August 29, 2011 / 4:49 PM / in 6 years

Sentiment boosts S.African assets in thin trade

JOHANNESBURG (Reuters) - South African stocks went into orbit on Monday, tracking stronger global equity and commodity prices, and rising over 3 percent, the highest intra-day rise in nearly three weeks.

A South African child holds a 50 rand note July 2. JN/FMS

The rand also advanced to a three-week high, gaining on a defensive dollar as risky assets enjoyed positive investor sentiment after the Federal Reserve left open the possibility of further monetary stimulus in the United States.

Market moves were exaggerated by thin trading conditions while the British market was closed for a national holiday.

Volume in the currency market was at its lowest in a week according to Reuters data, and dealers said volume was half of what it normally is on an average day.

Government bonds were supported by the firmer rand but had an uneventful session with the UK market out of play. Dealers are waiting for domestic second quarter gross domestic product data on Tuesday to give pointers on likely issuance changes.

The JSE’s blue-chip Top-40 index powered 3.24 percent to 27,049.24 in thin trade and the broader All-Share index climbed 2.95 percent to 30,292.76, led by banks and resource firms.

“The volumes are thin due to the FTSE bank holiday but leading on the back of the strong Dow on Friday and the strong Futures, we are seeing our market being very strong today,” said Desmond Reilly, a trader at PSG Securities.

The banks’ index gained more than 4 percent, with Standard Bank, Africa’s biggest lender by assets, climbing 4.6 percent to 98.83 rand.

One trader said South African stocks, including banks, were a tad overpriced compared with other emerging markets.

“Our banking stocks do not look attractive compared to other banks. The valuations still look expensive, somebody could get better exposure in terms of returns in other emerging markets,” said Phinda Mangolothi, an equity trader at Legae Securities.

Platinum producers were the biggest gainers of all miners, with firms such as Impala Platinum climbing to 177.45 rand, 5.3 percent higher than the previous close.

RAND FOLLOWS STOCKS HIGHER

The rand gained 1.8 percent on the dollar to a 7.0230 session high. The currency broke out of last week’s range to levels last seen August 8 as thin liquidity met with exporters selling the dollar, pushed moves stronger.

“I think risky assets have taken the cue from the equity markets and that’s why we’ve seen overall a stronger currency on the day,” said Warrick Butler, a currency trader with Standard Bank.

The local unit firmed along with other riskier assets but was the biggest gainer in a basket of emerging market currencies tracked by Reuters.

“The rand has outperformed. I think its a combination of positive vibes, very low liquidity and month end exporters getting involved on a day when there’s not a huge amount going through the market. Our daily turnover is literally half of what it is on a normal day,” Standard Bank’s Butler added.

Yields on benchmark government bonds gave up 3.5 basis points on the 2015 note to 6.56 percent and 4.5 basis points on the 2026 bond to 7.945 percent. Dealers had a slow day and were waiting for the week’s data and events starting on Tuesday.

“Locally, eyes are on preliminary Q2 GDP figure on Tuesday, expected to slow further and offers bonds support today as investors take the view that further evidence of a slowdown may warrant rates on hold for an extended period,” 4Cast said in an afternoon note.

“It (GDP) should give us some guidance from a bond side as to what anticipated change of issuance could potentially take place, if tax receipts are going to be lower that originally anticipated,” said Steve Arnold, a bond trader at Investec.

Finance minister Pravin Gordhan said earlier in the session the government was confident of its growth forecasts and fiscal polity outlined in the February budget, while central bank governor Gill Marcus last week said economic growth would have slowed in the second quarter.

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