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Johannesburg - The JSE followed world markets lower on Wednesday, as the wave of pessimism about the world’s economic prospects has a detrimental effect on share prices, emerging market currencies and commodity prices.
The big losers on the JSE were financial and commodity shares, but a firmer Industrial index curtailed the losses. By lunchtime the two major indices - the All Share and Top-40 indices - were only modestly lower at 51 605 points and 45 333 points respectively.
The Resources index lost 2.47% as commodity prices dropped sharply and the Financial index was 1.19% softer on concerns about South African’s economic prospects and the possibility of a further downgrade of the country’s credit rating.
The South African Reserve Bank (SARB) said on Tuesday the possibility of such a step is medium to high. Standard Bank [JSE:SBK] lost 2.40% to R120.57.
The big double listed shares on the JSE did however recover and the Industrial index was 0.27% stronger and was in earlier trade more than 0.60% stronger.
More bad news on the Chinese manufacturing sector on Tuesday had a major influence on the sentiment on world markets, and by lunchtime on Tuesday, emerging market currencies and commodity prices, including gold and oil, turned south sharply and followed share markets lower.
The big loser was the rand, which traded sharply weaker at R14.80/$ from its previous close.
The rand was also hit by a stronger dollar after Federal Reserve officials indicated a June interest-rate increase is still possible.
Dennis Loxkhart, president of the Fed in Atlanta, said a US rate hike next month was “a real option”. Such a step can lead to an outflow of funds from emerging markets to the US where the risk is perceived to be lower. The dollar however reached a new 18-month low against the yen leading to the Nikkei index in Tokyo losing more than 3%.
The weaker rand probably supported the big dual-listed industrial shares, which rose despite the fact that the European markets, where these shares are also listed, experienced its worst decline since February this year. European investors are focusing on disappointing company earnings for indications of the health of the eurozone economy.
Among the big shares Naspers [JSE:NPN] gained 1.4% to R1 920.58, Richemont [JSE:CFR] traded 1.45% stronger on R96.95 and SABMiller added 0.75% to R894.97. British American Tobacco [JSE:BTI] gave up its earlier gains to trade down 0.17% at R882.87.
Commodity prices were not only hit by global pessimism on economic growth, but the drop is also the result of successful efforts by the Chinese regulators to pop a mini-bubble in steel and other commodity futures, scaring off speculators who piled in last month to drive steep gains in the prices of raw materials from coal to cotton.
China has vowed that it won't allow its commodity futures markets to become a "hot-bed" for speculators, fearing that price movements not based on fundamentals could skew investment decisions and hamper efforts to rein in overcapacity.
Prices retreated sharply after commodity exchanges in Dalian, Shanghai and Zhengzhou increased transaction costs and widened trading limits, making speculative investment more difficult.
BHP Billiton [JSE:BIL] was the worst hit by the drop in commodity prices and lost 5.42% to R175.11. The share was also more than 6% lower in London.
Anglo American lost 2.48% to R137.50 and Glencore [JSE:GLN] was 2.84% softer on R30.78.
Kumba [JSE:KIO] and Assore [JSE:ASR], the two iron ore producers which gained more than 245% over the past 90 days on a rally in iron ore prices, both lost ground. Kumba lost 1.74% to R110.40 and Assore 0.25% to R200.30
