Johannesburg - Share prices recovered on Thursday morning as the market is still trying to digest Finance Minister Pravin Gordhan’s Budget Speech delivered in Parliament on Wednesday.
The rand dropped the most in five weeks and the All-share index fell to below 48 000 points, but on Thursday morning the index crept back to above 48 000 points. Most indices were higher and the Resources index gained almost 1.8%.
The business community's reaction to the budget was mostly positive, but some economists thought Gordhan did not do enough to stave off a downgrade of South Africa’s credit rating to junk status.
READ: Budget 2016: Full speech
Although Gordhan set optimistic targets to reduce the budget deficit, there was very little detail on how this would be achieved with limited economic growth, which Gordhan estimated at 0.9% for the year.
READ: Budget in a nutshell
The drop of more than 3% in the value of the rand was regarded by some analysts as a negative reaction to the budget, but others said the news that Brazil’s credit rating was downgraded to junk status - announced while Gordhan was making his speech - was the main reason for the weaker currency, which by mid-morning traded at R15.63 to the dollar.
READ: Rand reels as junk status hits Brazil amid Gordhan's budget
Other emerging market currencies have also been under pressure as the Chinese share market dropped sharply and the offshore yuan declined for a fifth day.
By mid-morning on Thursday the All-share index was 0.77% higher at 42 781 points and the Top 40 index had gained 0.77% to trade at 42 781 points. At that stage the Financial index was 0.71% up after falling steeply earlier in the week, and the Industrial index traded 0.46% stronger supported by firmer European markets.
The Chinese market dropped by more than 6% on Thursday morning. The Shanghai Composite index extended its declines this year to 22%. It is clear that volatility is returning to the Chinese markets after the benchmark gauge rebounded 10% from its January low.
The fall in Chinese share prices however did lead to renewed speculation that Chinese authorities will announce further measures to stimulate the world’s second-biggest economy, which is good news for South African resources shares.
There is much interest in China’s economic policies before the Group of 20 meetings begin in Shanghai on Friday and the start of the annual National People’s Congress next week.
At midday the Resources index on the JSE was 1.70% higher. The index has now gained more than 10% over the past month, before the start of Thursday’s trade.
Anglo American [JSE:AGL], which dropped about 10% on Wednesday, recovered about half of those losses and at mid-morning was 5.56% higher at R94.08. BHP Billiton [JSE:BIL] was 2.65% higher at R421.66 and Kumba [JSE:KIO] gained 4.65% to R67.53.
Naspers [JSE:NPN], the company on the JSE with the biggest exposure to the Chinese markets through its interest in Chinese internet giant Tencent, was not affected by the sharp drop in Chinese shares and was 0.63% higher at R1 826.14.
Sasol [JSE:SOL] was also not affected by a drop in the oil price after Saudi Arabia dashed all hopes of a deal between oil-producing countries to limit output. The share gained 2.65% to trade at R421.66.
The Gold index slipped 0.79%, despite a hike of $7 in the gold price to $1 236 and the sharp drop in the value of the rand, which means that mines will earn more in rand for their gold. Sibanye’s [JSE:SGL] share price however went against the trend and gained 7.81% to a new 52-week high of R56.06, despite a lower profit in the 12 months until December.
The share price is already 67.2% higher for the past 30 days on expectations that the company is geared to benefit greatly in the coming financial year from a higher gold price and weaker rand.