Investors take profits after three-day surge

SOUTH African shares snapped a three-day winning streak on Friday, dropping 1.6% as investors took their profits on Shoprite, Aspen Pharmacare and other index heavyweights that clocked up big gains recently.

Stocks rose 4% in the previous three sessions, reigniting concern that prices are overheated.

However, traders said the caution could be short-lived, given the volatility of global markets and indications on Thursday that the US Federal Reserve was in no hurry to start raising rates.

Uresh Perera, a trader at Global FX Macro, said: “Even though the SA Top 40 index still looks overvalued, South Africa has been tracking global markets, which are running on sentiment in assessing the possibilities of quantitative easing in Europe and China.”

Local shares could also get a bounce this week due to US job figures on Friday being slightly better than expected.

The JSE Top 40 index lost 1.55% to 42 995 points, and the broader All Share index dropped 1.3% to 48 951.

Despite a lacklustre 6% rise last year — and concern about the domestic economy — the Top 40 is the fifth-most-expensive index among those of the more than 30 emerging markets tracked by Thomson Reuters.

“South African equities as an asset class are fully priced and not a compelling investment,” Adrian Saville, chief investment officer at Cannon Asset Managers, said this week.

Shoprite, Africa’s biggest grocer, tumbled 4.4% to R172.05. With a price-to-earnings ratio of about 25, it is the seventh-most-expensive stock in the Top 40.

Aspen Pharmacare, trading at a hefty 38 times earnings, fell 2.2% to R421.52. It has been the top performer on the index over the past 12 months, gaining about 60%.

The dollar eased after aUS labour market report suggested a go-slow approach to raising US interest rates. Global equity markets fell on more weak data from Europe, adding to worries about tepid growth around the world.

Crude oil slipped to under $50 a barrel as Brent, the global benchmark, headed for a seventh successive weekly loss. Gold rose and was set for its first weekly gain in four weeks as political uncertainty in Greece boosted demand for safe-haven assets.

The dollar traded at ¥118.85, a loss of 0.67% on the EBS. The euro rose 0.3% to $1.1827.

MSCI’s all-country world stock index, a measure of equity markets in 45 countries, fell 0.71%. The pan-European FTSEurofirst 300 index of leading regional companies fell 1.71% to 1 345.15.

On Wall Street, the Dow Jones industrial average fell 1.15% to 17 702.14. The S&P 500 slipped 1.07% to 2 040.02, and the Nasdaq Composite lost 1.01% to 4 688.13.