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Johannesburg - More bad news about the Chinese economy gave financial markets a boost on Monday, and particularly the resources sector on the JSE which gained more than 2%.
Such contradictions are only possible in the financial markets, as investors ignored the fact that the Chinese economy may be faced with job losses and bad debt, and rather discounted the possibility that the Chinese authorities will be forced to announce further measures to stimulate the world’s second biggest economy.
Further stimulating of the Chinese economy, and particular infrastructure development, will be good news for the local resources market, as China is still the biggest buyer of South African commodities.
READ: China's struggles argue for stimulus
By midday on Monday, the Resources 10-index on the JSE was 2.41% higher than Friday’s close and the index is at its current level of 45 228 points more than 11% higher than a month ago when it traded at 39 447 points.
The strong performance by resources shares gave the All-Share index initially a boost and the index opened almost 0.5% stronger on 54 985 points, but since then the momentum was downwards and by midday the index was only 0.22% higher on 54 559 points.
The Top 40-index, which was at midday 0.33% higher on 48 348 points, also lost momentum in morning trade as financial shares took a beating. By midday the Financial index was already 0.91% lower. The Industrial index was only 0.11% higher.
The biggest factor this morning was the news that China's factories suffered their fastest drop in activity in a year in April as new orders shrank. The HSBC/Markit Purchasing Managers' Index (PMI) fell to 48.9 in April - the lowest level since April 2014 - from 49.6 in March.
The latest indication of deepening factory woes raises the risk that second-quarter economic growth may dip below 7% for the first time since the depths of the global crisis. China is also struggling with a downturn in its property market, slowing investment and high levels of domestic debt.
The last time the Chinese economy grew with less than 7% during the financial crisis of 2009 millions of Chinese lost their jobs and debt defaults skyrocketed.
Analysts said this morning the latest news hardened the case for more stimulatory measures, as political leaders have already expressed their concern with the economic situation.
On Thursday, the Politburo, the ruling Communist Party's top decision-making body, said that authorities will step up policy "adjustments" and urged further tax cuts. It also said the government must resolve financing glitches that are holding up big infrastructure projects.
The think-tank, which is affiliated to the National Development and Reform Commission, the top planning agency, called for interest rate cuts of 50 basis points in the first half, coupled with further reductions in banks' reserves requirements.
One of the star performers in the commodity sector on the JSE on Monday was Anglo American [JSE:AGL] which gained 3.6% to R206.50. The group’s two biggest subsidiaries on the JSE, Kumba [JSE:KIO] and Anglo American Platinum [JSE:AMS], both performed strongly.
Kumba continued its recovery on the back of a stronger iron ore price and is now 24.4% higher for the month, after gaining another 3.25% to R165.37. Amplats was 0.87% higher on R329.99.
Impala Platinum [JSE:IMP], the other major platinum producer, traded 1.97% higher on R67.30.
BHP Billiton [JSE:BIL] was 2.40% higher on R291.73. The company’s shareholders are expected to approve the spin-off of the group’s long-neglected aluminium, manganese, silver and nickel assets into a separate company on Wednesday.
READ: BHP's South32 risks tough market debut
In the financial sector Sanlam [JSE:SLM] lost 2.46% to R75.08. In terms of volume, the share was the busiest on the JSE this morning.
Standard Bank [JSE:SBK] also lost 1.36% to R172.33 and FirstRand [JSE:FSR] was 0.84% weaker on R56.35.
