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Johannesburg - A sharp drop in commodity prices in China held the big resources shares on the JSE back on Wednesday. The major indices were however supported by strong gains in the Industrial index.
Moves by China's central bank in recent days to shore up a sliding yuan were sucking additional funds from the banking system, pushing up domestic borrowing costs.
The lack of liquidity not only pushed Chinese share prices down, but coking coal and steel rebar futures prices were on track for their biggest one-day drop on record.
By mid-morning the resources index was still 0.58% higher, but all the major dual-listed commodity giants traded lower. The temporary drop in commodity prices was used as an excuse to take profits, after some spectacular gains lately.
Anglo American [JSE:AGL] is already more than 220% higher for the year, gaining more than 42% over the past 90 days and more than 14% over the past month.
By mid-morning Anglo was already 2.02% down at R203.88, while BHP Billiton [JSE:BIL] traded 0.92% lower at R225.14. Glencore [JSE:GLN] was 0.87% softer at R48.05.
The All-share index gained 0.60% to 50 460 points, while the Top 40 index traded 0.70% up at 43 907 points. At that stage the Industrial index had already added 0.85%, supported by higher European markets, and the Financial index was 0.37% stronger.
The Chinese yuan has been under pressure lately with most other emerging market currencies in Asia, as higher bond yields in the United States and a stronger dollar led to an outflow of capital from these markets back to the US, where the risks are perceived to be lower.
The dollar rose 6% against a trade-weighted basket of currencies since Donald Trump's upset at the US polls as investors bet his policies will boost fiscal spending, growth and inflation which would lead to higher interest rates.
More than $16bn has been sucked out of emerging markets in the two weeks following the November 8 vote but stock exchange data in India, Indonesia, the Philippines, Taiwan, Thailand and South Korea indicate outflows may be slowing.
But the dollar took a breather on Wednesday and treasury yields have edged lower, as investors start to move their attention from expectations to what the real impact of Trump’s actions will be, and what measures he will be able to push through Congress. The helped the rand remain relatively stable at R13.91 to the dollar.
The mood in the resources sector was also affected by the slump in the oil price, which dropped about 4% on Tuesday on uncertainty over whether Opec will be able to put together a deal in Vienna to cut production.
Analysts think the cartel will be able to limit production to between 32 and 33 million barrels per day. Opec’s own estimates are showing it needs to pump just 31.9 million barrels a day between January and June to balance supply and demand.
It is therefore doubtful if any accord will be enough to mop up the projected glut in the first half of the year.
Sasol [JSE:SOL], whose income from synthetic fuel is dependent on the oil price, gained 1.85% to R368.44.
Naspers [JSE:NPN], which lost more than 11% over the previous 30 days, gained 0.84% to R2 088.30. Steinhoff [JSE:SHF], which is more than 9% softer over the previous month, lost 1.72% to R66.85.
Tiger Brands [JSE:TBS] and Barloworld [JSE:BAW], two of the bigger local-listed companies which are trading at 52-week highs after recent strong results, strengthened further on Wednesday. Tiger Brands is 1.33% stronger on a new high of R406.47 and Barloworld edged 0.13% up to a new 52-week high of R107.37.
Mr Price [JSE:MRP], which gained almost 5% in the seven days before Wednesday’s trade, was 0.61% higher at R145.70.
FirstRand [JSE:FSR] set another 52-week high in the financial sector, gaining 0.39% to R51.82.
