Doubts about Gigaba’s mini budget hit JSE confidence levels


Johannesburg – Uncertainty about this week’s medium-term budget continued to erode confidence on the South African market and the rand dropped back sharply in early trade on Monday.

This as usual provided support for the rand hedge shares on the JSE, but local sentiment is far more subdued than on global markets, where world stocks are trading at an all-time high.

Uncertainty about Finance Minister Malusi Gigaba’s mini budget speech continued to suppress the local market, as there is not much confidence in his political will and ability to act on government’s growing budget deficit, which threatens to balloon out of control with serious consequences for South Africa’s credit ratings. The general consensus is that the deficit could be as high as 3.9% of gross domestic product.

At mid-morning the rand was R13.74 to the dollar, almost 2% weaker than Friday’s close; the local unit traded as low as R13.76/$.

The resources sector on the JSE responded somewhat to the softer rand, as mining companies sell their commodities in dollar and benefit from a weaker local currency. At mid-morning the index was 0.51% higher, while the Gold index gained 0.31%. The Resources sector was more than 1% in the black earlier.

The Industrial index, which includes the big dual-listed shares, was however only moderately in the black. Most of these shares have their main listings in Europe where markets are not as jubilant as in the United States and in Asia, as the constitutional crisis in Spain put a damper on activities.

By mid-morning the All-share index was 0.28% higher at 58 108 points, while the Top 40 index had gained 0.30% to 51 758 points, The Industrial index was only 0.06% higher, but the Financial index was 0.63% up.

Jubilation on global markets was sparked by Japanese Prime Minister Shinzo Abe’s convincing election victory, which lifted the Nikkei to its highest in 21 years and world stocks to an all-time high on Monday, despite an escalation of Spain’s constitutional crisis that weighed on the country’s banks.

Fresh optimism about tax cuts in the United States also pushed Wall Street to a new record on Friday, while President Donald Trump indicated that the reappointment of Federal Reserve chair Janet Yellen was still a possibility.

The biggest dual-listed share on the JSE, Naspers [JSE:NPN], which represents more than 12% of the value of the Industrial index, was however 0.61% softer at R3 296.97 by mid-morning on Monday. The share gained more than 29% over the previous 90 days.

Two other big dual-listed shares in the industrial index, Richemont [JSE:CFR] and British American Tobacco [JSE:BTI], both traded higher. Richemont was 0.55% up at R123.50 and British American Tobacco gained 1.15% to R889.10.

The corporate news of the day was that British hospital group Spire Healthcare Group rejected a takeover proposal from its biggest shareholder Mediclinic International [JSE:MEI], saying an offer that values the UK private hospital operator at £1.2bn “significantly undervalues Spire and its prospects”.

Mediclinic’s share price dropped 1.58% to R113.94, and the stock has now lost more than 12% of its value of the past 90 days. Its holding company, Remgro [JSE:REM], was 0.72% higher at R219.47.

Mediclinic, which owns almost a third of Spire, approached the company with an offer that valued its shares at 298.6 pence apiece in cash and stock. That represented a 29% premium to Spire’s closing price on October 17, the day prior to the offer being made. Spire jumped by the most in a year in London trading.

Kumba [JSE:KIO] was again the star performer in the resources sector. The share price, which gained more than 14% over the previous seven days, was 2.07% higher at R274.86.  It is almost inconceivable that the share traded at a low of only R25.40 as recently as January 22 2016. The share price grew more than 72% over the past 90 days on strong demand for its quality iron ore from China.

Glencore [JSE:GLN] traded 1.08% higher to reach a new-all time high and Anglo American [JSE:AGL] was 1.24% stronger at R259.00. AngloGold Ashanti[JSE:ANG] gained 1.64% to R131.11 after the group said it raised $307m by selling some of its newest mines in South Africa.

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