Johannesburg - Investors on the JSE on Friday started to get rid of stocks with big exposure to the South African economy and fled towards rand hedge shares, which earn most of their income abroad.
This led to a bloodbath in the financial sector, with share prices of South African’s top four banks plunging more than 5% in early trade.
This was the market’s reaction to Thursday night’s shocking - although not totally unexpected - news that President Jacob Zuma has replaced Pravin Gordhan as minister of finance with Malusi Gigaba, one of his close allies with strong ties with the controversial Gupta family.
At mid-morning the Financial index was already almost 3% lower as the financial sector is particularly vulnerable to the fall-out of Zuma's actions.
If the rand continues to weaken - and it already traded above R13.40 to the dollar by mid-morning - it could lead to higher inflation and eventually higher interest rates, which will not only be detrimental for economic growth but also hit banks' business volumes and profit margins.
The effect will be even worse if the current political turmoil in South Africa leads to a credit rating downgrade.
Investors were therefore buying rand hedge shares, which earn more in rand if the currency weakens as most of their income is earned abroad.
The Resources and Industrial indices were however only moderately higher as investors poured into gold shares, where there is a direct link between the rand exchange rate and the mines’ income. Although the gold price dropped 0.98% on Friday morning, the rand gold price was already 2.75% higher at mid-morning.
By mid-morning the Gold index was already 4.23% stronger, with the Resources index 1.62% higher. The Industrial index gained a modest 0.38%. The All-share index was however 0.22% lower at 52 145 points, pulled down by the Financial index which had lost 2.99% at that stage.
The Top 40 index, which includes most of the big dual-listed shares representing more than half of the JSE’s market value, traded only 0.08% higher at 45 258.
FirstRand [JSE:FSR] at mid-morning was still 4.34% lower at R46.99, and Standard Bank [JSE:SBK] was 4.89% down at R146.18. Both these shares started trading ex-dividend two days ago, which contributed to the drop in the share price. Before Friday’s trade FirstRand was already more than 7% lower over the past seven days and Standard Bank had shed 3%.
Barclays Africa [JSE:BGA] was 4.57% softer at R143.31 and Nedbank [JSE:NED] traded 4.96% lower at R58.57. Rand Merchant Bank Holdings [JSE:RMI], which is also trading ex-dividend, was 4.86% weaker at R58.57.
Harmony [JSE:HAR] and DRDGold [JSE:DRD] were the biggest winners in the gold sector, with Harmony gaining 7% to R31.80 and DRDGold trading 5.31% stronger at R6.54.
Sasol [JSE:SOL] - another company whose income is directly linked to the rand - traded 2.80% stronger at R393.87. BHP Billiton [JSE:BIL] gained 1.72% to R207.40 and Glencore [JSE:GLN] was 1.9% higher at R51.93. Anglo American [JSE:AGL] was 0.51% stronger at R203.19.
British American Tobacco [JSE:BTI] made a strong gain in the industrial sector on the back of the weak rand and traded 3.76% higher at R881.41. Naspers [JSE:NPN] was 0.77% firmer at R2 325.75.