MARKETS ON MONDAY: Share prices on the South African JSE and on global markets started to recover last week and most bourses ended the month higher, writes economist Chris Harmse.
AFTER a disappointing middle part of last month, given the hawkish stance of the US Federal Reserve on interest rates, share prices on the South African JSE and on global markets started to recover last week and most bourses ended the month higher.
Rand hedgers, due to a much weaker rand, but also non-currency related shares like financials improved noticeable last week. On the JSE, the all share index gained 1,625 (2.18%). For June, the index has improved by 1.52%.
The Resources 10 index was mostly flat, losing only -0.13% as resource prices contracted on global markets. For the month the index lost -7.5% on logistical export prospects for South African resources and weaker world prices. Financial shares gained a healthy 2.4% during the week and were up 1.6% alone on Friday.
The FIN15 index was the main performer last month and has shot up by a massive 11.83%. Industrial shares are also recovering strongly with the Industrial 25 share index gaining 3.7% over the past seven trading days. The index on the other hand gained only 0.5% over the month of June.
Despite the mostly sideways movement in equity prices during June, equities and bonds still performed above the inflation rate over the last year.
The performance of these two asset classes is proof that domestic geo-political circumstances like load shedding, state capture, poor service delivery, lack of export infrastructure support and the South Africa-Russian saga do not necessarily impose a negative effect on asset performances. Global economic factors, the companies’ management decisions and the attractiveness of South African bonds are more important for asset performances.
Despite better movements in equity prices, the rand exchange rate remains under pressure, mostly due to geo-political factors. The currency lost more than 40 cents against the US dollar last week and at the close on Friday traded at R16.90 against the dollar. Against the euro, the rand traded on Friday at R20.55 a depreciation of 25 cents since the middle of last week. Against the British pound the currency weakened to R23.96 on Friday, losing 30 cents alone for the day.
On Wall Street, share prices are also recovering after the negative stance of the US Fed two weeks ago, that created negative sentiment towards risk assets. The Dow Industrial index improved by 2.05% last week and ended June 4.3% higher. The S&P 500 index gained 2.43% over last week and shot up by 5.43% during June.
In Europe the Euro Stoxx 50 improved by 2.97% for the week and gained 3.32% in June. In Hong Kong, the Hang Seng index moved sideways last week and improved by only 0.37%, but ended the month 3.5% in the green.
This week, financial markets await the release of the US non-farm payrolls for June on Friday. The unemployment rate for the US increased from 3.4% in May to 3.7% and was one of the main factors that let to the decision by the US Fed to not increase its bank rate last month.
Market expectations are that the US economy added 225,000 new jobs last month against the 335,000 new employment opportunities the previous month. It is expected that the US unemployment rate moved sideways and remains on 3.7%.
The other main driver of asset market performances this week will be the release of the US Fed’s Federal Open Market Committee (FOMC) minutes on Wednesday. The minutes will indicate the stance of the FOMC on future rate decisions.
Other economic data that will be of importance this week will be the announcement of various Purchasing Managers Indices locally and globally. On Friday the SA Reserve Bank will announce the current level of South Africa’s foreign exchange reserves.
* Chris Harmse is the consulting economist of Sequoia Capital Management.
– BUSINESS REPORT
