2 million shares were traded for more than R100m. Anglo American Platinum [JSE:AMS] lost 3.63% to R385.69.
Lonmin [JSE:LON], which gained more than 30% over the past seven days on indications that the company’s drastic restructuring is bearing fruit, was only 2.59% lower at R43.59 by mid-morning.
Among the big conglomerates, Anglo American [JSE:ANG] lost 4.47% to R132.86 and BHP Billiton [JSE:BIL] was 3.36% softer at R196.10.
