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Brexit fallout drags down JSE

Johannesburg - Financial shares on the JSE, particularly those with direct exposure to the British economy, traded sharply down on Monday, which in turn led the rest of the market lower.

By mid-morning on Monday the Financial index was already more than 3.7% softer, with the share prices of the major banks and insurers all significantly lower.

The two biggest losers were again Investec [JSE:INP] and Old Mutual [JSE:OML], which are listed in London and whose earnings will be negatively affected by the steep fall in the value of pound - now at its lowest level in almost 31 years. Both also dropped sharply on Friday after news that Britain voted to leave the European Union sent global markets into a freefall.

Analysts are concerned that a drop in economic growth due to Britain’s exit from the EU - which means trade negotiations will have to be renegotiated - will increase banks' bad debt.

The South African government and banks also receive a large part of their offshore funding from London, which might not be available any more.

Most of the big dual-listed shares on the JSE also traded lower as the FTSE 100 Index in London lost 1.37% at mid-morning. The majority of these shares are included in the Industrial index, which represents the biggest part of the JSE’s market capitalisation.

The Industrial index was at that stage 1.69% softer, which also pulled the All-share and Top 40 indices lower. The All-share traded 1.80% down at 50 750 points and the Top 40-index shed 1.90% to 44 706 points.

The Gold index was at that stage 3.05% higher after gaining more than 11% on Friday, as investors continued to invest in gold to escape the market turmoil. The gold price rose further to $1 236 per fine ounce. Resources were however 0.72% lower, dragged down by the stronger dollar.

Generally the mood on the markets was much calmer than on Friday, when $2.08trn was wiped off global equity markets. It was the biggest daily loss ever, trumping the Lehman Brothers' bankruptcy during the 2008 financial crisis and the Black Monday stock market crash of 1987, according to Standard & Poor's Dow Jones Indices.

Asian stocks rebounded on Monday and rallies in Japan and China overshadowed declines in other benchmark gauges across the region.

The Shanghai Composite Index advanced after Credit Suisse and Citigroup advised clients to buy Chinese shares, following last week’s selloff. Investors are watching for policy action by central banks globally to ease the market turmoil and pump liquidity into financial markets.

The world’s largest asset manager BlackRock however expects sell-offs in global risk assets to continue, leading to buying opportunities. “The UK’s momentous decision to leave the EU brings long-lasting political and economic consequences,” BlackRock strategists and portfolio teams said in a statement.
 
Investec, which lost almost 10% on Friday, traded 6.50% lower at R87.42. Old Mutual, which closed 7.5% down on Friday after losing more than 10% in initial trade, fell 4.30% on Monday to R36.70

Sanlam [JSE:SLM] and Discovery [JSE:DSY], which have sizeable businesses in the UK, were also sharply down. Sanlam lost 3.88% to R58.21 and Discovery was 2.80% lower at R116.04. Standard Bank [JSE:SBK], which has businesses with direct exposure to the British economy, shed 3.05% to R122.20. Barclays Africa [JSE:BGA] was 2.53% weaker at R142.27 and FirstRand [JSE:FSR] 2.28% softer at R43.35.

Naspers [JSE:NPN] was one of the biggest losers in the Industrial index, despite solid results for the year to end-March. The company, which reported its results for the first time in dollars, said core earnings increased with a satisfactory 21%.

READ: Naspers profit climbs on Tencent, e-commerce boost

The company warned however that its video businesses, Showmax and Multichoice, are under pressure as a result of weaker currencies in Africa. The share price at mid-morning was 2.80% softer at R2 104.33.

Steinhoff [JSE:SHF], which is listed in Frankfurt, was 3.17% lower at R82.45. SABMiller [JSE:SAB] traded 0.90% softer at R864.05 but Anheuser Busch InBev [JSE:ANB] gained 0.40% to R1 857.34.

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