JSE rises, rand succumbs to forex buying

2011-06-24 18:53

Johannesburg - South Africa’s stocks were up more that 1% while bonds gained as foreigners bought local debt, attracted by higher yields.

Despite offshore interest in bonds, the rand recorded its biggest weekly loss in six weeks. It was on the back foot partly due to Reserve Bank buying of foreign exchange.

It will likely keep its weaker tone as worries that Greece might not pass austerity measures needed for the country to secure loans kept investors hesitant to pile on risky assets.

A heavy sell-off in the previous session attracted bargain hunters, with the blue-chip Top-40 index up 1.4%, its highest daily gain in almost a month.

Yields on local bonds fell to multi-week lows on the short end. The yield on the 2015 bond hit two week lows at 7.425% and was last at 7.43%. The 2026 yield fell 7.5 basis points to 8.545%.

Undeterred by a generally negative sentiment towards risky assets, foreigners had bought R1.7bn worth of local bonds by end Thursday.

"I think the buying has a lot to do with our debt metrics, which are better than Europe's. They are happy about our economy and our deficit," said a bond dealer. "There’s also a good spread over the US tenure," he added.

South Africa’s budget deficit widened to 5% of GDP in 2010/11 with plans to trim it to around 4% in the next three years. Moody’s said on June 9 there was little to put downward pressure on sovereign ratings right now.

The spread between the 10 year benchmark and its US equivalent has widened by 29 basis points since the beginning of June to 5.161%. Just on Friday, it narrowed by four basis points as foreigners bought local debt.

Rand on back foot

The risk aversion prevailing in global markets added to the rand woes, as the currency was already under pressure from central bank buying since it hit two-week highs at R6.70/$ this week.

In early evening trade, the rand was trading at R6.89/$, 0.7% weaker than Thursday’s New York close of R6.8425/$.

It was in the bottom three of the worst performers among emerging market currencies and there might be no respite next week.

“The rand has underperformed for the last two sessions, with central bank pressures,” said Christopher Shiells, emerging market analyst at IGM.

“Next week, the rand’s direction will depend on Greek sentiment and at the moment there is a cloud of uncertainty hanging over the austerity vote.”

The rand has struggled to break the R6.92/$ level after two attempts this week and should it pierce it, it will aim for R6.96/$, which is its 200-day moving average.

On the bourse, the All Share [JSE:J203] Index was up 1.2%.

“There was obviously a huge recovery after a bad few days. The story at the moment is all about Greece and positive comments last night boosted the international markets and we followed suit,” said Michael Carlsson, a trader at Consilium Capital.

“The resources performed very well after being punished perhaps too much the past few days.

Mining heavyweight BHP Billiton [JSE:BIL] gained but gold miners extended losses as the price of bullion dropped to one-month lows.

The index of gold miners eased 0.5% after falling to its lowest level in nearly a year during the previous session.

Value investors snapped up shares of firms such as internet and media giant Naspers [JSE:NPN], which went up 1.99% to R368.30.