SA markets still healthy despite ills at Lonmin

Ethel Hazelhurst

The local equity market has been resilient in the face of the troubles plaguing Lonmin’s platinum operations: the deaths of 44 people, an illegal strike, inter-union strife and stalled production at the Marikana mine in North West.

The company’s share price has fallen from R133 at the start of May and R97.63 on August 7, to R79.80 yesterday. Despite fears that the problems may spread to other mines, the rising trend of the resource index is largely intact. After a long slump since the start of the year, to a low of 45 076 points on July 12, the index has recently moved up – despite a fall yesterday to 47 753 points from the previous close of 48 356.

Yesterday’s close was little changed from the August 10 close of 47 964 points, when the first round of violence flared at Marikana.

Mike Schröder, a mining analyst at Old Mutual Equities, said the local events had coincided with a rise in global risk appetite. He said bond yields had been rising as investors changed their asset allocation, exiting havens like bonds in favour of riskier, higher return securities.

The rand has also been relatively stable over the past two weeks, weakening yesterday largely on positive inflation data that suggested the Reserve Bank may cut its repo rate from 5 percent. But at R8.3195 to the dollar at 5pm yesterday, it remains comfortably within the R8 to R8.57 range in place since mid-May.

Ian Cruickshanks, the head of strategic research at Nedbank Capital, said there was no indication that the Reserve Bank was supporting the currency. An intervention to boost the rand was highly unlikely as it would deplete foreign exchange reserves. Moreover, the central bank had been under pressure to weaken the currency to make locally manufactured goods cheaper.

Barclays Research predicted yesterday that the rand would recover against the currencies of all of South Africa’s main trader partners due to further monetary stimulus in Europe, more encouraging US economic data, and an influx of portfolio capital into the South African bond market.

In contrast, Cruickshanks said the local unit would probably weaken to as low R8.60 by the year’s end.

He suggested that expectations of future currency weakness could be supporting the resource index.