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Johannesburg - The strong rally in resources shares on the JSE continued on Wednesday morning, but the broader market hardly moved in line with global markets.
Analysts said investors are becoming cautious about the sustainability of the current run in global markets and are looking for new indicators.
The volatile oil price, which lost ground again on Wednesday morning, probably played a role in morning trade, but some analysts said the current run in share prices is just a temporary correction in a longer-term bear market.
By mid-morning the All-share index was only 0.07% higher at 53 4119 points and the Top 40 index lost 0.04% to 47 008 points. At that stage the Financial index was 0.17% softer and the Industrial 0.76% down, but commodity shares continued their run with the Resources index 2.47% higher and the Gold index 1.05% stronger.
Some analysts also think there is no real economic reason for the strong run in commodity shares, except for the fact that they were totally oversold when the commodity cycle was at its bottom.
Global markets were all lower on Wednesday morning as crude oil prices fell after a strike by Kuwaiti oil workers ended, which brought all the worries about oversupply to the fore again. The price of Brent crude temporarily dropped to below $40 a barrel.
There are however analysts who think recent gains by global markets were just a temporary bounce in a longer-term decline. European stocks reached a three-month high earlier this week, Asian shares were the highest in five weeks and the Dow Jones index on Wall Street traded above 18 000 points for the first time since July last year.
Andreas Clenow, a hedge fund manager at ACIES Asset Management, believes recent gains are temporary."We are still in a bear market," he said.
Prospects for the oil price are also weaker as the end of the Kuwait strike revived the bearish mood brought on by the failure of talks on output by major producers in Dohama last weekend. They could not agree to limit production and reverse a slump in prices since mid-2014.
"Prices had risen too far on false hopes of a deal. Now that this has been corrected, we're more neutral in our price outlook," said Georgi Slavov, head of research at commodities brokerage Marex Spectron.
Attention on the JSE however focused on the continued rally in the resources sector, which has gained more than 10% over the past seven days and over 24% over the past 90 days. There are however also analysts who are uncertain about the real reason for the run, as nothing came out of the International Monetary Fund meetings over the weekend that suggested things were normalising and steaming ahead.
The fact that interest rates are unlikely to rise soon is a big plus as it keeps the dollar in check, which means that buyers of commodities pay less for the product in their own currencies.
There seems to be a growing perception that the commodity cycle has reached the bottom and that the Chinese economy, which is the biggest consumer of commodities, is beginning to stabilise.
One of the recovering commodities is iron ore, which traded above $60 a ton for the first time in six weeks on reports that China’s steel production is improving.
Chinese steel futures are trading sharply higher as steel traders are restocking on the expectation that demand for steel in building projects will stay strong in the months ahead.
The share prices of South African iron producers continued their strong run on Wednesday, with Assore [JSE:ASR] gaining 4.97% to a new 52-week high of R182, after it traded as low as R56 as recently as January this year. The share price is now 189.9% higher than that.
Kumba [JSE:KIO], which is 185.6% higher than the 52-week low of R25.35 reached in January this year, traded 2.80% stronger at R105.70.
Anglo American [JSE:AGL] is steaming ahead unabatedly and traded 7.59% up at R162.59, after being as low as R53.30 early in January. The share price now 107.7% higher than 90 days ago and gained a massive 24.9 over the past seven days alone.
BHP Billiton [JSE:BIL] traded above R200 for the first time since November last year, gaining 3.2% to R203.51. The share price rose more than 20% over the past seven days.
Impala Platinum [JSE:IMP] made a strong run on Wednesday after the platinum price rose 3% on Tuesday. By mid-morning the share was 8.37% higher at R52.45, bringing gains over the past 90 days to more than 81%. Anglo American Platinum [JSE:AMS], which is now 132.6% higher than three months ago, gained another 1.66% to trade above R400 again at R403.78.
