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Johannesburg - The JSE’s recovery from the sharp drop as a result of the Brexit vote continued strongly on Thursday morning and the All-share index was 1.23% higher on 52 536 points by midmorning than the close on June 23, the day before it became known that Britain voted to leave the EU.
The European markets were, however, far more modest on Thursday with the FTSE-index in London only 0.54% higher and markets elsewhere in Europe only marginally stronger. It seems as if caution has returned to the markets.
Analysts said the South African market is benefitting from foreign investors looking for higher yields than the record low ones that are currently available in the developed world.
By midmorning on Thursday the Top 40-index had gained 1.25% to 43 306 points.
Globally markets recovered strongly over the previous two days after the sharp drop on Friday and Monday, with the FTSE 100-index in London recovering all its post Bexit-losses. The FTSE 100-index was less affected by Brexit than other major European indices as most of the companies in the index earn their income abroad and benefitted from the free fall in the value of the pound.
Analysts said, however, there is still too much uncertainty for a rally to continue. Christopher Dembik, an economist at Saxo Banque in Paris, said a rebound such as the one seen over the past two days is a well-known mechanism on financial markets after the panic caused by the Brexit-vote.
"We know that, after the rebound, volatility can re-emerge, and that is the main risk right now. The markets aren't calm, we are in the eye of the storm," said Adam Jepsen at Financialspreads, adding that "not a single issue" had been resolved.
Equities are, however, supported by the record low yields of governments bonds in the developed world, as investors are still fleeing to safe havens. That force investors to look for higher yields in higher risk assets without looking too much at the fundamentals.
German and Japanese benchmark 10-year government debt yields have both fallen to levels below zero over the past week. Irish, French and Dutch 10-year yields hit recorded lows on Wednesday, all approaching zero.
The 30-year US Treasury yield, while still positive, has approached record lows as well, while it is now uncertain if US interest rates will be hiked in future.
The quest for higher yields is benefitting emerging markets such as South Africa where the returns are much better. Foreigners bought government bonds to the value of R14.7bn so far in June, compared with outflows of R6.8bn in the same period last year. They also bought a net of R14.5bn’s worth of South African shares last week, the most since March 2009.
That explained why the rand recovered so quickly from the sharp drop last Friday in reaction the Brexit-news. The rand traded midmorning on Thursday at R14.77 to the dollar after reaching a low of R15.62 last Friday amidst the Brexit panic.
Financial shares were the biggest winners on the JSE on Thursday morning and the financial index was 1.45% higher by midmorning. The index has not recovered all the post-Brexit losses as it was before Thursday’s trade still 4.36% lower over the past seven days.
Insurance shares, which were the hardest hit over the past few days, continued their recovery, but is also still lower than seven days ago. Old Mutual [JSE:OML], which was Thursday morning still 6.25% softer over the past week, gained 1.59% to R38.43. Sanlam [JSE:SLM], which is still 4.89% lower over the past week, traded 2.61% stronger on R60.84.
Banking shares were much stronger and recovered most of their losses. Standard Bank [JSE:SBK], which has regained all the losses over the past week, gained 1.84% to R128.83. Barclays Africa [JSE:BGA] was before Thursday’s trading still 2.18% softer for the week, but made up most losses by trading 2.09% higher at R145.19. FirstRand [JSE:FSR] traded 1.45% stronger on R45.00, which is also higher than a week ago.
Naspers [JSE:NPN] contributed much to the industrial sector’s gain of 1.06% and was midmorning another 2.16% higher on R2 238.36. Naspers is already higher than a week ago, but SABMiller [JSE:SAB] is now about 7% lower than a week ago as it traded another 0.71% softer on R859.00.
Mediclinic International [JSE:MEI] is the one South African company which is listed on the London Stock Exchange, which was apparently not affected by Brexit. The share traded early on Thursday on a new intraday 52 week high of R214.43 and was midmorning only 0.18% softer on R214.04. The share gained more than 6% over the past week.
Kumba [JSE:KIO] was the star performer in the resources sector, which gained 1.44%. The iron ore producer is busy with another rally on the back of higher commodity prices and traded on Thursday morning 10.53% higher on R114.44. The share was before Thursday’s trading already 19.7% higher over the past seven days.
Anglo American [JSE:AGL] was 4.58% higher on R144.90 and BHP Billiton [JSE:BIL] traded 2.87% stronger on R186.02.
