Quarterly Review

This week we look at the major themes and market movements prevalent over the three month period. We have seen global equities experience the worst quarter of trade since 2012, while the U.S. posts its seventh consecutive quarterly gain.

By Shaun Murison, Market Analyst

View market data

Company announcements

Dividends

Economic catalysts

Indices

JSE All-share Top40 Mid cap Small cap
Q3 Performance -3.15% -3.90% 1.11% 0.76%

 

The JSE all-share and Top 40 indices have seen a negative quarterly performance giving up 3.15% and 3.90% respectively. The marginal outperformance of the all-share index relative to the Top 40 index reflects the investor search for growth outside of the “Blue Chip” realm, as valuations particularly in the industrial sector remain high and structural and macro issues persist within the resource space.

 

JSE Resource Industrials Financials
Q3 Performance -8.21% -2.08% -0.74%

 

Weakness has been broad-based with the major JSE sectors all declining over the period. Resource counters have led the decline, as concerns mount over Chinese demand while a robust dollar (amidst the monetary tightening theme in the U.S.) further pressured commodity prices.

Heavyweight platinum counters, notwithstanding the aforementioned negative catalysts, reflected the impact of this year’s prolonged strike as earnings were severely impacted in results reported. Despite impressive operational efficiencies from the likes of BHP Billiton, increased production has done little to meaningfully increase profitability from iron ore as the steelmaking ingredient remains in oversupply as Chinese inventories sit at record levels.

Industrial counters have been weighed down by lacklustre earnings particularly in the retail department. Slower than expected growth from the likes of Compagnie Richemont and Shoprite Holdings, while Massmart shows a decline in headline earnings and Woolworths started to price in equity dilution have weighed on the bourse.

Financials have outperformed as insurers results highlight the benefit from a low claim season due to “favourable” weather, asset managers reflect compounded gains in equity markets and banks (for the most part) have reported stable earnings. The marginal sector decline would have been impacted by the failure of micro lender African Bank Limited, which has subsequently been suspended from trade on the JSE and is currently being restructured with the help of the South African Reserve Bank (SARB).

The rand

ZAR vs USD EUR GBP
Q3 Performance -6.20% 2.08% -0.62%

 

The rand has depreciated 6.2% against the US dollar over the three month period. Significant weakness was realised on the last day of the quarter as the SARB reported a wider than expected trade deficit of R16.3 billion. News that Reserve Bank governor Gill Marcus would be stepping down at the end of her term also had a noticeable impact on our local currency, although in truth, most of domestic currency weakening against the dollar has been on the anticipation of U.S. monetary tightening.

The rand has outperformed the euro as the two economies find themselves at the opposite end of the rate cycle. While the SARB remains at the early stages of the monetary tightening, the European Central Bank (ECB) remains committed to monetary easing with the aim of spurring growth and avoiding a deflationary economic environment.

Commodities

Commodities $ Gold $ Platinum Brent
Q3 Performance -8.92% 12.91% -15.73%

 

Commodity prices remain under pressure largely due to dollar strength as the U.S. Federal Reserve Banks’ current asset purchasing program draws to a close. Investors now focus on the timeline relative to when interest rates will start to rise. With economic data out the region mostly positive (GDP q/q +4.6%, Unemployment rate 6.2%) the expectation for the tightening cycle has drawn nearer, continuing the greenback support.

Renewed concerns of a slowdown in the second largest economy in the world, China, have added to woes in the resource department. Third quarter GDP for the region now sees consensus estimates predicting growth of 7.3% which would equate to a multi-decade low and below the Peoples Bank of China’s (PBOC) targeted 7.5% growth.

Q3 in closing

Although the third quarter has had little to cheer about, in terms of market gains, seasonality suggests that the final quarter could see some relief. Since 2009, fourth quarter gains on our local blue chip index have averaged more than 9%. In the short-term, depressed state of our market, positive catalysts or the reduction of negative factors (such as geo-political tensions) have the increased ability to exaggerate gains.

Future seminars

In quarter 4, attend one of our free trading seminars and with the help of our experts refine your trading strategy:

When and where

Date

Time

Location

Duration

29 October 2014 18:30 IG Offices, Johannesburg 1.5hrs
30 October 2014 18:30 Pretoria Country Club, Pretoria 1.5hrs
19 November 2014 18:30 Southern Sun Elangeni & Maharani, Durban 1.5hrs

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Broker consensus

Source: INET BFA, as of 26/09/2014

Panel Title

Educorner

Double top reversal pattern

The double top double bottom reversal is a bullish pattern that can be found on bar charts, line charts as well as candlestick charts. The reversal pattern demonstrates a share’s attempt to continue an existing trend. After several attempts to move higher, the trend is reversed and a new trend begins.

The pattern is made up of two consecutive troughs that are roughly equal, with a moderate peak in-between, often resembling a “W” for a double bottom and an “M” for a double top.

Watch the video to learn more about the double top reversal pattern.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.