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Financial shares shine as SA escapes junk rating

Dec 05 2016 12:14
David van Rooyen

Johannesburg - Financial shares have been the star performers on the JSE on Monday after Standard & Poor’s followed  ratings agencies Moody's and Fitch in keeping South Africa’s credit rating intact.

Financial institutions are very dependent on solid sovereign credit ratings to access capital and a downgrade to junk status would have meant the institutions would have to pay more for capital.

The rand also responded positively on the news that the fears of a rating downgrade are now out of the way for at least six months before the next round of ratings reviews.

The rand, which reached a low of R14.09 to a dollar shortly before the S&P announcement on Friday, was trading more than 1% stronger at R13.80/$ on Monday morning.

Banking shares are also sensitive to currency movements and the stronger rand also helped to push the financial index 1.87% higher by mid-morning.

The ratings news also supported most of the other indices.

The European markets opened higher despite the news that Italian Prime Minister Matteo Renzi announced his resignation following a crushing defeat in a constitutional referendum. This supported the big dual-listed shares on the JSE.

By mid-morning the All-Share index was 1.06% higher on 49 779 points, while the Top 40-index also gained 1.06% to 43 274 points. At that stage the Industrial index was 0.91% higher and the Resources index traded 0.80% stronger.

There is however concerns about the election outcome in Italy which some analysts see as a body blow to a European Union already reeling under anti-establishment anger that led to the shock exit of the UK from the club in June.

"It’s not very hard to see a new election on the horizon, and it’s not very hard to see the (opposition) 5-Star Movement taking power with stated aims to either leave the EU, drop the euro, or both,” said Mark Wills, head of State Street Global Advisors' investment solutions group for the Asia Pacific.

FirstRand [JSE: FSR] benefitted most from the rating news and was mid-morning already 4.05% higher at R51.95, just below the 52-week high of R52.17. Standard Bank [JSE: SBK] was 2.07% higher on R149.95 and Nedbank [JSE: NED] gained 2.08% to R230.25. Barclays Africa [JSE: BGA] traded 1.62% higher at R160.05.

Among the industrial shares Naspers [JSE: NPN] was 0.34% stronger on R1 986.60 and Richemont [JSE: CFR] gained 1.17% to R91.32.

Steinhoff [JSE: SNH] the international retail giant traded 1.55% stronger on R64.26. Local retail shares also benefited from the better market sentiment and from bargain hunting after big losses recently.

Woolworths [JSE:WHL], which lost more than 18% over the previous thirty days, was mid-morning 2.97% higher on R65.60 and traded as high as R66.84.

Shoprite [JSE:SHP] gained 4.23% to R191.50 but was in earlier trading more than 6% higher at R194.82.

Two icons of the local economy, Barloworld [JSE: BAW] and Imperial [JSE: IPL] which have both strong interests in the motor trade and logistic industries, were both at new 52-week intraday highs.

Barloworld, which gained 21.14% over the previous thirty days, was another 3.65% higher at a new high of R109.46, while Imperial hit a new high of R175.98 before retreating to trade 2.74% stronger on R174.92.

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