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Johannesburg - A drop of more than 6% this week for Johannesburg-traded resources stocks may presage further declines, according to analysts citing technical indicators and excessive optimism among investors about Chinese economic stimulus measures.
A “relief rally” in commodities prices that started in March and ended eight months of losses has been overdone, said Stephen Meintjes, head of research at Johannesburg-based Imara S.P. Reid.
“Quite a few of the prices are way ahead of the fundamentals,” Meintjes said on Wednesday by phone. “China has ticked up in the last few months, but the stimulus measures probably won’t last forever, it will taper off this year.”
Johannesburg’s 11-member FTSE/JSE Africa Resource 10 Index fell 4.8% on Tuesday, the most this year. Diversified mining company Anglo American [JSE:AGL] and gold producers Sibanye Gold [JSE:SGL] and AngloGold Ashanti [JSE:ANG] are among its members, along with Sasol [JSE:SOL], the world’s largest producer of motor fuel from coal, and South Africa’s two largest paper producers.
Trading data suggest the stocks are poised for short-term weakness, said Peet Serfontein, a technical analyst at Nedbank, with the index set to drop below its 200-day moving average.
“That’s also indicating that the price has been extended to the upside and it needs to release some pressure in the strong trend,” Serfontein said. “You can definitely expect some weakness coming through in the index.”
Investors keen to increase their holdings of Johannesburg mining and resources stocks should wait, the two analysts said. “You’ll probably get opportunities to buy at the same, or better prices, in a few months’ time,” Meintjes said.
