Publications
Partners
Johannesburg - The rand on Wednesday traded at the highest level in four weeks, which put a damper on share prices on the JSE.
The mood was also soured by the news of Moody's downgrade of China's credit ratings on Wednesday for the first time in nearly 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.
This news, which came as a shock to financial markets, hurt emerging market worldwide and the JSE was no exception.
JSE losses were however moderate and the All-share index at mid-morning was 0.29% lower at 54 390 points, while the Top 40 index traded 0.28% softer at 47 913 points.
A stronger rand is normally bad news for the dual-listed shares which earn most of their income abroad in other currencies, which are worth less if the rand is strong. As a result the Industrial index, which was trading at a new 52-week high this week, at mid-morning was 0.49% lower.
Resources shares were also hit by the strong rand as mines earn less in rand for their dollar-priced commodities, with the Resources index 0.41% lower and the Gold index losing 1.20%.
The rand traded at its best level since April 25 on Tuesday evening when it reached R13.01 to the dollar on media reports that the ruling African National Congress would discuss removing President Jacob Zuma at a weekend meeting.
The local currency dropped back overnight to R13.09 in response to emerging market woes after China’s downgrade, but received a new lease of life on good inflation news. South Africa’s headline consumer inflation slowed more than expected to 5.3% year-on-year (y/y) in April from 6.1% in March. Economists polled by Reuters had forecast a 5.55% y/y increase.
By mid-morning the rand traded at R13.00/$ and strengthened even more against other major currencies. That supported financial shares, with the Financial index 0.39% higher.
Emerging markets will feel the effect of China’s downgrade for some time. The one-notch downgrade comes as the Chinese government grapples with the challenges of rising financial risks stemming from years of credit-fuelled stimulus.
Runaway credit growth to stimulate the economy has created a mountain of debt - now standing at nearly 300% of gross domestic product.
The top shares in the industrial index were mostly lower. Richemont [JSE:CFR] lost 0.17% to R108.78 and British American Tobacco [JSE:BTI] traded 0.43% softer at R1918.59.
Naspers [JSE:NPN], which until Monday traded at all time-highs, at mid-morning was already 1.32% lower at R2 764.44. The company has huge exposure to the Chinese economy through its 34% stake in Chinese internet giant Tencent. Naspers’ share of Tencent is valued at R100bn.
Sasol [JSE:SOL] was 1.09% higher despite the stronger rand, as the oil price jumped strongly with Brent trading at more than 4%$ a barrel.
Mediclinc [JSE:MEI] lost 4.06% to R141.75 on the news that the group’s revenue in the Middle East fell 8% for the full year to end-March. Before Tuesday’s trade the share price gained more than 25% over the last 30 days.
Mediclinic CEO Danie Meintjes said the group’s two largest operating platforms, Switzerland and southern Africa, and the Dubai business performed well, growing revenues and patient volumes. However, some work needs to be done to steer the business in Abu Dhabi towards a more sustainable long-term growth path.
Remgro[JSE:REM], Mediclinic’s holding company, traded 0.54% higher at R141.75.
