JSE slips as investor fears, strong rand weigh

Johannesburg - Share prices dropped again on Thursday morning as the strong rand and the country’s poor economic prospects weighed heavily on investors.

Global markets continued to be in a buoyant mood as a disappointing reading on the US services sector seemed to diminish the chance of a rate hike from the Federal Reserve and hit the dollar across the board.

The rand continued its run against the struggling dollar and again traded below R14.00 to the greenbackr at R13.96. This was however bad news for rand hedge shares and the Industrial index, which includes most of the big dual-listed companies that earn a major portion of their earnings abroad, was 0.66% lower at mid-morning.

Unusually, the strong rand also did not do much for financial shares as disappointing results from South Africa’s biggest insurers painted a poor picture of current economic conditions. By mid-morning the Financial index was 0.99% lower, with Sanlam [JSE:SLM] losing more than 3% after poor results.

Resources and gold were the only sectors trading higher after Chinese trade data topped forecasts and imports recorded their first annual rise since late 2014, a promising sign for global demand for commodities.

A weaker dollar is also good news for commodity prices and gold, platinum and silver all traded higher. By mid-morning the Resources index had gained 1% and gold was a solid 2.33% higher.

The result was that the All-share index dropped 0.35% to 53 267 points at mid-morning and the Top 40-index lost 0.43% to 46 575 points.

Market sentiment is still driven by the propect of interest rate hikes and investors' attention is focused on the European Central Bank's regular policy meeting later on Thursday.

Nearly all analysts polled by Reuters expect rates to remain unchanged, though there was more uncertainty on whether the European Central Bank would announce an extension of its €80bn of monthly asset buys.

Prospects of a US rate hike are also lower after the Federal Reserve’s latest Beige Book report on the economy was littered with the words "modest" and "moderate". There was, in particular, little sign of the wage pressures the Fed is counting on to push inflation higher.

The focus in the local financial sector was however not so much on interest rates and the strong rand, but on poor economic conditions that are beginning to have a detrimental effect on financial sector earnings.

Sanlam’s share price was more than 3% lower after the largest South African-based insurer said first-half profit fell 7% as the economy struggled to boost growth. The day before, MMI Holdings [JSE:MMI] announced a 25% earnings drop, citing the same reason for the disappointing results.

Sanlam’s earnings before one-time items and other adjustments declined to R4.26bn, or R2.08 a share, from R4.59bn, or R2.24/share, a year earlier.

Sanlam’s share price at mid-morning was 3.51% lower at R64.52, but the stock traded as low as R63.29. MMI Holdings, which at one stage on Wednesday was more than 4% lower, lost 1.99% on Thursday morning to trade at R23.70.

Among the banks Standard Bank [JSE:SBK] traded 2.02% lower at R136.93, while FirstRand [JSE:FSR] shed 0.89% to R46.70.

Aspen Pharmacare Holdings [JSE:APN] was the biggest loser among the industrial shares, at one stage heading for its largest drop in almost 17 years after it said the impact of selling two pharmaceutical portfolios and a one-time currency-related loss in Venezuela would weigh on earnings. Earnings per share fell by 15% to 20% to as low as R9.12 in the 12 months through June.

By mid-morning the share price was 8.52% lower at R330.93 but the stock earlier plunged more than 10% to R326.88, the steepest decline since October 1999.

Naspers [JSE:NPN] lost ground after six consecutive all-time highs and traded 0.55% softer at R2 516.00. MTN [JSE:MTN], which lost more than 19% over the previous 30 days, traded 1.69% lower at R116.48. Big institutional investors are currently net sellers of MTN.