Publications
Partners
Johannesburg - The JSE is currently not in line with other emerging markets, as most major indices on the local market moved higher again on Tuesday morning despite various factors which should have forced share prices lower.
Asian shares tumbled to near two-and-a-half month lows on Tuesday as investors fretted about the likelihood of a US interest rate increase in coming weeks. However, the All-share index is almost 2% higher over the past seven days and nearly 9% up over the past 30 days.
The strong dollar, supported by the prospect of higher interest rates, is also pushing commodity prices lower, but the Resources index on the JSE gained 2.4% over the past seven days and 11.34% over the past 30 days.
By Tuesday mid-morning the All-share index was 0.46% higher at 52 870 points and the Top 40 index had gained 0.62% to 46 828 points. At that stage the Resources index had risen 1.43% while the Industrial index was 0.30% up, backed by stronger European markets.
Emerging markets are discounting the possibility that higher interest rates in the US can lead to an outflow from these markets back to the US, where the risks are perceived to be lower.
This could also happen on the JSE, where foreign investors are heavily invested in the big dual-listed shares; however, up until now there has not been much evidence of such an outflow.
There is however much happening this week which could change sentiment on the local market, and emerging markets in general. Federal Reserve chair Janet Yellen will appear at a panel at Harvard University on Friday, a day on which investors will also see the second estimate of US first-quarter growth. Markets also await comments from other Fed officials this week as well as data on new home sales, durable goods orders and consumer sentiment.
Philadelphia Fed president Patrick Harker said on Monday that a hike in June is appropriate unless data weakens, while St Louis Fed president James Bullard said holding rates too low for too long could cause financial instability.
Local markets are also facing the possibility of another downgrade of South Africa’s credit rating when Standard & Poor's announces its credit status review on June 3.
Standard Bank [JSE:SBK] chief economist Goolam Ballim said there is a notion that such a downgrade has largely been priced in by the markets, but he warned that South Africa’s financial markets will face a window of extreme pressure immediately afterwards should there be a downgrade.
The reaction of South Africa’s equity market to a possible downgrade has been “astonishingly mild” compared with countries that faced a similar prospect, where equity markets plummeted on average 60% in the 12 months leading up to the downgrade, according to Ballim.
Even beleaguered bank shares, which arguably most accurately capture the low growth and downgrade risks facing South Africa, have not reflected the same sharp drop experienced in other global equity markets.
By mid-morning the Financial index was 0.45% higher. Before Tuesday’s trade, financial shares gained 2.4% over the past seven days; they are only 1.86% lower over the past 30 days.
The Financial index was given a boost by Old Mutual [JSE:OML] gaining 2.28% to trade at R38.98. Africa’s largest insurer said it has been approached by buyers interested in taking a stake in its US-based fund management unit.
Old Mutual plans to split into four separate units by 2018. The asset management unit, made up of boutique fund managers, sold shares to the public in New York in 2014 and its parent company holds almost 66% of the stock. It was also reported that Old Mutual is close to selling its entire stake to Affiliated Managers Group in a deal valued at about $1bn.
In the banking sector Barclays Africa [JSE:BGA] lost 1.41% to R14.11 after it gained 3.23% in the previous seven days. The Public Investment Corporation, Africa’s biggest fund manager, said it is forming a group of black investors to buy a stake in a bid to ensure that the bank returns to South African control.
Britain’s Barclays Plc holds 50.1% of the South African bank and plans to reduce that stake to raise cash. Former Barclays chief executive officer Bob Diamond said in April he and investors - including US private equity giant Carlyle Group - are working on a potential bid. Dubai-based Abraaj Group is also planning a bid.
Standard Bank [JSE:SBK], which lost R300m in a fraud scheme in Japan, was by mid-morning 0.38% higher at R120.03. FirstRand [JSE:FSR] was 0.12% stronger at R42.15.
In the industrial sector, Richemont [JSE:CFR] lost 1.70% to trade at a new 52-week low of R89.10. Before Tuesday’s trade the group was about 5% lower over the past seven days, after warning that sales in April were 19% lower than a year ago.
SABMiller [JSE:SAB] and British American Tobacco (BAT) [JSE:BTI] are both approaching new 52-week highs. SABMiller traded 0.92% stronger at R979.46, just the below the high of R986.41. BAT was 1.27% higher at R949.40. The 52-week high is currently R954.70.
South African consumer goods maker Tiger Brands [JSE:TBS] said on Tuesday first-half earnings rose 14%, boosted by the sale of its Nigerian business, but investors were more interested in the warning that tough trading conditions would persist for the rest of the year. The share price lost 2.78% to R328.50.
In the resources sector Anglo American [JSE:AGL] traded 2.86% higher at R140.09 and BHP Billiton [JSE:BIL] gained 2.02% to R188.15.
