Dollar strength dents JSE resources and financials

Johannesburg - A stronger dollar, aided by indications from Federal Reserve chair Janet Yellen that a US interest rate increase remains on the cards for this year, dominated activities on the JSE on Monday. Currencies and shares of emerging markets fell worldwide, as signals that US interest rates could rise this year damped demand for riskier assets.

Resources and financial shares on the JSE were hit by the stronger dollar, but the weaker rand resulting from a firmer greenback presents investors with an opportunity to invest in rand hedge shares. Naspers [JSE:NPN] at mid-morning was at a new all-time high.

If US interest rates rise, international investors in developed markets may revert some of their investments to the US, where risks are perceived to be lower. The JSE is particularly vulnerable as more than 40% of the assets on the bourse are held by foreigners. By mid-morning the All-share index on the JSE was only 0.13% higher at 53 576 points, while the Top 40 index gained 0.30% to 46 945 points.

A strong dollar is particularly bad news for resources demand, as it makes commodities more expensive for buyers who use their country’s own currency as payment. The Resources index was at one stage almost 1% lower, but recovered and at mid-morning was only 0.27% softer. However, the volatile Gold index dropped sharply by 2.61% and is now almost 10% softer over the past 30 days.

The Financial index was hit by the weaker rand and lost 0.62%. The rand at mid-morning traded at R14.46 to the dollar and will stay vulnerable in the immediate future as nervous markets await the outcome of the political battle between Finance Minister Pravin Godhan and the Hawks.

READ: Rand will 'buckle' if Gordhan is charged - Goldman Sachs

A softer rand is however good news for rand hedge shares and most of the big dual-listed shares in the industrial index, which earn most of their outcome outside South Africa, were moderately higher. The Industrial index was 0.64% higher by mid-morning, supporting the major indices.

The FTSE-index in London was also the only major in index in Europe that traded higher, supporting the dual-listed shares on the JSE which are also listed in London. The market in London is very similar to the JSE, as most of its big listings are also international groups which do most of their business outside Britain and whose profits are boosted by a strong dollar and weak pound.

Analysts said on Monday that markets now discount the higher possibility of a rate hike in the US in September, compared to a few weeks ago when increases were not being contemplated until late 2017 or early 2018.

Yellen said in a speech at the Fed's annual monetary policy conference in Jackson Hole, Wyoming, on Friday that the case for a US rate hike has strengthened in recent months. Many new jobs are being created, and economic growth looks likely to continue at a moderate pace.

Yellen did not give guidance on what the central bank needs to see before raising rates, but she did say the Fed already thinks it is close to meeting its goals of maximum employment and stable prices. When Fed vice-chairperson Stanly Fischer was asked whether a rate hike in September and more than one policy tightening before year-end should be expected, he said Yellen's comments were "consistent with answering yes" to both questions.

He did however say such decisions would depend on the latest data, and that all eyes this week will be on US consumer confidence numbers for August, due on Tuesday; productivity, manufacturing and construction figures on Thursday; and August non-farm payrolls data on Friday.

Naspers gained 0.74% to a new intraday high of R2 404.70; before Monday’s trade the share had gained more than 5% since the rand collapsed last week on news that the Hawks are contemplating charges against Gordhan.

SABMiller [JSE:SAB] gained more than 7% over the same period, and the share price on Monday was 2.07% stronger at R831.91. MTN [JSE:MTN] was one the busiest shares but at mid-morning was 0.12% down at R382.16. Sasol [JSE:SOL] gained 0.60% to R382.16, despite a lower oil price.  

The three biggest dual-listed commodity shares were all moderately lower. Anglo American [JSE:AGL] traded 0.80% softer at R158.00 and Glencore [JSE:GLN] lost 0.61% to R33.91. BHP Billiton [JSE:BIL] shed 0.40% to R199.43.

Barclays Africa [JSE:BGA] was the exception among the big four banks, trading 0.51% stronger at R153.99. Nedbank [JSE:NED] fell 2.01% to R211.60, Standard Bank [JSE:SBK] lost 1.41% to R138.03 and FirstRand [JSE:FSR] 0.54% to R46.35.