Weak month puts all share index on track to end year under water

THE JSE all share index is heading for its first negative year since 2011, assuming that banking shares will continue to follow the miners down.

The all share index has managed to show gains for most of this year, albeit barely at times, but is now firmly in negative territory.

The index is 1.38% weaker so far this year and it closed 1.56% down on Tuesday as resources dragged the market down on Anglo American’s restructuring announcement.

The all share has retreated 4.89% so far this month.

The banking sector has lost 6.47% to date this year. The resources 10 index is down 43.04%.

The traditional support given by a weaker rand to mining stocks has also dissipated. The rand hit a record low of R14.7020/$ on Tuesday, but the resources index dropped more than 6%.

The big industrials, such as Naspers and SABMiller, are still supporting the market and the industrial index is up 8.1% for the year thus far.

Banks were now the cheapest in six years, said Stanlib investing director Paul Hansen.

“There is a view that banks have fallen so sharply because of some vulnerability to the ailing mining sector.”

Although loans to the mining sector comprised no more than 5% of total banks loans, the possibility of losses must surely be growing, Mr Hansen said.

The all share index ended 0.41% lower in 2011. In 2008, it fell 25.7% in the aftermath of the global financial crisis. However, the all share was up 22.7% in 2012 and gained 17.8% in 2013. Last year, it firmed 7.6%.

Among the big banks, Standard Bank has lost 16.26% so far this year, but is 31% down from its high of R177 recorded earlier in the year. Nedbank’s total return is down 20.1% and Barclays Africa has lost 16.9%. FirstRand is down 9.79%.

Anglo American’s woes resulted in the global mining group closing more than 10% lower on Tuesday.

The carnage among other miners continued, with Kumba Iron Ore losing 8.63% on the day after the iron ore price fell below $40/tonne.

Adding to the troubles of the resources sector, the lower oil price is damping sentiment. On Tuesday, the Brent crude price threatened to fall below the crucial $40/barrel level. The price has fallen 29% in the year to date, raising concerns about the strength of global economies.

TreasuryOne chief dealer Wichard Cilliers said the oil price was falling with commodities. Brent crude hit a six-year low because Opec had seemingly abandoned production targets.

“It is scary to think that Brent crude was trading at $115 18 months ago, and has lost 65% since then,” Mr Cilliers said.

Analysts do not expect pressure on the JSE to lift soon if the US Federal Reserve increases interest rates next week.

Last week, there was a material outflow from South African capital markets of R3.254bn, mainly led by equity outflows of R3.223bn.

“SA remains vulnerable to capital outflows or even just a slowing of inflows as we require foreign capital to fund our twin deficits amid a weak domestic savings backdrop,” Nedbank Capital said in a note.



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