Johannesburg - Indications from China that the country’s central bank does not intend to allow its currency to fall further soothed world markets on Friday, with most of the major indices on the JSE also moderately higher by midday.
By midday the All-share index was 0.61% higher at 48 344 points and the Top 40 index was 0.83% stronger at 43 501 points. The All-Share index traded in a narrow band of about 0.5% all morning.
China’s support for the yuan also helped the rand to recover somewhat and the local currency at midday traded at R16.04 to the dollar. That helped financial shares, and the Financial index was 0.50% firmer after opening about 1% higher.
FirstRand [JSE:FSR], one of the big losers recently, gained 1.41% to R39.50, but Standard Bank [JSE:SBK] was 1.86% softer at R106.86. Old Mutual [JSE:OML] was 1.14% stronger at R37.36.
Battered Chinese stocks rebounded on Friday after the People's Bank of China (PBOC) set a higher reference point for the yuan against the dollar. The Chinese authorities also suspended its market circuit breaker system late on Thursday.
Chinese share prices went into free fall this week on suspicions that China wants to weaken its currency to support the battling economy. This increases risk for overseas investors, and share prices fell so quickly that trade was suspended twice this week by a market circuit breaker after the major indices dropped over 7%.
The Chinese said on Thursday the new system was suspended because it failed to reduce market volatility. Some market players said it backfired.
The best news however was the decision to set the reference rate for the yuan higher, after the bank had dropped it for eight consecutive trading days to the lowest point since 2011.
The PBOC on Thursday also reportedly intervened heavily to defend the yuan in offshore trade, reversing a decline of more than 1% that took the unit to a record low of 6.7600 to a dollar.
The PBOC's Friday setting is "a signal it does not intend to keep allowing the yuan to fall," said Yoshinori Shigemi, global market strategist at JP Morgan Asset Management.
Asian shares were still on track for their biggest weekly fall in more than four months, but Friday's advances seemed to reduce some of the fears that have hit global markets.
The improved sentiment also spilled over into Europe, which supported the big dual-listed shares on the JSE. The Industrial index gained 0.74% and was the top performer among the major indices.
Naspers [JSE:NPN] and Richemont [JSE:CFR], the two big shares in the Industrial index with major exposure to China, both improved substantially. Richemont was 2.19% higher at R108.50 and Naspers gained 1.27% to R1 945.37.
One of the surprises was that MTN’s [JSE:MTN] share price did not show a greater reaction to the news that it had gone ahead with the acquisition of network operator Visafone Communications in Nigeria, with the blessing of the Nigerian telecommunications authorities.
This allayed fears that MTN might pull out of Nigeria over the record-setting $3.9bn fine imposed on it by regulatory authorities for failing to disconnect more than 5 million unregistered SIM cards. At midday MTN's share price was 0.15% lower at R126.06, after the stock lost 10.48% over the previous seven days.
The deal will give MTN access to lucrative radio frequency spectrum in the 800MHz band that will allow it to build a 4G/LTE network offering widespread coverage, including in outlying areas.
The Resources index was however 0.74% lower, with Anglo American [JSE:AGL] still in a sharp decline and losing another 5.01% to only R54.53, after trading at a 52-week high of more than R223 less than a year ago.
ArcelorMittal South Africa [JSE:ARC], which lost 26.55% over the past 30 days, gained a spectacular 21.51% to trade at R5.48. The share price was supported by an announcement that the South African government is extending tariffs on steel imports.
The steel company also said it is in advanced talks with the South African government on using local steel for public infrastructure projects and on a pricing mechanism for ArcelorMittal-produced steel.
Analysts think the government measures, together with the cost-cutting steps the company is taking, have “a reasonable prospect of returning the company to profitability in the medium term”.