Market bloodbath

Johannesburg - Share prices on the JSE were sharply lower on Friday with the trend sharply downwards from the outset in reaction to one of the biggest sell-offs in New York in months on Thursday.

By midday the All-share index and the Top 40 index were both more than 1% weaker than Thursday's close, after the major indices on Wall Street last night lost about 2%.

The technical research team of Imara SP Reid said in its daily Market Snapshot on Friday that the technical weakness of the past 48 hours represents the most significant technical adjustment into the markets’ upward trend since January.

There were various reasons given for the sell-off in New York, but probably closer to the truth is that there is a growing concern that the valuations of share prices at record levels are not backed by the fundamentals of the
underlying companies as major US companies report disappointing results.

Concerns about valuations have also caused uncertainty on the JSE. The All-share index traded below the 51 000-point level - by midday it was 1.11% lower on 50 832 points. The Top 40 index lost 1.2% to 45 668 points.

The resources sector was the biggest loser and was 1.87% softer, while the Industrial index lost 0.87% and the Financial index 0.86%.

In New York, the Dow Jones Industrial Average tumbled 1.88% to 16 563.30 points, while the broad-based S&P 500 sank 2.00% to 1 930.67 points, a seven-week low, while the tech-rich Nasdaq Composite index fell 2.09% to 4 369.77 points.

The rout followed a dreary day on European bourses, where the German DAX sank nearly 2% and indices in Britain and France fell sharply after eurozone data revived concerns about deflation. Other big drags on the market included the Argentine debt default and disappointing earnings from Whole Foods Market (-2.3%), Kraft Foods (-6.4%) and others.

Some analysts also pointed to lingering concerns about high stock valuations after a string of records this summer by the Dow and S&P 500.

Michael James of Wedbush Securities said there isn't one thing you can point to.  "It's an accumulation of concerns that have kind of broken the dam today."

Imara SP Reid said concern about rising interest rates in the US has also raised its head again. The latest employment cost index in the US, which was released on Thursday, rose with 0.7%, suggesting early evidence of upward pressure on employment costs. That could lead to higher inflation.

The possibility of higher interest rates in the US also has a detrimental effect on South African share prices, as it offers better investment opportunities in their own country to foreigners who are currently investing in emerging markets like South Africa.

Imara SP Reid said that a circumspect approach therefore remains valid over the next few sessions.

In the resources sector, which are now again below the level of 60 000 points, Anglo American [JSE:AGL] lost almost 3%  to R281.11. Glencore [JSE:GLN], the busiest share in the resources sector with 1.6 million shares changing hands, dropped 2.73% to R63.36.

There was also a lot of interest in Sibanye Gold [JSE:SGL] after the group’s solid operational results on Thursday. The group also reiterated its plans to enter the platinum market. More than 2.3 million shares were traded by midday. The share price was 1.31% lower on R25.10.
 
FirstRand [JSE:FSR] was by far the busiest share on Friday and 4.7 million shares worth R204m changed hands. The share price was however steady and was only 0.05% lower on R43.23.

In the industrial sector Richemont [JSE:CFR] was again under pressure and it lost 1.26% to R100.79. The share has now lost almost 9% over the last month after reaching a 52-week high of R112.26 early last month.