Policy moves in the US and China took the froth out of global markets yesterday, sending commodity prices sharply lower and ending the run-up in share prices since the start of the year.
The JSE all share index fell through the critical 40 000 level to a low of 39 581 at 3.30pm, erasing the gains of the past eight weeks. It recovered marginally to end the day 1.88 percent down at 39 670 points.
The resource index was the main casualty, falling 1.7 percent within two minutes of the open, before sliding below 50 000 after lunch. It ended the day 3.43 percent lower at 50 031.28 points.
The stock market response seemed perverse because the tightening in policy in the US and China reflected a better economic outlook in both countries. Stronger growth in the world’s two largest economies should spur demand for commodities in the longer term.
However, Peter Major, an analyst at Cadiz Corporate Solutions, said commodity prices were falling because they were “at near unprecedented levels” – and had been for six years – as governments pumped money into their economies.
Benchmark indexes fell like dominoes through the global trading day, on expectations that the situation was about to reverse, making money more costly and less readily available in coming months.
SBG Securities mining investment analyst David Davis said mining stocks had lost between 3 percent and 3.5 percent by noon. He described the fall in the sector as a “knee jerk reaction” and said, although the stocks would recover, “when is anyone’s guess”.
Major said: “Some of the best stocks are falling the hardest.” Among them was BHP Billiton, down 3.61 percent to R286.16 after falling 4.5 percent on Wednesday. The global mining firm had the best geographic spread and was therefore not dependent on any one country and the best spread of commodities, including iron ore and copper, as well as oil and natural gas, he added.
“Most other companies are too dependent on specific metals,” he said. However, stock markets players failed to make the distinction yesterday.
The stock market slide started in the US on Wednesday on speculation that the US Federal Reserve would curb its bond-buying programme. This followed publication of the minutes of the last Federal Open Market Committee meeting at the end of last month.
Yesterday, China’s Premier Wen Jiabao urged local authorities to “decisively” curb property speculation sending China’s benchmark equity index “to its biggest loss since November 2011”, Bloomberg reported, saying the index plummeted by the most in more than 18 months.
Other Asia Pacific markets fell in tandem. The Sydney Morning Herald reported the biggest one-day loss in Sydney’s benchmark index in nine months.
More evidence that the recession in the euro zone worsened in the fourth quarter of last year hit sentiment further. It was the third consecutive quarter of contraction. European markets lost ground with the major players down about 1.5 percent by lunch time.