JSE closes down as banks drop more than 6% on downgrade threat

The Johannesburg Stock Exchange

The Johannesburg Stock Exchange (JSE) building in Sandton. It has operated as a market place for the trading of financial products for nearly 125 years.

JOHANNESBURG - The JSE closed weaker on Friday as banks retreated on downgrade fears following President Jacob Zuma’s axing of Pravin Gordhan as finance minister.

General retailers‚ financials and property stocks were also under pressure for most of the day on foreign selling.

Gold stocks jumped on a weaker rand despite the gold price being only mildly positive. Resources were higher on the weaker local currency.

Since foreigners owned almost 40% of the total value of JSE’s listed shares‚ selling by them negatively affected all equity investors‚ including South African pension and provident funds‚ which held the retirement savings of the nation‚ the Association for Savings and Investment SA (Asisa) said in a note.

A loss in investor confidence led to a sell-off in bonds and a much weaker rand‚ Asisa said.

Ashburton Investments strategy head Mark Appleton said the appointment of Malusi Gigaba as finance minister was unlikely to be seen in a positive light by investors. “It adds considerable uncertainty to the fiscal outlook.”

He said credit rating agencies would likely see the move as a threat to the strength of SA’s institutions and heightened the probability of an earlier than expected downgrade‚ Appleton said.

Credit Rating Agency Fitch has warned that the axing of Pravin Gordhan had increased the likelihood that the government’s sovereign credit rating would take a knock.

In a statement released on Friday‚ Fitch said the cabinet reshuffle signalled a change in policy direction and would raise political tension‚ potentially weakening public finances and standards of governance.

Banks failed to come back despite indications of groundswell support for Gordhan and indications that a campaign against Zuma’s actions was set to grow. This included a vote of no confidence in Parliament next week‚ and the view of deputy president Cyril Ramaphosa that Gordhan’s removal was “unacceptable”.

Although the rand was 0.81% weaker at R13.3723/$ in late afternoon trade‚ analysts said it was performing in a more stable manner when compared to the period that immediately followed the axing of Nhlanhla Nene in December 2015.

Capital Economics economist John Ashbourne said the damage for the economy’s near-term prospects may be smaller than some feared.

“While the rand was 8% lower against the dollar over the week‚ its strong performance in recent months were such that it was still up 2% since the start of the year‚” he said.

He said the country’s narrowing current account deficit would help to cushion the economy from external shocks.

The all share closed 0.39% lower at 52‚056.10 points and the blue-chip top 40 dropped 0.12%. Banks plummeted 6.14% and general retailers 3.90%. Financials shed 3.04% and property 1.38%‚ while the gold index added 3.79% and resources 1.68%.

The all share ended a volatile week 0.46% higher. It is up 2.77% so far this year.

The Dow Jones was 0.18% lower by the JSE’s close. The FTSE 100 was down 0.40%‚ while Germany’s Dax had gained 0.14%.

Nedbank lost 7.35% to R241.50‚ Barclays Africa 7.16% to R139.51‚ Standard Bank 6.47% to R143.75 and FirstRand 5.62% to R46.36.

Investec was down 5.11% to R91.46.

Diversified miner Glencore gained 3.32% to R52.52‚ Anglo American 0.93% to R204.05 and BHP Billiton 1.7% to R207.19.

Rand hedge Richemont jumped 5.12% to R106.02 and British American Tobacco 3.76% to R881.44.

Old Mutual lost 2.41% to R33.68 and MMI Holdings 5.06% to R22.89.

In retailers Mr Price dropped 5.31% to R159.90‚ Woolworths 3.69% to R69.91 and Shoprite 3.44% to R193.60.

Growthpoint gave up 1.48% to R25.90 and Hyprop 2.51% to R122.70‚ while Hammerson rose 4.98% to R95.01‚ Intu 6.93% to R46.57 and Capital & Counties 5.88% to R48.10.

Mondi ended the day 1.64% higher at R321.95.

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