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JSE in limbo as Sars Wars rage on

Aug 30 2016 14:35
David van Rooyen

Johannesburg - The JSE was in limbo on Tuesday morning as global markets awaited more concrete indications of when US interest rates will be raised.

The local market is also unsure about the effect the political battle around Minister of Finance Pravin Gordhan could have on the value of the rand and South Africa’s credit rating.

The good news is that the dollar did not strengthen further on the expectation of higher US interest rates, and the rand was also steady at slightly stronger levels. However, this did not do much for financial and resources shares on the JSE, which lost further ground.

The big rand hedge shares also did not move much, as most of them are also listed in London where the market took a breather after Monday’s strong run. The Industrial index, which includes most of these shares, traded only  0.13% higher by mid-morning.

At that stage the All-share index was 0.05% softer at 53 356 points, while the Top 40 index traded 0.04% down at 46 892 points.

The Financial index was 0.36% down on the back of a weaker rand, while the Resources index lost 0.38% as commodities were hampered by a strong dollar. The Gold index shed 0.99%.       

Federal Reserve chair Janet Yellen said last Friday that the Fed is close to the point where it will hike interest rates, but did not give a timeframe. Stanley Fischer, the Fed’s deputy chair, said however that a possible hike in September is in line with Yellen’s comments.

He is due to speak again later in the day and his comments will be closely scrutinised for clues. Important economic data will also be released this week, including the latest jobs report on Friday.

The rand weakened 1% in early trade on Tuesday to R14.44 to the dollar, but at mid-morning was somewhat stronger as R14.39 to a dollar. Analysts said the currency is due for a little bounce, as it is unusual to see a market tear ahead without at least a temporary pause for profit-taking.

READ: Weakening rand should get a little bounce - analyst

Rand Merchant Bank analyst John Cairns however warned that the political risk premium in the rand is still growing, as evidenced in the unit's continued underperformance relative to other risk currencies.

Financial shares, particularly banks, are especially sensitive to a weaker rand and the Financial index before Tuesday’s trade was already more than 3% lower over the past seven days.

Standard Bank [JSE:SBK], which lost more than 8% over the past seven days before Tuesday, traded 1.12% lower at R136.41. Nedbank [JSE:NED] gave up 1.46% to R211.67, FirstRand [JSE:FSR] shed 1.13% to R45.47 and Barclays Africa [JSE:BGA] traded 0.36% softer at R153.00.

Old Mutual [JSE:OML], which is also listed in London and is regarded as a rand hedge share, gained 0.66% to R36.85.

Mining shares were affected not only by the strong dollar, but also by investor concerns about a a government proposal that 1% of their annual revenue be spent on developing communities associated with their operations. South Africa’s biggest mining companies have suggested that they instead pay out a share of their profits.

The Chamber of Mines is in discussions with the Department of Mineral Resources and labour unions over a review of the Mining Charter, which mandates measures designed to boost black participation in the economy ranging from ownership of assets, management diversity and procurement procedures.

Platinum shares were particularly under pressure with Anglo American Platinum [JSE:AMS] losing 1.49% to R413.75 and Impala Platinum [JSE:IMP] 1.58% to R60.85.

Glencore [JSE:GLN], which was the busiest among the dual-listed mining shares, lost 0.91% to R33.79 and Anglo American [JSE:AGL] traded 0.28% lower at R197.50.  

BHP Billiton [JSE:BIL] lost only 0.28% despite a report that the deadly collapse of a tailings dam last November at the Samarco mine in Brazil, owned by Vale SA and BHP Billiton, was caused by drainage and design flaws. The collapse of the dam was Brazil's worst-ever environmental disaster.

The industrial sector was a mixed picture, with Naspers [JSE:NPN] setting yet another all-time high of R2 450.25 after gaining 0.77%. The stock is now more than 7% higher after the turnaround in the rand's fortunes.

SABMiller [JSE:SAB] traded unchanged at R828.17 and British American Tobacco [JSE:BTI] was 0.17% softer at R901.28. Steinhoff [JSE:SHF], which is listed on the Frankfurt market which performed strongly on Tuesday, was 0.89% up at R96.68.

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