Industrial shares score in JSE rally

Johannesburg - Better news about China's economic prospects led to a turnaround on global markets on Friday morning. The major indices on the JSE recovered sharply in early trade from Thursday’s substantial losses, but then moved sideways for most of the morning’s trade.

Disappointing trade data from China on Thursday led to a major sell-off on most markets, including the JSE, but better-than-expected inflation figures from China on Friday stopped the rot, although the recovery was not as dramatic as the sell-off.

Most of the major indices on the JSE gained more than 1% within minutes after Thursday’s sell-off to the lowest point in three-and-a-half months, before starting to move mostly sideways for the rest of the morning.

By mid-morning the All-share index was 1.17% higher at 51 087 points, while the Top 40 index was 1.35% stronger at 44 598 points; all the other major indices followed the same pattern, except gold which lost 2.19% by mid-morning.

The major winner was the Industrial index, which includes all the dual-listed shares, which followed the European markets higher and at mid-morning were 1.66% higher.

The recovery was sparked by an announcement that the producer price index (PPI) in China rose 0.1% in September from a year earlier.

While the gain was slight, it was the first time producer prices have expanded on an annual basis since January 2012, and came a bit earlier than the year-end timeframe that some analysts had expected. Producer prices had edged up on a month-on-month basis over the summer. Analysts polled by Reuters had predicted a decline of just 0.3% year-on-year, after a drop of 0.8% in August.

China's factory prices have been falling since March 2012, and more than four years of producer price deflation have squeezed industrial companies' cash flow. Consumer inflation rose to 1.9%, also beating market expectations.

The solid economic data was particularly good news for mining stocks, as China is the top global consumer of metals. Mining stocks led the European markets higher on Friday and by mid-morning the Resources index on the JSE was 0.84% stronger.

The rand weakened somewhat to R14.28 to the dollar due to a firmer greeenback, which further supported rand hedge shares.

Naspers [JSE:NPN], which represents more than 19% of the JSE market capitalisation and lost about 7% of its value on Thursday, by Friday mid-morning was 2.88% higher at R2 255.20. The stock lost more than 12% of its value over the 30 days before Friday’s trade, after reaching a high of R2 530 on September 6.

Naspers is particularly sensitive to economic developments in China as its 34% stake in internet giant Tencent represents most of the group’s market capitalisation and income.

Tencent’s share price was 0.48% lower at $HK209 in Hong Kong on Friday, after reaching a high of $HK218.20 on September 23 this year.

Richemont [JSE:CFR] gained 2.65% to R96.54. Before Friday’s gain the share price, which reached a 52-week low of R79.14 in September, was already 10.93% stronger over the previous seven days.

The three busiest shares in terms of turnover after Naspers, namely Sasol [JSE:SOL], Steinhoff [JSE:SHF] and Sappi [JSE:SAP], all traded higher. Sasol was 0.48% firmer at R399.90, Steinhoff gained 2% to R74.20 and Sappi was back at a 52-week high of R77.20 after gaining 2.74% in morning trade. Sappi was also the busiest share in terms of volume.

The two icons in the resources sector, BHP Billiton [JSE:BIL] and Anglo American [JSE:AGL], which both traded more than 4% lower on Thursday, made up some of those losses. BHP Billiton, which was downgraded by Citibank to “sell” on Thursday, was 1.78% higher at R210.36, while Anglo American gained 1.43% to R175.15.

The financial sector gained 0.93%. Standard Bank’s [JSE:SBK] share price shot up in early trade to R140.43, but then lost momentum and traded only 0.90% higher at R136.83. FirstRand [JSE:FSR] at mid-morning was 1.45% stronger at R44.12.