27 - 31 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
Our local market has shown a strong degree of correlation to global markets in the current uncertain economic environment, although deviated from this behaviour following the Medium Term Budget Speech (MTBS) delivered by new Finance Minister Mr. Nhlanhla Nene.
In the MTBS, local GDP is noted as being expected to slow to 1.4%, a far cry from the anticipated 2.7% predicted at the beginning of the year. The downward revision is a result of a slowing macroeconomic environment as well as domestic setbacks. Major public interest in the statement domiciled in the additional R15 billion per year in revenue needed to be raised. This equates to certainty surrounding increased taxes in the new year, although uncertainty remains around which form the additional taxation will find.
Click here for a full view of the MTBS.
On a positive note, Headline Consumer Price Index (CPI) data showed inflation to have returned to within the Reserve Bank’s targeted band at 5.9% annually in September 2014. The rate shows a half a percent improvement from August’s figure of 6.4%.
Slowing global growth, deflation and Ebola contagion, accompanied by corporates being in the heart of this quarter’s results season, remain the prevalent themes and catalysts for global market movements at present. Global economic news this week has been slightly more upbeat from Germany and China in particular (the two economies most noticeably causing investor concerns for growth at present).
Chinese Gross Domestic Product (GDP) data showed year-on-year growth of 7.3% in the third quarter, which although better than revised estimates of 7.2%, find the region’s economic growth at a two decade low. Chinese industrial production grew by 8% (y/y) while, manufacturing PMI data alluded to better than expected industry expansion.
Germany, the historical stalwart of growth in Europe, broke its recent trend of poor economic data, after manufacturing PMI data alluded to industry growth where the expectation had been for marginal industry contraction. Consumer climate figures showed improved sentiment amongst surveyed consumers in the region.
Although the latter data point often considered as “second tier” and less relevant, finds prominence in the current market environment, as investors increase their focus on the country’s broader economic picture, looking for further clues relating to economic health.
In the U.K. preliminary GDP (Q3) data showed 0.7% growth (q/q) in line with consensus estimates, marginally below the previous figure recorded at 0.9%.
This week, volatility remains at elevated levels, although reduced from that of the preceding week. The Top 40 index, a barometer for domestically listed blue chip equities, now trades within an average daily range of nearly 2%, which is more than double that experienced in early September 2014 (0.7%).
The high level of volatility commands increased caution in the current market environment with risks posed to both the up and downside, as we ponder whether it’s the end of the correction, or a short-term pause before the continuation of weakness.
Blue Chip Gainers and Decliners
The top gainers list this week is “broad-based”, although omits the presence of any resource based companies. In the absence of any company specific news and in light of the marginal extent of gains, it would assume tentative bottom picking into historically consistent performing shares by those anticipating a near-term market recovery.
The top decliners list echoes that of weeks gone by, as resource counters with iron ore dependence dominate the table once more. An operational update from Kumba Iron Ore showed a massive 37% iron ore production increase against the previous year’s third quarter comparative (+13% from Q2 2014).
Sales volumes did however decrease both domestically and internationally by 14% and 4% respectively. The report shows the current industry trend which is that major producers are increasing production and in turn supply, while demand wanes amidst slower economic growth.
The resulting affect being that the underlying price of iron ore remains only marginally above six year lows.
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Source: INET BFA, as of 24/10/2014