Johannesburg - The JSE initially went against world markets on Monday morning, trading more than 1% higher in early morning trade despite Asian shares sliding to their lowest levels since 2011 on Monday after weak US economic data and a massive fall in oil prices stoked further worries about a global economic downturn.
But the major indices gave up almost all of those early gains by midday and were barely in the black, with the intraday graphs firmly heading downwards.
The JSE initially reacted with a slightly firmer rand after China announced even more measures to protect the yuan, which helped to stabilise emerging market currencies against the dollar. The pressure of another rout on world markets, based on concerns about the world economy, was however too big to ignore.
By midday on Monday the All-share index was only 0.05% up at 46 985 points, after at one stage reaching more than 1.2% higher than Friday’s close. The Top 40 index was only 0.13% stronger at 42 160 points.
The initial gains were driven by the Financial index which in early trade was almost 1.81% stronger than Friday’s close, but this run quickly petered out and the index was only 0.33% higher by midday. The Industrial index also gave up almost 1% to trade only 0.46% higher by midday.
The Resources index lost 1.72% and the Gold index shed 1.54%.
Analysts warned of more market volatility and lingering market nervousness.
"Worries about China, the Federal Reserve’s interest rate policy and global growth are likely to drive continued share market weakness and volatility in the short term," Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, told Bloomberg News.
The real concern is the free fall in the oil price, which faces fresh pressure after international sanctions against Iran were lifted over the weekend, allowing Tehran to return to an already over-supplied oil market. By midday the spot price of Brent crude was $28.51, the lowest level since 2003.
"Iran is now free to sell as much oil as it wants to whomever it likes at whatever price it can get," said Richard Nephew, programme director for Economic Statecraft, Sanctions and Energy Markets at Columbia University's Center on Global Energy Policy.
The low price, which is seen as an indication of weak economic activity, hurt Asian shares severely on Monday. MSCI's broadest index of Asia-Pacific shares outside Japan fell to its lowest since October 2011 and was last down 0.5%. Japan's Nikkei index tumbled as much as 2.8% to a one-year low. It has lost 20% from its peak hit in June, meeting the definition of a bear market.
On Wall Street, the broader S&P 500 index also hit a 15-month low on Friday, after disappointing economic data. An unexpected drop in retail sales and the third consecutive monthly fall in industrial output in December added to the latest indications that US economic growth braked sharply in the fourth quarter.
"We are coming to a stage where we need to consider the risk of a recession in the global economy," said Chotaro Morita, chief fixed income strategist at SMBC Nikko Securities.
Analysts are now beginning to think that the Federal Reserve might be forced to rethink its policy of gradually increasing interest rates, if the continued market volatility persists. The possibility also supported the rand on Monday.
The local currency, which in early trade fell as low as R16.97 to the dollar, traded at R16.74 at midday after the People’s Bank of China increased its reference rate for the yuan by 0.07% - the most since the middle of last month.
China’s central bank also said on Monday it will start implementing a reserve requirement ratio on offshore banks’ domestic deposits, in what appears to be an attempt to stem speculation in the yuan and manage money flowing into and out of the country.
Some of the JSE's big financial shares gave up substantial early gains. FirstRand [JSE:FSR] at midday was 0.38% stronger at R39.15 but reached a high of R39.75, almost 3% up on Friday. Standard Bank [JSE:SBK] was at one stage almost 2.4% stronger at R102.14 but traded only 0.9% better at R99.03. Old Mutual [JSE:OML] gained 1.01% at R36.84 after reaching a high of R37.50, up almost 3%.
The Industrial index was supported by its four biggest shares, which all traded higher. British American Tobacco [JSE:BTI] gained a solid 1.98% to R868.01 and Naspers [JSE:NPN] was 0.47% better off at R1 827.56. The two beer giants on the JSE both reached new highs. Anheuser-Busch Inbev [JSE:ANB], which listed on Friday, traded 0.95% higher at R1 962.00. SABMiller [JSE:SAB] gained 0.88% to trade on a new high of R985.00.
Retailer Mr Price [JSE:MRP], which lost 18% on Friday on disappointing results, recovered by 1.90% and at midday traded at R159.95.
The weak oil price hurt Sasol’s [JSE:SOL] share price which lost 3.39% to R364.49. Although Sasol is dependent on the oil price, the stock lost only 5.68% over the previous 30 days, as the company’s income is hedged by the sharp drop in the value of the rand.