Johannesburg - South African financial markets seem to be stabilising after the turmoil caused by President Jacob Zuma’s decision to fire finance minister Pravin Gordan, which led to South Africa’s credit rating being downgraded to junk status.
All major indices on the JSE were higher at mid-morning, even the Financial index, as the rand strengthened against the dollar and bond rates also stabilised. It seems the expected outflow of foreign capital from the local capital market has not yet started.
The mood is however still nervous, with the South African Reserve Bank (SARB) warning that the exchange rate is now a major risk for inflation expectations, which could eventually lead to higher interest rates.
In its semi-annual Monetary Policy Review released on Monday, SARB said the risk to the exchange rate is that it will depreciate in the near term in response to increased political uncertainty, potentially accelerating inflation.
However, it seems the rand has met some resistance at the level of R14.00 to the dollar. The currency closed at R13.95/$ in New York on Monday, but strengthened to R13.88/$ on Tuesday. It was supported by a softer dollar, as geopolitical tension in Syria and North Korea lessened the possibility of further US interest rate hikes.
In fixed income, the yield for the benchmark government bond due in 2026 fell 1 basis point to 8.985%. This is good news for banks; the Financial index at mid-morning was 0.53% higher, while the Banking index - which at Monday's close was 12.3% lower than on March 30, before Zuma announced his controversial Cabinet reshuffle - had gained 0.41%.
Nedbank [JSE:NED] was the only one of the four major banks trading lower on Tuesday, but volumes were low except for FirstRand [JSE:FSR] which was the busiest share on the JSE, with almost 10 million shares being traded.
Standard Bank [JSE:SBK] was the top performer among the big banks, gaining 1.40% to R137.90. FirstRand traded 0.83% higher at R44.97, still more than 8% lower since March 30. Barclays Africa [JSE:BGA] was 0.62% stronger at R141.34, but Nedbank lost 1.34% to R222.28.
At mid-morning the All-share index was 0.57% higher at 53 444 points, while the Top 40 index gained 0.67% to 46 732 points. The Industrial index was 0.46% higher and the Resources index traded 1.05% stronger.
The Gold index was again the star performer, lifting 2.43% on the back of rand weakness and a slightly higher gold price, due to international political pressure. On Tuesday morning the index was more than 16% higher than before Zuma’s Cabinet reshuffle.
Richemont [JSE:CFR] reached yet another 52-week high on Tuesday, gaining 1.57% to R110.62. Remgro [JSE:REM] lifted 0.09% to R208.82 and Naspers [JSE:NPN] traded 0.15% softer at R2 448.68. Steinhoff [JSE:SHF] was 1.64% higher at R69.32.
BHP Billiton [JSE:BIL], which at one stage on Monday was more than 6.5% higher on reports that shareholders want the group to end its listing on the London Stock Exchange, gained 0.82% to R229.13. Anglo American [JSE:AGL] added 1.28% to R214.70.