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Johannesburg - Stock prices of South African banks followed their European counterparts higher on Wednesday, as concerns about the health of banks that have hammered shares globally in recent days eased, and oil prices recovered from Tuesday's steep falls.
The share prices of financial shares were also supported by the stronger rand, as the South African currency recovered to below R16.00 to the dollar. By 15:30 the rand traded at R15.85/$, already 1.23% stronger than the previous day
READ: Rand claws back some lost ground
At 15:30 the JSE financial 15-index was 2.43% higher with the share prices of the big four banks all substantially higher. This helped the All Share-index to increase with 0.5% to 48 585 points and the Top 40-index was 0.73% stronger on 43 287.39 points.
The industrial index was also 0.86% higher with the help of Naspers [JSE:NPN] which recovered strongly after big losses the previous two days.
Naspers, which is one the heavyweights in the sector, was 2% higher at midday on R1 768.11 after trading as high as R1 800 in earlier trade. The share has lost more than 12% over the previous seven days on concerns about its exposure to the Chinese economy through its interest in the internet giant TenCent.
Asian markets were still in the doldrums on Wednesday morning on continuing worries about the world economy, but the European markets made a turnaround when stocks in Germany’s biggest bank, Deutsche Bank, rose more than 7%. The share price, which lost more than 40% of its value this year, was cheered on by a report that the bank wanted to buy back several billion euros of its debt.
"The rebound in Deutsche Bank is helping to reassure some investors who had been concerned about possible contagion in the banking sector," said Francois Savary, chief investment officer at Geneva-based Prime Partners.
The big banks' fortunes are seen as closely linked with the global growth outlook, which is faltering, while the adoption by several major central banks of negative interest rates to help lift growth has hit their business.
Markets are now waiting for Janet Yellen, chairperson of the Federal Reserve, when she addresses Congress later today to unwind some of the bearishness that has engulfed asset markets.
“This would be supportive for US dollar, rates and equities," Steven Englander, Citigroup's New York-based global head of Group-of-10 currency strategy, wrote in a note.
READ: Dollar bulls await Yellen, Citigroup sees pessimism
"However, at times market pessimism is so deep-seated that good news is viewed only as an opportunity to sell at better levels," he said, according to Bloomberg News.
Sharp falls in global stocks and weak US economic data have led to markets believing that the Fed will slow down the pace and extent of Fed interest rate rises to follow December's first hike in nearly a decade. This is bad news for the dollar.
Barclays Africa [JSE:BGA] was the biggest mover amongst the big banks when it share price rose 3.38% to R144.35 in morning trade. Standard Bank [JSE:SBK] was 2.88% higher on R112.04 and Nedbank [JSE:NED] gained 2.01% to R187.37. FirstRand [JSE:FSR] was at midday 1.98% stronger on R44.78.
Rand Merchant Insurance Holdings [JSE:RMI] was the star performer amongst insurers gaining 4.81% to R39.00 and Sanlam [JSE:SLM] gained 3.64% to R54.94. Old Mutual [JSE:OML] was 2.71% stronger on R37.19.
The strong rand was also bad news for commodity shares as they earn less in rand for their products which are paid in dollar. Gold shares were the hardest hit and the gold index lost 4.81% with the resources index 1.68% lower.
READ: Gold hits a wall with first slide in a month
DRD Gold [JSE:DRD] and Harmony [JSE:HAR] were the biggest losers in the gold sector with DRD losing 8.36% to R5.15 and Harmony trading 6.64% lower on R38.09. Harmony gained 317% over the past 90 days and 160% over the past 30 days.
Some of the undervalued shares in the resources sector, which made a strong comeback recently, lost some ground on Wednesday.
Impala Platinum [JSE:IMP] lost 5.07% to R33.50 and Anglo American Platinum [JSE:AMS] was 3.3% lower on R282.35. Kumba [JSE:KIO] traded 3.39% softer on R40.22.
