Greece and China continued to dominate global market headlines over the last trading week, eclipsing (in terms of headline dominance), the still relevant but perhaps less in focus happenings out of the U.S.
Chinese stock markets continued the deleveraging induced rollercoaster over the course of the week. In further attempts to incur marketplace stability, regulators suspended trade in more than 1300 listed companies and ordered state run businesses with significant shareholdings not to sell their holdings.
In the U.S., minutes from the recent Federal Open Market Committee (FOMC) meeting suggested that the world’s largest economy remains on track to start raising interest rates this year, although concerns of a failure in Greece/creditors discussions was noted as having the potential to disrupt financial markets, thereby aiding a more dovish tone to the minutes.
Following a “no” vote by the Greek people against the austerity suggested by its creditors in lure of further financial aid, the region’s banks remained closed and global market uncertainty prevailed. Since the vote, Greece has submitted a new proposal to its creditors, which ironically meets most of the previously suggested spending cuts, pension reforms, and tax increases which were contested in the Greek referendum. The weekend’s Euro Summit saw Greece agreeing to implement austerity measures and in turn a deal looks to have finally been reached.
Although less relevant in last week’s underlying market moves, but valid in terms of SA’s underlying market fundamentals, mining and manufacturing production data both came in below expectation.
Manufacturing production data for May 2015 showed a 1.4% contraction when compared with the May 2014 data point.
Mining production increased by 2.7% y/y in May 2015, impacted negatively by lower production in basic iron and steel as well as petroleum and chemical products.
In what was a challenging week across most sectors in our local market, Capitec further underperformed “Blue Chip” and financial counters. Suggestions by the National Credit Regulator (NCR) that the maximum interest rate charged on unsecured loans be reduced by around 8%, catalysed weakness across the local banking sector. The move down was exaggerated in the share price of Capitec, as unsecured lending forms a larger proportion of the banks’ earnings than it does with its major banking peers.
Aggressive selling in Chinese equity markets at the beginning of last week saw Naspers echo losses endured by its Hang Seng-listed counterpart Tencent Holdings (of which Naspers owns 34%). The weakness in China further impacted demand concerns from the region, which is the world’s largest consumer of iron ore, sending the underlying price of the commodity to record lows and in turn pushing major producer Kumba Iron Ore lower as well.
At first glance, last week’s gainers list appears to be made up of predominantly rand hedge counters (excl. resources). A closer look reveals commonality in that Mondi, Old Mutual and SABMiller all have separate listings in the U.K., while Brait SE has recently looked to gain further exposure into the region through its New Look acquisition. The week’s gainers trend perhaps an indication of the London Stock Exchange being a preferred frontier market destination amidst the current global macro uncertainty present.
The new week
The new trading week has kicked off on a positive note as the Greek crisis nears short term resolve and Chinese trade balance data showed a 2.1% increase in exports. Chinese Gross Domestic Product (GDP) data on Wednesday will rank among one of the most significant upcoming data points this week as we assess the economic health of the second largest economy in the world.
In the U.S., market participants will be looking for clues relevant to the timeline of rising interest rates out of the world’s largest economy, when Federal Reserve Chairperson, Janet Yellen, testifies on Wednesday followed by the inflation (CPI) data on Friday.