JSE gets boost from London resources rally

Johannesburg - A rally in resources shares in London, where all the major commodity groups have their primary listings, pulled the JSE higher on Tuesday.

Investors poured money into resources despite the news that BHP Billiton [JSE:BIL], the world’s second biggest mining group, reported an 81% decline in underlying profit for the year to end-June. It was the company's worst result since 2001, after raw materials tumbled to a 25-year low in January. Underlying profit was $1.2bn, from $6.4bn a year earlier. The bad news has been discounted and investors are now concentrating on a recovery in commodity prices.

READ: BHP profit tumbles 81% on prices collapse

By mid-morning on Tuesday the Resources index on the JSE had already gained 1.83%, which pulled the All-share index 0.77% higher to 52 800 points. The Top 40 index, which includes most of the big resources companies, traded 0.98% stronger at 45 748 points.

The Resources index had some help from the Industrial index which gained 0.64% and the Financial index which was 0.67% up, although the European markets opened somewhat lower from their recent peaks.

Local investors took their lead from the FTSE 350 Mining index, which rose 2.7% to a 13-month high. Rio Tinto, Anglo American [JSE:AGL], BHP Billiton and Glencore [JSE:GLN] all gained between 2.3% and 3.1%.

The Resources index on the JSE, which reached a 52-week low of 22 276 points on January 19 this year, at Tuesday’s level of 32 044 points is about 45% higher than that turning point.

By mid-morning BHP Billiton, which lost 1.44% over the previous seven days, was 4.66% higher at R186.37. At only 9% firmer over the past six months, the stock is the worst performer among the big conglomerates.

Anglo American, which traded 4.29% higher at R156.43, gained a huge 54% over the past six months. Glencore, the world’s biggest mining company, gained only 25.7% over the same period before Tuesday’s jump of 3.92% to R34.21, but is the best performer over the past 30 days with a gain of more than 9%.

The rest of the JSE is lagging far behind the commodity sector. The All-share index, which reached a 52-week low of 46 282 points on January 20, a day after the resources sector, recovered only 14% over the same period. Developing markets gained about 33% since the beginning of the year and the MSC Emerging Markets Index is at the highest level since July 2015.

The All-share index has been particularly stagnant over the past three months, as it gained only 2.28% over the past 90 days. It is also only about 2% higher than the level on June 23, when Britain’s decision to leave the European Union sent global markets in a tailspin.

The rand, which traded at R13.26 to the dollar on Tuesday, gained more than 8% over the same period. This put a damper on the prices of the big dual-listed shares on the JSE, which are all regarded as rand hedges and represent more than 60% of the bourse's market capitalisation.

READ: Risky rand resumes rally

The currency - currently the strongest in a list of 15 emerging market currencies tracked by Reuters - as well as local bonds are benefiting from the worldwide search for yields as interest rates in the developed world are currently at record low levels, with expectations of even more easing.

Money is also flowing into emerging markets for the same reason, but the JSE did not share in the bonanza as much as other markets as a result of the strong rand.

The five biggest shares on the JSE, representing half of the market’s value, all lost value over the past month despite the rally in global markets. Before Tuesday's trade Annheuser-Busch InBev (AB InBev) [JSE:ANB] was trading 12.3% lower and SABMiller [JSE:SAB] 11.17% softer. British American Tobacco (BAT) [JSE:BTI] lost 9.52% and Richemont [JSE:CFR] 3.87%. Until Monday, Naspers [JSE:NPN] was 3.71% down over the past 30 days.

AB InBev lost 0.07% on Tuesday at R1 678.90, but the other big shares all traded higher. SABMiller gained 1.12% to R754.65, Richemont 1.69% to R83.71 and BAT 0.45% to R833.78. Naspers traded 0.36% higher to R2 146.23.