Johannesburg - The rush into gold shares on the JSE to cash in on the collapsing rand continued on Friday morning while serious investors, including foreign investors, are leaving the financial sector in droves.
The news that President Jacob Zuma replaced Minister of Finance Nhanhla Nene with the unknown David van Rooyen continued to send shock waves through the market with the rand almost touching R16.00 to the dollar by midday, trading at R15.90.
This is bad news for financial shares, with the Financial index losing another 5.09% by midday, but wonderful news for the embattled gold mines which will now earn much more in rand for their gold which is priced in dollar.
The volatile Gold index was 6.81% higher at 1 128 points at midday, which means that the index is now more than 50% higher than the low of 751 points reached in August this year. Before Friday’s action the index had gained 17.95% over the past seven days and 38.5% over the past 90 days. The resources sector also benefited from the weak rand and was 2.51% stronger.
The biggest winner on Firday morning was Harmony [JSE:HAR], which gained 38.91% during the course of the morning to trade at R18.98. Before Friday’s big jump the share had already gained 51.83% over the previous seven days, but at that stage it was still almost 37% lower for the year to date.
The other gold shares performed more moderately. Gold Fields [JSE:GFI] gained another 8.08% to R44.30, but AngloGold Ashanti [JSE:ANG] was only 3.26% higher at R111.52. Sibanye [JSE:SGL] traded only 1.6% higher at R24.53, but the share is already 17.43% higher over the past seven days and 56.55% over the past 90 days.
The big sell-off in financial shares pulled the All-share index lower and by midday it was 1.% down at 48 496. That means the index is now 1.4% lower than at the beginning of the year and almost 12% lower than the high of 55 188 points reached in April this year. Before Friday’s drop, the index had already lost 4.25% over the past seven days and 8.95% over the past 30 days.
The Top 40 index was at that stage 0.70% down at 43 938 points and indications are that the market will go much lower during the rest of the day.
Financial shares did not perform well with the rand under pressure, but analysts said the current drop in the prices of these shares is also an indication that investors, and particularly foreign investors, are losing confidence quickly in the government’s ability to manage the economy properly.
Economists fear Nene was removed by Zuma because he was a stumbling block in the Zuma clan’s efforts to increase government spending, despite slow economic growth which limits the available resources.
The big fear is that South Africa’s credit rating will be lowered to junk status, which will hamper financial institutions’ ability to source finance to do their business.
The news of Nene’s dismissal also came just a week before the Federal Reserve will probably raise US interest rates. This could lead to an outflow from emerging markets such as South Africa back to the US, where the risks are perceived to be much lower than in South Africa at present.
The Financial index at midday traded at only 13 564 points, already 13% lower than the 15 641 points reached at the beginning of the year and 22% down on the high of 17 911 it held in April this year.
Standard Bank [JSE:SBK], the busiest share in the sector on Friday, lost another 7.61% and the share is now trading below R100 at R97.75, after trading at a high of R176.25 in April this year.
Nedbank [JSE:NED] and Barclays Africa [JSE:BGA] both lost more than 10% to reach new lows. Nedbank was 10.27% softer at R160.95 and Barclays Africa 10.19% lower at R118.30. FirstRand [JSE:FSR] traded 8.02% weaker at R35.68.
Among the insurers Sanlam, [JSE:SLM] lost another 8.01% at R47.19 and MMI Holdings [JSE:MMI] was 7.00% lower at R19.02. Both shares are also on new 52-week lows.
The two high flyers in the industrial sector, SABMiller [JSE:SAB] and British American Tobacco (BAT) [JSE:BTI], both reached new 52-week highs. SABMiller was 3.16% higher at R967.68 and BAT traded 2.9% stronger at R876.