JSE down amid rating risk and negative sentiment

Johannesburg - Financial markets continued to be under pressure on Thursday, after it became clear earlier in the week that the government is intent on increasing political pressure on the South African Reserve Bank.

The rand dropped sharply on Wednesday afternoon after a warning by credit rating agency Moody’s that the political pressure building around the central bank poses a key risk for South Africa’s credit rating sent shock waves through local markets.

The rand continued to trade at around R13.13 to the dollar by mid-morning on Thursday, the lowest level in three weeks. However, the weaker rand did not support rand hedge shares as it normally does, because investor confidence has taken a knock.

The rand reacted to an affidavit filed by the Reserve Bank on Tuesday that the Public Protector met with advisers of the Presidency 12 days before the release of a report ordering that the constitutional mandate of the bank be amended. The Reserve Bank said in its affidavit to the high court that such a meeting was “highly irregular” and compromised the independency of the Public Protector’s office.

The mood was further spoiled by news that the South African Revenue Service collected R13bn less tax than forecast in the first quarter, again raising the spectre of a widening budget deficit and higher, more expensive debt.

It was also announced that the current account deficit has widened from 2% to 2.4% of GDP for the second quarter of the year. According to the Reserve Bank, the improved trade surplus was outweighed by the widening shortfall of the service, income and current transfer account.

As a result, all the major indices on the JSE were down by mid-morning on Thursday. The All-share index was 0.83% softer at 55 684 points, while the Top 40 index traded 0.89% lower at 49 399 points.

The biggest loser was the Resources index, which normally benefits from a weaker rand but lost 1.59%. The Industrial index was 0.64% lower and the Financial index shed 0.58%.

The major resources shares were all sharply lower. BHP [JSE:BIL] lost 2.01% to R240.40 and Anglo American [JSE:AGL] was 1.90% softer at R230.79. Glencore [JSE:GLN], which traded on a new 52-week high earlier this week, lost 1.89% to R61.91.

Impala Platinum [JSE:IMP] traded 4.90% lower at R37.42 after the group reported a loss for the past financial year.

The world’s second-biggest platinum producer posted a headline loss per share for the year to June 30 of 137 cents, compared to headline earnings per share of 12c in 2016.The firm wrote off R10.2bn related to a 2007 deal to fund a stake in Impala’s shares by black-owned Royal Bafokeng Platinum.

Naspers [JSE:NPN] was 0.03% lower at R2 971.13, in sharp contrast with its Chinese subsidiary Tencent which lifted 0.90% to yet another high of HK$337.00. British American Tobacco [JSE:BTI] was 0.64% lower at R833.79 and Mondi [JSE:MND] lost 0.71% to R354.63.

Pharmaceutical giant Aspen [JSE:APN] bucked the trend and traded 4.15% higher at R297.40 after posting headline earnings per share of 1 299.5c for the year to end-June, 46% higher than the 889c a year earlier.

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