Market Report: Financial and property shares: is this the turning point?
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By Chris Harmse
JOHANNESBURG - Although South African equity markets moved rather sideways and nervously last week financial and listed property shares performed well and may be on a brink of turning around.
Up to the previous Friday the Fin15 index was still down by 38.2 percent for the year to date and struggled to remain above the 10 000 point level.
During last week the index improved by 1 130 points (11.5 percent).
In the same manner listed property shares recovered by 5.5 percent after the index was down by more than 50 percent since December, 31, 2019.
The rest of the share market traded volatile and uncertain on the back of lower commodity prices and the lack of fresh news regarding the US long-awaited stimulus package and the corona virus second wave that became stronger in especially European countries.
The all share index ended the week only 0.4 percent higher on 55 340 points mostly helped by Friday’s gain of 543 points (1 percent). Both Industrials (-0.4 percent) and Resources (-3 percent) had a negative week. The news that Transnet reports a $617million of irregular spending in 2019 did not help to improve market sentiment either
In the US stock markets indices continued their weekly slide as Intel Inc. results dragged tech stocks lower. Although banks and financials on Wall Street moved stronger the news that US covid-19 daily new cases exceeded 70 000, the first day since July, brought further negative sentiment to most equity markets.
Despite the uncertainties in equity markets, hope that the US proposed stimulus package will be finalised soon, boosted the rand as investors turned to more risky assets.
The currency gained more than 30 cents against the green bag last week and traded at one stage last Friday at R16.17 to the dollar, but closed the week on R16.22, or 1.9 percent, stronger for the week. Against the pound the rand traded 21 cents stronger for the week at R21.16 and against the euro the currency gained 15 cents to trade on R19.21.
The stronger rand also helped bond rates and the R209 long bond ended Friday on 10.77, a gain of 0.5percent for the week.
The lower Brent crude price of lower than $42 dollar per barrel as well as the more bullish rand had led to petrol to be over recovered by 19 cents and diesel by 9 cents per litre since the previous price adjustment on October 2.
It is expected that consumers will also see a sharp decrease in fuel prices over the next few months as prospects for the oil price remains subdued and the Rand that is expected to move stronger.
This Wednesday all eyes will be on the Medium-Term Budget Policy Statement by the Minister of Finance Tito Mboweni. The main question remains if the Minister will award the SAA a further R10 billion bailout package. If so will the Minster borrow the money, pushing up the government’s debt -to-gross domestic product (GDP) ratio to above 85 percent or will he just reallocate the money from other state departments?
Expectations run high on what the minister will announce on the income and expenditure patterns since Covid-19 in March as presented in the adjusted budget in June.
Like previous years much are written in the press and on social media concerning burning issues like hikes in taxes, civil servants salaries and the Eskom debacle. Normally it is not the time for the Minister to make any announcements in this regard and at the most he may announce are possible steps to be taken in the main budget in February 2021.
South Africa’s inflation rate (CPI) will be released on Tuesday. It is expected that the rate had increased only marginally in September to 3.2 percent, up from 3.1 percent in August. The PPI will be announced on Thursday. On global markets the US will release its GDP growth rate for the third quarter on Thursday.
It is expected that the economy had recorded a second quarterly negative growth rate of -2.1 percent, confirming that the world biggest economy is in a recession.
Dr Chris Harmse is an economist at CH Economics.