13 - 17 October 2014
Our regular look at the news making the headlines, using our market insight information and analysis tools - now with online videos and tutorials.
By Shaun Murison, Market Analyst
This week’s market decline has for the most part been catalysed by macro-economic data, although domestic data has done little to improve investor sentiment.
Manufacturing production and sales figures showed 1.2% year-on-year contraction in August 2014, with the seasonally adjusted figure showing a 1.4% decline, as eight of the ten manufacturing divisions contracted over the period.
Mining production decreased by a massive 10.1% year-on-year in August 2014. Platinum Group Metals (PGMs) recorded the largest negative growth rate of -45% and provided the largest negative contribution to the mining production figure. Gold production was the second largest negative contributor to the overall figure.
The Eurozone has taken centre stage as the primary catalyst for global market weakness this week as German economic data continues to disappoint with weaker than expected industrial production and trade balance data further questioning the recovery within Europe.
The combined European economy is even larger than that of the U.S., and when we add the theme “prevalent” in recent weeks, relating to concerns of a slowing Chinese economy, a potentially dangerous macro-economic picture is painted. The International Monetary Fund (IMF) has done little to ease sentiment downgrading their outlook for global growth.
A significant increase in volatility can be noted by the steep rise in the Chicago Board Options Exchange’s (CBOE) Volatility Index (VIX). The VIX, often referenced as the “Fear Index” has moved to its highest level in nearly eight months, starting the week below 15% and gaining throughout the week to within a breathe of 19%.
The rand, although off its best levels of the week, found renewed strength following minutes from the Federal Open Market Committee (FOMC) meeting in the U.S. The committee alluded to a longer time horizon before the rate tightening cycle in the U.S. would commence.
It has been another tough week for equity markets with only a few shares managing to squeeze out small gains, as selling remains indiscriminate, with broad-based sector losses highlighting an elevated level of fear present in markets.
Surprisingly, the gainers list finds itself headed up by some of the worst decliners in preceding weeks. While commodity prices remain pressured Assore, Impala and Anglo American Platinum have managed to outperform fellow blue chip counters. With the underlying platinum price nearing parity with gold and testing the $1,200/oz mark (earlier in the week), the relative outperformance of platinum counters appears surprising.
The marginal gains do elevate themselves from a very low base, but perhaps we are seeing evidence that the severe negativity being priced in is starting to reach a point of capitulation, providing far sighted investors a perceived value offering.
The decliners list witnesses Sasol as the worst performer this week having given up almost 9% over the period. Sasol’s severe decline follows a weaker price of brent crude (now trading below $90/barrel) and a stronger rand (which has rebounded from recent lows), further exaggerated by the share price adjusting for a R13.50 dividend this week.
Fellow rand hedge counters Mondi, Discovery and Mediclinic find themselves underperforming locally listed equities as the rand gravitates back towards the R11/$ mark and macro-economic concerns persist.
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|29 October 2014||18:30||IG Offices, Johannesburg||1.5hrs|
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Source: INET BFA, as of 10/10/2014
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