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Johannesburg - Shoprite [JSE:SHP] surprised the market with remarkably strong sales figures on Wednesday, triggering a run in retail share prices in morning trade with some of the biggest retail groups trading at new 52-week highs.
The retail sector helped counter a sharp drop in the prices of commodity shares and by mid-morning on Wednesday the major indices were mostly unchanged. Financial and industrial shares followed European markets higher, but resources stocks were more than 2% lower in response to a similar drop in the FTSE mining index in London.
The drop in resources shares was in response to the stronger dollar, which is trading close to a four-month high against a basket of currencies.
By mid-morning the All-share index was 0.04% lower at 52 87 points, while the Top 40 index was 0.02% up at 46 222 points. At that stage the Financial index traded 0.67% higher, while the Industrial index had gained 0.53%. The Resources index was however 2.28% lower while the Gold index lost 1.85%.
On Wednesday Shoprite was one of the busiest shares on the JSE with more than 1.5 million shares trading for over R282m, after the company on Tuesday announced that its full-year sales grew 14.4%, buoyed by revenue from stores outside its home market.
READ: Shoprite jumps most since 2008
The share price at mid-morning was 7.09% higher at a new 52-week high of R187.52, after it gained more than 5% during the previous seven days.
The big surprise was the strong sales growth in the rest of Africa, despite the fact that African economies are under pressure due to lower commodity prices and weaker currencies. The group reported respectable sales growth of 10.9% in South Africa, but a 32.6% sales hike outside South Africa.
Clicks [JSE:CLS], Pick n Pay Stores [JSE:PIK] and Pick n Pay Holdings [JSE:PWK] were also trading at new 52-week highs, with Massmart’s [JSE:MSM] share price just below the high.
Clicks has been the star of the retail sector lately, gaining 33.6% over the past 90 days. By mid-morning the share price was 2.68% up on a yet another new high of R127.03. The company recently received a massive boost when it acquired the right to operate all the pharmacies in Netcare [JSE:NTC] hospitals.
The share prices of the Pick n Pay group have been on a run since the news that Pick n Pay Holdings will distribute all its shares in Pick n Pay Stores to shareholders. Pick n Pay Holdings is now more than 18% higher over the past 30 days and over 41% up over 90 days. Pick n Pay Stores gained 24.3% over the past 90 days.
On Wednesday morning Pick n Pay Stores traded 1.14% higher at a new high of R77.12, while Pick n Pay holdings gained 1.49% to a high of R36.48. Massmart gained 2.68% to R144.21, just below the 52-week high of R145.70.
The pressure on resources shares is the result of a strong dollar, supported by firm US data and rising expectations that the Federal Reserve will raise interest rates before the end of the year, now that the market turmoil in response to Brexit has calmed down.
Data from the US Commerce Department showed that US housing starts surged 4.8% to a seasonally adjusted annual pace of 1.19 million units, underpinning a theme of strength in the US economy.
Futures are now discounting a 50/50 chance that the Fed will raise interest rates by its December meeting, compared with less than 20% a few weeks ago.
The International Monetary Fund’s decision on Tuesday to cut its global growth forecasts for the next two years over uncertainty arising from Britain's looming exit from the European Union is also bad news for commodities demand.
Anglo American [JSE:AGL] was as usual the most volatile among the big resources shares, with stocks trading 7.18% lower at R142.94. BHP Billiton [JSE:BIL] traded 2.82% softer at R174.82 and Glencore [JSE:GLN] shed 2.88% to R33.01.
Richemont’s [JSE:CFR] woes continued in the industrial sector and the prestigious share reached a new 52-week low of R82.05 after losing 0.71%. The share is now 21% lower over the past 90 days over concerns about poor demand in the luxury goods market.
