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Johannesburg - South African banking shares, which lost more than R80bn in value on Friday after President Jacob Zuma’s controversial Cabinet reshuffle, continued their decline on Monday, although the losses were somewhat slower.
Resources and gold shares however made good gains as the rand weakened further amid the political uncertainty in South Africa. Indications of strong economic growth worldwide are also good news for commodities demand.
The Industrial index, which includes most of the big dual-listed shares, was also higher as global markets responded strongly to indications of firmer economic growth. The weaker rand also make the dual-listed shares cheaper for foreign investors.
The result was that the All-share index was already 0.58% higher at 52 359 points at mid-morning, while the Top 40 index, which includes all the big dual-listed shares, traded 0.76% stronger at 45 509 points.
That is mainly the result of the Resources index gaining 1.94% in morning trade, while the Industrial index was 0.84% higher. The Financial index was 1.01% lower as the rand weakened 1.6% to R13.60 to the dollar, after trading at a two-year high of R12.46 last week.
A stronger JSE however does not mean that investors are not concerned about the possible fallout of Pravin Gordhan’s controversial sacking as finance minister.
Monday’s trading pattern confirmed again that they are selling shares with direct exposure to the South African economy, such as banks, to buy rand hedge shares of companies which earn most of their income abroad.
The top banking shares, which all lost about 10% over the past seven days, all traded lower. Investors are concerned about the effect on the banks of a possible downgrade of South Africa’s credit rating, while a weaker rand could also lead to higher interest rates which will have a detrimental effect on banks’ business volumes and profit margins.
FirstRand [JSE:FSR] and Standard Bank [JSE:SBK], the two most liquid banking shares, were again the biggest losers. FirstRand, which lost more than 12% over the previous seven days, was 2.74% lower at R45.09. Standard Bank traded 2.38% softer at R140.33, after losing more than 9.5% over the previous seven days.
Barclays Africa [JSE:BGA], which lost more than 11.4% of its value last week, was however only 0.23% softer at R139.19. Nedbank [JSE:NED] was 1.43% softer at R238.05.
The resources sector also received a boost from news that German manufacturing growth reached an almost six-year high in March, while manufacturing activity in France and Italy also rose, adding to signs of a pickup in momentum in the global economy. A private survey on China's manufacturing on Saturday also showed a healthy expansion.
Industrial growth will lead to a higher demand for commodities such as iron ore and Kumba [KJSE:KIO] traded a healthy 4.66% up at R212.36. Kumba’s holding company, Anglo American [JSE:AGL], traded 1.42% stronger at R206.95 and BHP Billiton [JSE:BIL] was 1.60% higher at R210.51.
Sasol [JSE:SOL], whose income is directly linked to the value of the rand, gained 2.76% to R401.36 to trade above R400 for the first time since January 29 this year. The share has already gained more than 9% over the previous seven days.
Gold shares are also rand sensitive and the Gold index was 2.92% higher as the rand price of gold gained more than 1.6%, although the gold price was only 0.26% up.
Among the big rand hedges in the industrial sector Naspers [JSE:NPN] gained 1.58% to R2 351.52. British American Tobacco [JSE:BTI] was above R900 for the first time since September last year, when the share traded 2.29% higher at R901.62. The share gained 9.01% over the previous seven days.
