South African stocks climbed to a five-month high on Friday after China cut interest rates to stimulate its economy and the European Central Bank hinted it’s preparing to increase stimulus.
The FTSE/JSE Africa All Share Index rose 19% to 54.289.03 as of 2:05pm in Johannesburg, the highest since May 22, as three stocks climbed for every one that fell. Naspers, which announced that it would be taking control of Russia’s Avito in a $1.2 billion dollar deal, led gains, rising 2.1% to a record. Diversified miner BHP Billiton added 3.2%, while luxury-goods maker Cie Financiere Richemont SA jumped 1.6%.
“There’s a lot of cheap money flowing around the Euro Zone and they’re looking for yield and growth and they’re willing to take on higher risk,” Michele Santangelo, a portfolio manager at Johannesburg-based Vunani Private Clients, said by phone. “They’re happy to come into our market for this higher risk for a portion of their portfolios and will hopefully get a capital return.”
China, which buys about 45% of South Africa’s exports, cut its benchmark lending rate and reserve requirements for banks on Friday, stepping up efforts to cushion a deepening economic slowdown. China’s sixth rate cut since November comes as the ECB signals more policy easing and amid expectations for additional stimulus from the Bank of Japan.
ECB President Mario Draghi said on Thursday there was a “rich discussion” among policy makers about the instruments that might be used and that the central bank will review the degree of monetary expansion at December’s meeting. One option the ECB is considering is a further reduction in the deposit rate, which is already negative.
“Mario Draghi yesterday saying that the potential to increase the size of their stimulus package and the length of the time, potentially from December, is helping the emerging markets stock markets really push higher,” Santangelo said.
©2015 Bloomberg News