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Johannesburg - May is generally regarded as the worst month of the year for investors on the JSE, but the market this year is remarkably resilient.
All major indices on the JSE recovered strongly on Friday morning from Thursday’s sell-off sparked by indications that US interest rates will be raised sooner rather than later.
Globally, the US and Asian markets were still in turmoil but the European markets also showed a firm recovery on Friday which supported the local markets, as the big market capitalisation shares on the JSE are also listed in Europe.
By mid-morning the All-share index was 1.26% higher at 53 032, making it about 1% higher for May as the index stood at 52 412 points on May 1. The Top 40 index was 1.29% higher at 46 910 points, which meant this index gained about 2% so far in May from 45 548 points on May 1.
The gains in May are almost entirely due to a 2% rise in the Industrial index, which started the month at 69 839 points.
At mid-morning on Friday the index was 0.67% higher at 71 803 points.
The Financial, Resources and Gold indices were all volatile in May, but Friday morning’s levels were not much different from those of the beginning of the month.
By mid-morning the Financial index was 1.74% stronger, the Resources index had gained 1.72% and the Gold index was 1.72% upr. All three indices were sharply lower on Thursday, on news that most policymakers in the US Federal Reserve were in favour of an interest rate hike.
New York Fed president William Dudley, a permanent voting member of the central bank's rate-setting committee, said on Wednesday there was a strong sense among Fed officials that markets were underestimating the probability of policy tightening, and that the Fed was on track for a rate hike in June or July.
Markets are pricing in a 32% chance of a rate hike in June, according to the CME FedWatch tool, up from 15% on Tuesday. A majority now expect the interest rate to rise at the July meeting.
Such a hike can persuade foreign investors investing in the big dual-listed shares on the JSE in search of higher yields to revert their investments to the US, where risks are perceived to be lower. However, there are no signs of this yet.
The strong performance by industrial shares on the JSE can also be attributed to the weak rand, which lost more than 11% of its value during May. The currency traded at R15.73 to the dollar at mid-morning, compared to only R14.26 on May 1.
The weak rand is probably the main reason why the Gold index was positive on Friday morning, despite the fact that the metal was set for its biggest weekly slide in eight weeks on the back of a firmer dollar and indications of a sooner-than-expected Fed rate hike.
The gold price was steady on Friday at $1 254.46 per ounce at 05:48, near a three-week low of $1 244 reached in the previous session. The metal is down 1.5% for the week, its biggest drop since the week ended March 25.
The South African Reserve Bank's decision to leave interest rates unchanged for now probably also supported the local market.
The big company news on Friday was a trading update by Richemont [JSE:CFR], forecasting a difficult first half after sales plunged 18% in April. The Swiss company also reported full-year earnings that missed analysts’ estimates on Friday, dealing a further blow to the ailing luxury goods industry.
READ: Richemont faces tough market after April sales plunge
Operating profit fell to €2.06bn in the 12 months through March, the Geneva-based company said. That missed the average analyst estimate of €2.29bn.
Richemont was the busiest share on the JSE in terms of volume and by Friday mid-morning more than 7.7 million shares were traded for more than R735m in over 3 000 transactions. The share traded 2.96% lower at R95.36 after it gained 2.05% over the previous seven days.
The Industrial index was given a big boost by Naspers [JSE:NPN], which was 2.19% higher at R2 102.94. Before Friday's trade the share price gained 3.93% over the previous seven days.
In the financial sector FirstRand [JSE:FSR] gained 1.75% to R41.97, Standard Bank [JSE:SBK] was 2.08% higher at R117.73 and Barclays Africa [JSE:BGA] traded 2.79% stronger at R139.75.
Investec [JSE:INL] gained 2.23 to R109.94. The group announced that the pound sterling value of its results was negatively impacted by a significantly weaker rand, despite reasonable profit growth across both its South Africa and UK businesses. On a currency neutral basis, operating profits were up 13.5%.
High volumes of Liberty Holdings [JSE:LBH] were traded on Friday after a disappointing trading statement. The share price lost 3.36% to R125.15.
The group said increasing pressure on consumer disposable income, volatile investment markets and lower economic growth have impacted both net customer cash flows and new business. Returns on the shareholder investment portfolio were behind the benchmark for 2016, but remain well ahead of the three-year cumulative benchmark.
In the resources sector, Anglo American [JSE:AGL] gained 5.31% to R139.14 and BHP Billiton [JSE:BIL] was 2.58% higher at R190.94. Sasol [JSE:SOL] gained 1.82% to R465.31.
