Financial markets remain surprisingly strong, despite economic, virus woes
FINANCIAL markets in South Africa remain strong, despite economic woes and the second wave of the Covid-19 virus in the US and the climbing numbers of intake of infections in South African hospitals.
Equity prices, especially resources and industrial shares, continue their upward movement that started at the beginning of April.
The all share index closed on Friday on 55 417 points. This is now only 1 667 points (2.9 percent) away from its opening level of 57 084 at the beginning of the year and 1.6 percent higher than the previous Friday close.
The Resources 10 index on Friday traded 3 224 points, or 5.9 percent, higher than the January 1 level. The Index is now on a record level for the year, beating the 50 891 highest level of January 20 with 3.1 percent.
The Industrial 25 index closed on Friday at 76 314. This is 7 011 points, or 10.1 percent, higher than at the start of the year.
Both these two indices benefited by the weak rand exchange rate.
The truer indicator of the poor domestic economic numbers is the financial index. The Financial 15 index traded on Friday at 10 474 points. This is 5 201 points, or 33 percent, lower than its opening level of 15 675 points at the beginning of the year. As the rand appreciated strongly last week, financials started to move higher gaining 3.1 percent over the week.
The rand exchange rate returned to stronger levels last week, as foreign appetite for resources and South African bonds had led to an inflow of foreign capital.
The rand traded at the close on Friday on R16.75 to the dollar. This is 31 cents stronger than the R17.06 of the previous Friday. Against the pound it strengthened by 7c to close on R21.20. Against the euro the rand gained 23c for the week and traded under the R19 level on R18.93.
On the bond market, rates also improved. The R186 treasury closed on Friday up 7.75 percent. On the global front, volatility continued as daily reports sent different signals to equity and bond markets. In the US the high tech-loaded Nasdaq index reached new record levels on Monday and Tuesday.
This week investors’ attention shift to the release of miing and gld mining production data for April. On Wednesday, StatsSA will release the inflation rate number for May. It is expected that the Consumer Price Index had increased by 2.7 percent against the 3 percent in April.
Dr Chris Harmse: economist and chief investment officer of Rebalance Fund Managers.