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Resources continue JSE rally


Johannesburg – The recovery in the resources sector on the JSE continued on Tuesday when the Resources index rose sharply before it consolidated.
The improvement in resources and gold shares, with the gold price the highest in four weeks, was however not enough to pull the major indices on the JSE higher, as the Financial and Industrial indices lost ground.

Shortly before midday on Tuesday the Resources index was 1.5% higher and the Gold index gained 1.16%. The All-share index was at that stage 0.13% lower at 43 307 points and the Top 40 index dropped 0.18% to 42 105 points. The Financial index was 0.55% lower and the Industrial index lost 0.75%.

The recovery in resources shares was not confined to the JSE, as Australian resources stocks also recovered by 2.2% on Tuesday, particularly the shares of companies producing iron ore, which have been hard hit by a near a five-year price low on oversupply concerns.

According to analysts the recovery in resources is still insufficient to create decisive upside momentum and is to a certain extent due to bargain hunting and buying support at technical levels, but there are also indications that the mood in the commodity market is changing somewhat.

Imara SP Reid said in its daily Market Snapshot that global commodities have not exhibited a clear improvement, but the tone of trading activities in the past few sessions is indicative of a somewhat improved assessment of demand following slightly better than expected Chinese data.

Data on Monday showed that China’s overall exports rose more than forecast and iron ore imports unexpectedly gained. China is the largest importer of the steelmaking commodity.

The marginally weaker dollar, largely as a result of technical factors, will also support modest improvement in commodity prices in the near future. Iron ore for immediate delivery to China rose 4% to $83.10 a tonne.

Imara SP Reid warned the medium-term sustainability of such improvements continues to be questionable given the downbeat assessment of global growth which has materialised recently.

Concerns about the ultimate vibrancy of global growth are the reason why US markets continued to gradually grind lower. Although the US economy has held up relatively well in recent months, evidence increasingly suggests that both Europe and China are likely to exhibit slightly lower growth trajectories in the quarters ahead.

On Monday the recovery in resources stocks was led by iron ore producers, with Assore [JSE:ASR] gaining more than 4% and Kumba Iron Ore [JSE:KIO] 3%.

Assore was another 3.33% higher at R244.71 shortly before midday on Tuesday, and has now risen by 15.8% over the last seven days. It is however still 25.1% down for the last month and 43.9% for the year. Kumba rose by 3.38% to R284.37 and is now 3.1% higher for the last week. Its loss for the last month is still 17.9% and 41.2% for the year.

BHP Billiton [JSE:BIL], which also delivers huge quantities of iron ore to China, improved by 2.44% to above R300 again. It traded at R300.36.

Anglo American [JSE:AGL], which owns an important stake in Kumba, rose by 3.47% to R352.59 and African Rainbow Minerals [JSE:ARI], controlling Assore, gained 2.01% to R145.36.

Among the gold shares Harmony Gold [JSE:HAR] improved by 2.44% and Gold Fields [JSE:GFI]gained 3.91% to R44.90.

Gold retained overnight gains on Tuesday to trade near its highest in four weeks as investor appetite for riskier assets eased amid global growth worries, while a softer dollar also underpinned prices of the metal.

A sell-off in the stock markets saw gold-backed exchange-traded funds attracting investors for the first time in a month after heavy outflows.

– Fin24

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