JSE sickly on risk indigestion

Johannesburg - Not even a holiday in the US could slow down the pain felt on the JSE on Thursday as dramatic news of a potential debt default in Dubai whacked riskier markets. Some analysts said that Dubai's problems could weigh on the global recovery, to which South Africa is very closely hinged.

A weak Asia, in which the Nikkei lost 58 points to 9,383 and where Hong Kong shares were among the region's worst-performing as selling pressure on Chinese banks continued for a third day on persistent fears they may need to raise funds to meet potential tougher regulatory requirements, did not help matters locally either. The FTSE, meanwhile, was down 116 points at 5,248 by the local close.

At 17:00 the JSE was off by a sickly 464 points, or 1.69%, with resources leading the pack with a loss of 1.87%. Golds were up by 0.87% as another record was breached and the rand weakened, but platinums fell 0.87%. Industrials lost 1.46%, while banks headed south by 1.69% and financials by 1.74%.

The rand was bid at R7.47 to the dollar, from R7.42 when the JSE closed on Wednesday - a reflection of the Dubai play. Gold was quoted at $1 182.60 a troy ounce from $1 180.50 at the JSE's last close, and platinum was at $1 453.50/oz, from $1 471/oz at the bourse's previous close.

A local trader said that the US holiday is keeping volumes down, but there is concern in markets around the world of a debt bubble bursting in Dubai.

According to Dow Jones Newswires the threat of a debt default by Dubai left investor appetite for risk on the wane and the USD recovering some of its recent sharp losses.

Traders have reined in their dollar selling against the euro, sterling, and the Australian and New Zealand dollars overnight, partly because of a fresh bout of investor nerves surrounding the possibility of the debt default by Dubai.

Gold hits another record high

European banks face potential losses on an estimated $40bn in exposure to Dubai after the city state's largest corporate entity, Dubai World, asked creditors for a six-month standstill on debt repayments, raising fears that recent signs of improvements in banks' bad debt levels could reverse and Dubai's problems could weigh on the global recovery.

Most banks on Thursday said their exposure to Dubai and Dubai World is small or wouldn't comment. Dubai World accounts for about $60bn of the city state's $80bn in liabilities, of which half is estimated by Credit Suisse analysts to be held by European banks, reports Dow Jones.

The city state shocked investors on Wednesday by saying it would restructure Dubai World and wants creditors to hold off on demanding interest or repayments until at least the end of May. After several years of rapid and debt-fuelled growth, the Dubai economy has suffered in the past 18 months as the global recession took hold and foreign investment in its ambitious infrastructure projects dried up.

But the local equities dealer concludes in a more positive frame of mind: "If anything comes out that is positive, then we could see a good upturn on Monday." It is likely the US will only have limited trading on Friday.

Elsewhere, spot gold hit another record in Asian trading on Thursday, at $1 195.50 per troy ounce, extending its gains after strong buying late in the US session, news of more central bank buying of gold and a weaker dollar.

In data this morning South Africa's producer price index (PPI) registered deflation of -3.3% year-on-year (y/y) in October from -3.7% y/y in September, Statistics South Africa (Stats SA) data on Thursday showed.

The PPI decreased 0.1% on a monthly basis after September's monthly decrease of 3.2%.

The PPI was expected to have decreased at 3.1% y/y according to a survey of 10 leading economists by I-Net Bridge, with forecasts ranging from -2.8% to -3.7% y/y.

- I-Net Bridge