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Johannesburg - The big news on the financial front this morning was rating agency Standard & Poor’s downgrade of South Africa’s banks to non-investment grade.
Nedbank, Absa, Investec and FirstRand were downgraded to non-investment grade (BB+) by S&P after the local market closed on Wednesday. This was in line with its rating of the country, as banks cannot be rated higher than the country's foreign currency sovereign credit rating.
READ: S&P downgrades SA banks to junk status
Banking shares were again the big losers in the JSE's financial sector, with the Banking index almost 3% lower at 6 738 points by mid-morning. That means that the index, which closed at 7 602 points last Thursday before Zuma’s Cabinet reshuffle, lost more than 11% of its value over the past week.
The losses were accelerated by Standard and Poor’s downgrade of South Africa’s credit rating to junk status. This is particularly bad news for banks as they are sensitive to higher interest rates, which have already started to rise on the capital market on news of the downgrade.
FirstRand [JSE:FSR] was again one of the busiest shares on the JSE, with more than 10 million shares being sold. The stock, which before Thursday’s trade was already almost 10% lower over the past week, lost 3.47% to R43.80.
Standard Bank [JSE:SBK] and Nedbank [JSE:NED], which both lost almost 11% of their value over the previous seven days, also dropped further. Standard Bank was 2.91% lower at R134.70 and Nedbank 2.59% softer at R223.00. Barclays Africa [JSE:BGA] fell 1.57% to R136.33.
Capitec [JSE:CPI] was the biggest loser among the big banks, shedding 4.78% to R720.51. Before Thursday’s big loss, Capitec was the least affected by the downgrade and was 6% softer over the past week.
By mid-morning all major indices on the JSE, except gold, were trading lower as foreign investors spent time on the sidelines.
Financial shares continued their sharp drop of the past few days, but the Resources and Industrial indices were also modestly down as investors await the outcome of a potentially tense meeting between US President Donald Trump and his Chinese counterpart Xi Jinping, the first between the world's two most powerful leaders.
Before Thursday investors took advantage of rand weakness since President Jacob Zuma’ controversial Cabinet reshuffle last week to invest in JSE stocks which earn most of their income abroad, as they receive more in rand if the currency is weaker. But lingering fears of a possible trade war between the United States and
China pushed even JSE rand hedge
shares lower by mid-morning.
By mid-morning on Thursday the All-share index was 0.73% lower at 52 602 points, while the Top 40 index was 0.63% softer at 45 860 points.
The Financial index was 1.53% down and the Industrial index 0.63% lower. The Resources index, which gained more than 10% on the back of a weaker rand after Zuma fired Pravin Gordhan as minster of finance, was 0.05% lower. The rand lost further ground on Thursday and at mid-morning traded at R13.84 to the dollar.
READ: Rand could stabilise if no more nasty surprises
In the resources sector, Anglo American [JSE:AGL] traded 0.49% higher but BHP Billiton [JSE:BIL] lost 0.29% to R220.77.
Gold shares continued their strong run and the Gold index was 1.38% higher at 1 559 points. This means that the index, which closed at 1 359 points on the Thursday before Zuma’s announcement, gained more than 17% since then.
