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Johannesburg - The JSE extended its losses during the last week to close at its lowest level in several years as concerns about SA economic growth, employment figures, electricity crises, expected labour unrest, growing government debt and the magnifying glasses of international credit ratings ignited worries that foreign investors might start to change their views about investing in sunny SA.
International investor confidence is currently very important as SA is reliant on foreign capital inflows more than ever due to the decline in the value of the rand to the lowest level in more than seven years. The decline in commodity prices and SA’s high propensity to import anything from shoes to food to electronics to plastic Christmas decorations is putting severe pressure on the balance of payments.
Performed even worse
Disappointing economic data from China during the past week hit commodity prices again as shown by the decline in the oil price to only $62 per barrel – the lowest in nearly seven years. It seems like just the other day that the oil price was more than double that sparked predictions of oil hitting $200 per barrel.
Mining and commodity shares led the JSE lower day after day last week. Sasol (JSE: SOL) set the tone with a drop of more than 8%. Platinum shares performed even worse despite the fall in the rand to R11.70 per dollar. Implats (JSE: IMP) fell some 10% and Lonmin (JSE: LON) declined nearly 11% during the last week.
Other commodity producers continued their downward trend. Arcelor Mittal (JSE: ACL) dropped sharply – by another 9% - and Kumba Iron Ore (JSE: KIO) fell just less than 4%. Assore (JSE: ASR) dropped by nearly 11% during the week.
Diversified mining groups Anglo American (JSE: AGL) and BHP Billiton (JSE: BIL) declined by 6.2% and 5.4% respectively.
A few gold shares showed some strength and recovered some of their losses of the past few weeks. Gold Fields (JSE: GFI) increased 4% and Harmony Gold (JSE: HAR) picked up 2%.
Lower economic growth
The weaker rand did not even save the so-called rand hedge shares from the effects of investor uncertainty.
Steinhoff International (JSE: SHF) lost nearly 4% after its strong gains during the previous week, while British American Tobacco SA (JSE: BTI) also fell 4%.
Naspers (JSE: NPN) shares ended the week 7% lower, while rand hedge favourite Richemont (JSE: RCH) did little more than hold its own.
Luckily, international rating agencies Standard & Poor’s and Fitch kept SA’s credit rating unchanged this time around, despite their concerns about economic growth and, once again, the worsening electricity crisis. A further downgrade would have sent the market into a tailspin as investors seemed to have been impressed by other economic figures last week.
The slight easing of inflation to 5.8% in November compared to levels of 6% during the last couple of months, as well as the announcement that retail sales increased by more than 3% during October, did not make up for the fact of lower economic growth and increasing unemployment.
The week ahead:
The market is starting to slow down for the holiday season and the JSE will be closed on Tuesday for the first December public holiday. Most brokerage desks will be staffed by half the usual number of traders, who will spend most of their time deciding on take-aways and playing solitaire.
The SA Reserve Bank will announce its business cycle indicator on Wednesday and Stats SA will publish producer price figures on Thursday.
The most important event this week will be the announcement of monetary policy by the US Federal Reserve after its open market committee meeting. Most international markets were also under pressure last week and any negative news from the Fed will worsen things this week.
It is time to make a list of shares on more attractive price/earnings ratios, but maybe not time to start entering buy orders yet.
International investor confidence is currently very important as SA is reliant on foreign capital inflows more than ever due to the decline in the value of the rand to the lowest level in more than seven years. The decline in commodity prices and SA’s high propensity to import anything from shoes to food to electronics to plastic Christmas decorations is putting severe pressure on the balance of payments.
Performed even worse
Disappointing economic data from China during the past week hit commodity prices again as shown by the decline in the oil price to only $62 per barrel – the lowest in nearly seven years. It seems like just the other day that the oil price was more than double that sparked predictions of oil hitting $200 per barrel.
Mining and commodity shares led the JSE lower day after day last week. Sasol (JSE: SOL) set the tone with a drop of more than 8%. Platinum shares performed even worse despite the fall in the rand to R11.70 per dollar. Implats (JSE: IMP) fell some 10% and Lonmin (JSE: LON) declined nearly 11% during the last week.
Other commodity producers continued their downward trend. Arcelor Mittal (JSE: ACL) dropped sharply – by another 9% - and Kumba Iron Ore (JSE: KIO) fell just less than 4%. Assore (JSE: ASR) dropped by nearly 11% during the week.
Diversified mining groups Anglo American (JSE: AGL) and BHP Billiton (JSE: BIL) declined by 6.2% and 5.4% respectively.
A few gold shares showed some strength and recovered some of their losses of the past few weeks. Gold Fields (JSE: GFI) increased 4% and Harmony Gold (JSE: HAR) picked up 2%.
Lower economic growth
The weaker rand did not even save the so-called rand hedge shares from the effects of investor uncertainty.
Steinhoff International (JSE: SHF) lost nearly 4% after its strong gains during the previous week, while British American Tobacco SA (JSE: BTI) also fell 4%.
Naspers (JSE: NPN) shares ended the week 7% lower, while rand hedge favourite Richemont (JSE: RCH) did little more than hold its own.
Luckily, international rating agencies Standard & Poor’s and Fitch kept SA’s credit rating unchanged this time around, despite their concerns about economic growth and, once again, the worsening electricity crisis. A further downgrade would have sent the market into a tailspin as investors seemed to have been impressed by other economic figures last week.
The slight easing of inflation to 5.8% in November compared to levels of 6% during the last couple of months, as well as the announcement that retail sales increased by more than 3% during October, did not make up for the fact of lower economic growth and increasing unemployment.
The week ahead:
The market is starting to slow down for the holiday season and the JSE will be closed on Tuesday for the first December public holiday. Most brokerage desks will be staffed by half the usual number of traders, who will spend most of their time deciding on take-aways and playing solitaire.
The SA Reserve Bank will announce its business cycle indicator on Wednesday and Stats SA will publish producer price figures on Thursday.
The most important event this week will be the announcement of monetary policy by the US Federal Reserve after its open market committee meeting. Most international markets were also under pressure last week and any negative news from the Fed will worsen things this week.
It is time to make a list of shares on more attractive price/earnings ratios, but maybe not time to start entering buy orders yet.
