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Johannesburg - Financial shares on the JSE tumbled on Wednesday morning in line with global markets as the reality of the consequences of Britain’s decision to leave the European Union begins to sink in.
The frantic trading worldwide, with the British pound falling sharply to new lows in 31 years, was reminiscent of the fateful Friday after Britain voted to abandon the EU.
Within the first hour of trading, the financial index was already 1.6% lower as banking shares in particular dropped sharply everywhere in the world. By mid-morning the index was 2.73% lower at only 13 810 points, which is now more than 22% lower than the all-time high of 17 628 points reached as recently as August last year.
With the industrial index also 1.49% lower, the All Share-index was mid-morning already 1.33% lower on 50 984 points, while the Top 40-index was trading 1.40% softer on 44 696 points. The All Share-index is at its current level almost 7% lower than the high for the year of 54 474 points, which was reached as recently as 29 May this year.
Gold shares soared as investors poured into gold as a safe haven. The gold index was by mid-morning already 6.15% higher on 2 701 points. That means the gold index gained almost 34% since 21 June, two days before the British referendum on Brexit when the index traded at only 2 032 points. The gold price increased with 16% since 23 June, the day of the referendum, to this morning’s level of $1 368 per fine ounce.
Concerns about the consequences of Brexit surfaced again with the news that the Bank of England had to act to encourage British banks to continue lending by decreasing bank’s capital requirements. Banking shares dropped sharply in response and the STOXX Europe 600 banks index fell 1.2%. Fears that Italy faces a banking crisis exacerbated the situation.
Concern about London’s future as the financial capital of the world also increased after Germany’s Deutsche Boerse signalled on Tuesday that the headquarters of a European giant to be created from its merger with the London Stock Exchange Group may now have to be outside the United Kingdom. Three British commercial property funds worth about £10bn suspended trading as asset prices plunged.
The pound was again a major casualty, cracking supports at $1.3000 and $1.2950 to the pound to drop as low as $1.2798 in fast-moving trade. This was ground not visited since 1985 when it got as far as $1.2565 - depths that could be revisited soon.
Financial markets rallied last week on expectations that central banks will loosen monetary policy even further to support global growth, but analysts and even banks warned that interest rates are already so low that the scope for manoeuvre was strictly limited and any new steps could prove counter-productive. Investors are still investing heavily in government debt, pushing yields even lower.
European markets followed Asian markets sharply lower, although the FTSE 100-index in London fared better than its European counterparts, as the overseas companies listed in London will benefit from the weaker pound.
Banks trade sharply lower
All five major banks in South Africa traded sharply lower on the JSE on Wednesday morning, with some of them losing more than 4%. Barclays Africa [JSE:BGA] lost 4.08% to R133.54 and Standard Bank [JSE:SBK] was 4.07% softer on R118.75. Nedbank [JSE:NED] traded 4.03% weaker on R176.39, but FirstRand [JSE:FSR] lost only 2.68% to R42.07. Investec [JSE:INL], which is also listed in London, was also more stable after sharp swings last week and traded 2.64% lower on R82.06.
Old Mutual [JSE:OML], which is also listed in London, was again the busiest share on the JSE in terms of volume and lost 1.02% to R36.87.
In the industrial index Steinhoff, which is also listed on the Frankfurt Stock Exchange, traded 4.30% lower in response to the lower German market. Naspers also lost 2.28% to R2 115.63 and Richemont was 2.06% lower on R82.85, very close to its 52 week low of R82.41.
The two British property companies that are also listed on the JSE both traded at new 52-week lows of Wednesday morning. Capital Counties, with huge interests in the London office market, lost 4.19% to a new low of R50.30 and was before Wednesday’s trading already 34.4% lower over the past 30 days. Intu, which lost 23.46% over the 30 days until Tuesday, traded another 1.42% lower on R50.82.
The shares of almost all the major gold companies were trading at 52 week highs on Monday morning. The star performer was Harmony, which traded 10.19% higher on a new high R80.87. The share price is now 275.42% higher than a year ago and 40.4% stronger than 90 days ago.
DRD Gold, which was before Wednesday’s trade 92.44% higher over the past 30 days, gained another 7.72% to reach a new high of R10.60. Anglogold Ashanti breached the level of R300 to trade 5.91% higher on a high of R300.50, which is more than 60% higher than 90 days ago.
Goldfields gained 4.62% to a high of R80.87 and Sibanye was 7.53% stronger on R58.83, just below the 52 week high of R61.20.
* Movements in the share prices might have moved since the time of writing.
