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South Africa: Financial Shares Dazzle On Historic Day for JSE
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Business Day (Johannesburg)
18 July 2008
Posted to the web 18 July 2008
Edward West And Loyiso Sibali
Johannesburg
FINANCIAL shares, the whipping boy of the markets for the past two years, continued their unprecedented two-day rally yesterday, their dramatic rebound coinciding with the second-highest volume of shares traded in a single day on the JSE.
The leading 15 stocks in the financial sector on the JSE were up 6,7%. The banking index rose 5,8%, led by Investec, which rallied 14,3% to R50,65. Nedbank was up 12,5% to R102,55 and insurer Sanlam was up 12,6% to R17,24.
Bank shares also spiked in the UK and US following the release of better than expected quarterly results from JPMorgan Chase, the third-largest US bank, which eased concerns about the subprime crisis, and lower oil prices which have eased inflationary concerns.
The positive sentiment from the rise in share prices saw the rand gain for a third day in a row yesterday. It reached its highest level in seven weeks, rising as much as 0,9% to R7,54 a dollar.
The JSE experienced "incredible trading volumes" yesterday with the number of trades reaching 116 740 -- the second- highest in the history of the exchange, it said .
"This has been an exceptionally good day," said CEO Russell Loubser.
Gryphon Asset Management analyst Jan Meintjies said, "It's absolutely crazy out there."
He was uncertain if financial shares would sustain their gains of the past few days because the market was so volatile.
Investors feared getting caught short of interest rate sensitive stocks. "Volatility increases as you near the point where the interest rate cycle starts turning," he said.
The stocks rose "on speculation that we're not going to get another interest rate hike", Garth Mackenzie, head of derivatives trading at BoE Stockbrokers, told Bloomberg.
"Also, positive news on Wells Fargo in the US yesterday is helping global financials," he said.
Financial and industrial stocks led the all share index up 4,16% yesterday on the JSE. The industrial index was up 6,9%, with Bidvest up 10,5% to R101,12.
Coronation Asset Management banks analyst Neville Chester said there had been "massive overselling of banks" on the JSE over the past two
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years. He said that speculation that local inflation statistics may have been overstated, which may indicate a peak in the interest rate cycle, had added to the positive sentiment driving stocks higher on the JSE.
Rob Nagel, Cadiz African Harvest banks analyst, said banking stocks were "flying" and were leading what was fast becoming "a full-blown recovery" of other underperforming shares globally.
"There has been a thematic change in global investing over the past week," he said.
Chester said that banks start outperforming the market immediately after interest rates peak .
"International oil prices have eased and in the US bank shares are also up," said Chester.
Another factor driving the rally in financial stocks were increasing signs that the steam had run out of the commodities boom, he said.
Although the subprime crisis was not yet over in the US, there were two issues to consider. One was how the crisis would affect individuals' ability to pay.
"More than the worst-case scenarios have been priced into US banks by now," said Chester. In SA bad debts would rise, "but all the banks are well capitalised".
"It's all part of the cycle," he said. He did not expect banks to fall back from the gains they had made over the past few days.
Alphonso Raats, head dealer at Stanlib Asset Management, described the market as difficult.
"We don't know how long these banks will rally for."
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He said the interest rate environment was still negative and the consumer market was weak.
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