JSE weakens on global risk-off trade

The JSE closed weaker on Tuesday in heightened risk-off trade as the market shrugged off upbeat manufacturing data that holds the promise of higher GDP growth this year.

Fears of global trade tension intensified amid indications that China might be seeking permission from the World Trade Organisation (WTO) to impose trade sanctions on the US before President Donald Trump imposes further, higher tariffs on China. Trump has threatened to increase tariffs on almost all Chinese imports to the US, but has yet to make an official announcement.

The rand was steady in choppy trade on the day, but provided little confidence to the market as it failed to break through R15 to the dollar. The rand is now down 22% against the dollar this year, but has recovered from its weakest level so far in September, when it hit R15.69/$ last week.

The banking index was marginally higher after ratings agency Moody’s changed its outlook on SA’s banking system to stable from negative.

Naspers ended the day 0.93% lower at R3,087.99 on renewed weakness from Chinese internet company Tencent, in which it has a sizeable stake, in Hong Kong trade.

Normally, rand hedges and miners become a more attractive play on a weaker rand, acting as a currency hedge, said IG SA analyst Shaun Murison. “But if the global economic climate deteriorates and fears of an ongoing trade war intensify, equity markets become much less attractive than a safe-haven investment in US treasuries.”

Output in the manufacturing sector rose by an annual 2.9% in July, up from 0.6% in the previous month and higher than the consensus forecast of 1.1%. However, the RMB/BER business confidence index (BCI) fell to 38 points in the third quarter of 2018, from 39 in the second, raising questions if the recovery in the sector can be maintained.

Some analysts remain optimistic, with Franklin Templeton ascribing the sell-off in the rand primarily due to it being more liquid than other emerging-market currencies. Domestically, SA has a generally positive political environment given President Cyril Ramaphosa’s business-centric approach, while GDP growth is expected to recover from the weaker first half of the year, they said.

The all share closed 0.95% lower at 56,174 points and the top 40 lost 0.99%. The gold index shed 3.05%, platinums 2.61%, resources 1.61%, industrials 1.06%, and food and drug retailers 0.52%. General retailers rose 0.74% and banks 0.16%.

Anglo American was 0.6% lower at R288.13. Subsidiary De Beers recorded sales of $505m in its seventh sale cycle to September 10, compared with $507m in the same period a year earlier, the lowest sales for the cycle since it started releasing its data in 2016.

Richemont slipped 2.58% to R126.06 after gaining on Monday following the release of upbeat sales numbers, which showed a 25% increase to the end of August at constant exchange rates.

Among banks, Nedbank rose 1.96% to R265.10 but Absa slipped 0.24% to R154.13.

Rand Merchant Investment Holdings (RMI) rose 2.19% to R39.75. It earlier reported a 14% increase in its normalised earnings from continuing operations to R4.47bn in the year to end-June, boosted by its underlying investments. RMI holds 25% of Discovery’s shares, along with 26% of MMI Holdings, both financial services companies. It also owns 88.6% of unlisted short-term insurer OUTsurance.

Attacq closed flat at R15.50. The group said on the day it was targeting distribution growth of between 7.5% and 9.5% for the 2019 financial year, after reporting a maiden annual distribution of 74c per share, its first since being converted to a real estate investment trust.

Consumer goods company AVI slipped 0.88% to R112.15 after reporting annual results on Monday, which included a special dividend.

MTN slipped a further 2.82% to R72.