Faltering economy to weigh on share prices

Port Elizabeth - A quick rally on Friday reduced losses on the JSE last week, but uncertainty with regard to international markets and more signs of a faltering local economy are bound to continue to weigh on share prices in the coming week.

One of the most serious threats to investor confidence was the announcement by BHP Billiton (JSE: BIL) that the group had decided to reduce exposure to SA and will sell most of its SA interests, which includes the big aluminium smelters and the 60% interest in Samancor.

Equally dismal was the news that international ratings agency Moody’s had reduced Capitec Bank’s (JSE: CPT) financial strength rating, seemingly only because of the problems at African Bank (JSE: ABL). Moody’s also mentioned a worsening economic outlook and increasing difficulties by poorer households to service debt increased risk.

Much lower

Stats SA announced that mining production was still much lower than a year ago, meaning platinum mines were very slowly increasing production after the prolonged strike. The difficulties were also shown when Northam Platinum (JSE: NHM) announced its results for the financial year to June - earnings per share dropped to only 2.2c compared to 136c in the previous 12 months.

Stats SA had more bad news – retail sales in June were much lower than market expectations. Retails sales showed absolutely no growth compared to June 2013 while economists were expecting growth of a modest 2.6%.

Retails shares took a bit of a breather on this news, but not much, and started to recover towards the end of the week. Truworths (JSE: TRU) suffered the most, mostly because of company-specific uncertainties.

It was interesting to note that banks and other financial companies were not affected by the problems at Abil which led to the JSE suspending trading in the shares until its curator and financial authorities patched up the leaks and supply enough information so that investors could make informed decisions.

Slight drop

Another matter of interest was that Absa had buckled under pressure from investors in their money market funds and decided to buy the worthless Abil preference shares form the money market fund. In essence, the losses of investors have now been moved onto Absa’s shareholders.

But the worst performing sector of the week was not risky banks or equally risky furniture or clothing retailers – the gold index was dragged down by a slight drop in the gold price and investors are concerned about the conflict in the Ukraine, hoping it will not develop into World War 3. Anglogold Ashanti (JSE: ANG) and Durban Deep (JSE: DRD) dropped by nearly 4% and Harmony Gold (JSE: HAR) fell by 4.3%.

Kumba Iron Ore (JSE: KIO) declined by nearly 6% during the week and Lonmin (JSE: LON) fell 5%.

The week ahead

Retail shares are bound to attract attention with Shoprite (JSE: SHP) due to announce annual results and Stats SA to release inflation figures for July.

Afrox (JSE: AFX) and Gold Fields (JSE: GFI) will announce interim results.

The following few weeks will see a host of company results as a lot of listed companies have either a June or December year-end.