Johannesburg - The local financial markets seem to be optimistic that Finance Minister Pravin Gordhan will meet expectations when he delivers his mini budget in Parliament on Wednesday aftertnoon.
The rand gained more than 1% in early trade against the dollar despite a very strong greenback, with a detrimental effect on the prices of rand hedge shares on the JSE, which are worth less if the rand is strong.
Global markets were also lower on the back of disappointing company results, particularly Apple, which also had a negative effect on the JSE’s big dual-listed shares.
These shares are mostly part of the Industrial and Resources indices, which were both sharply lower on Wednesday morning. At mid-morning the Resources index was already 1.49% lower, while the industrial index lost 1.16%. The gold index was 0.32% up on the back of a slightly higher gold price.
As a result, the All-share index at mid-morning was already 1.16% down at 51 266 points, while the Top 40 index gave up 1.10% to trade at 44 704 points.
The Financial index was 0.22% down, as financial institutions will be the hardest hit by a downgrade of South Africa’s credit rating if the mini budget does not meet expectations.
If the performance of the rand is any indication, the markets have a great deal of confidence in Gordhan’s ability to do the right thing. The local currency traded 1.29% higher against the dollar at R13.72, and was also much stronger against the pound and the euro.
The rand strengthened despite the fact that the dollar index, which tracks the greenback against a basket of six global peers, is at its highest level since the beginning of February.
With investors looking ahead to US third-quarter gross domestic product data on Friday, traders saw a better than 78% chance of an interest rise hike by the Federal Reserve in December, according to CME Group's FedWatch tool.
The major dual-listed resources shares traded lower on Wednesday, after gaining strongly on Tuesday on the back of higher commodity prices.
Anglo American [JSE:AGL], which traded at a new high on Tuesday, lost 1.35% to R182.95, while Glencore [JSE:GLN] at mid-morning was 1.45% lower than the previous day’s high at R60.67. BHP Billiton [JSE:BIL], which moved far less this year than the other dual-listed commodity shares, shed 1.35% to R209.99.
Impala Platinum [JSE:IMP] traded 1.82% lower at R54.57, despite a higher platinum price which gained 3.10% to $964 per ounce.
British American Tobacco (BAT) [JSE:BTI] has lost all original gains after news that it has made an offer to acquire US tobacco giant Reynolds American in a $47bn deal which will create the world’s biggest listed tobacco company by turnover and operating profit. BAT, owner of brands like Kent and Pall Mall, already owns 42.2% of Reynolds American as a result of a 2004 deal.
BAT’s share price lost 1.16% to reach a new 52-week low of R784.81, after shedding 4.5% over the previous 30 days.
The deal will give BAT greater access to the US market, the world’s largest profit pool (excluding China), and a significant presence in high growth emerging markets, according to the company
Reinet [JSE:REI] was 1.36% softer at a new 52-week low of R27.61. The major part of the company’s assets is its interest in BAT.
Naspers [JSE:NPN] was 2.06% softer at R2 350.32 and Steinhoff [JSE:SHF] was 1.46% down at R74.10. MTN [JSE:MTN] shed 1.19% to R114.00.