Johannesburg - Stock markets worldwide, which were on the brink of a bear market the day before, rebounded strongly on Friday with an exuberance which indicates markets might be nearing the end of the current panic. The JSE also moved strongly from the previous day’s 52-week low.
The optimism was sparked by hints of more monetary policy support by the European Central Bank and a rally in the price of crude oil, which bounced off 12-year lows.
Similar expectations of monetary support by the Chinese central markets also lifted share prices on Wednesday this week, but the rally did not last long as the oil price slumped further on fears of a glut in the oversupplied market when Iran recommences its oil deliveries.
These fears still exist, but this time around it seems investors were looking past bearish data about the oil stockpile. The oil price recovered to above $30 per barrel, the biggest rally since August, but the most important news was that oil futures jumped almost 11%.
By midday the JSE's All-share index was 2.42% higher at 47 401 and the Top 40 index had gained 2.70% to 42 665 points. The star performer was resources shares, which benefited from a weaker dollar. The index, which is almost 50% lower than the 52-week high reached last year, gained 5.02% with some of the big commodity groups making spectacular gains. The Gold index was 1.49% up.
A stronger rand, which reached a high of R16.49 to the dollar in morning trade before falling back to R16.54 by midday, also helped the Financial index 2.30% higher. The Industrial index, with its big dual-listed shares, followed the European markets 2.22% higher.
The European Central Bank turned pessimism around for the time being after its president Mario Draghi hinted strongly on Thursday that more easing could be coming within months. Fading growth and inflation prospects will force the central bank to review its policy stance in March, Draghi said.
Asian stocks recovered strongly and the MSCI's broadest index of Asia-Pacific shares outside Japan rose 2.6%, the most since September 9, after probing a four-year low on Thursday. That puts the index on track for a 0.2% gain for the week.
Japan's Nikkei index surged 5.9% at the close, the most in more than four months, moving away from a 15-month low reached on Thursday. The broader Topix index, which fell into a bear market on Thursday, gained 5.3%. The Japanese market was also boosted by speculation that the Bank of Japan would opt for additional stimulus at its January 28-29 policy meeting.
Most European markets also recovered by more than 2% from the lowest point in three years. Analysts however warned it is too soon to forecast a turnaround in the markets.
"We're seeing a really nice bounce today as lots of people close their short positions but that doesn't necessarily mean we've seen the bottom," said Nicholas Smith, a strategist at CLSA.
"It's tough to know when a panic is going to subside but it does look like we're starting to get there."
The problem is that a major part of the apparent improvement in sentiment is driven by expectations of various central banks announcing further economic stimulus. “If central banks fail to deliver, it could drive a negative turn in market thinking," he added.
The biggest gainers on the JSE were among those commodity shares whose prices have fallen through the roof during the past year. Iron ore producer Assore [JSE:ASR], which lost 60.56% over the past year, gained 12.80% to R78.96. Kumba Iron Ore [JSE:KIO], which until Thursday 87.87% lower for the past year, traded 12.32% higher at R30.55. African Rainbow Minerals [JSE:ARM], which lost 67.1% of its value over the past year, was 9.25% higher at R44.66.
The three commodity giants listed on the London Stock Exchange also performed solidly. Glencore [JSE:GLN] gained 8.76% to R19.30 and BHP Billiton [JSE:BIL] was 7.39% stronger at R156.57, while Anglo American [JSE:AGL] traded 6.59% higher at R58.42.
Old Mutual [JSE:OML] was the busiest among the financial shares and gained 3.85% to R37.22. Sanlam [JSE:SLM] gained 2.74% to R54.35. Barclays Africa Group [JSE:BGA] was one of the strong performers among the banks, gaining 3.29% to R126.77. Standard Bank [JSE:SBK] was 2.83% up at R101.29, but FirstRand [JSE:FSR] lagged somewhat behind and gained only 0.50% to R40.27.
Naspers [JSE:NPN] made a strong move in the industrial sector, gaining 4.53% to R1 857.49, while British American Tobacco [JSE:BTI] traded 1.97% higher at R854.53. Richemont [JSE:CFR] was 2.01% stronger at R104.85 and SABMiller [JSE:SAB] traded 0.78% stronger at R979.41.