Futures Trading Hurts Stocks
May 03, 2011
The Industrial Index slumped 58 points to 7592, after reaching an intraday high of 7684. The index is at its lowest level since November 2010. The All Gold Index lost 5 points to 1726, while the All Share Index dropped 24 points down at 6421. More than 515 million rand worth of shares traded hands, with declining shares outpacing advancers 180 to 125. The market continued to be absorbed by fluctuations in the rand and shifting prospects for an interest-rate hike, which in turn fueled futures-related activity. Futures investors often buy an index futures contract and sell physical stocks that make up that index, or vice versa, to take advantage of price differentials in both markets. Blue chip stocks drew the brunt of the sell-off, while second-tier shares ended mixed. Tobacco and industrial holding group Rembrandt fell 60 cents to 35.40 rand, while banking group Nedcor tumbled 1.75 rand to 53.50 rand. The exchange's most heavily-weighted stock, South African Breweries, fell 1.75 to 113.75 rand. Market watchers said the decline would continue as long as the rand remained unstable and speculation of an interest rate increase lingered. Gold shares ended mostly lower as a listless gold price and a stagnant rand failed to spark a revival. One broker said the All Gold Index was trading at more than a 25% discount to such fundamentals as spot gold, the rand price, gold mine cash flows and the life of mine. Using that formula, the All Gold Index should be around 2200, the broker added. Among gold mining shares, Vaal Reefs Exploration & Mining slipped 6.00 rand to 356.00 and producer Free State Consolidated Gold Mines dropped 60 cents to 45.15.
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