Investors in South African markets chose to lock in profits Tuesday, ending a recent winning streak as cautious sentiment returned to trading floors.
The broad market retreat saw 14 of 20 major sectors decline, with communications, commercial services, and industrial services leading the selloff. Only energy minerals, consumer durables, and utilities managed to post gains during the session.
The pullback came despite encouraging economic signals from the South African Reserve Bank. The country’s composite leading business cycle indicator climbed 0.4% in June, recovering from May’s 1.3% drop and suggesting improved economic momentum ahead.
Daniel Wesonga, Senior Sales Manager at Pepperstone, noted that the June indicator benefited from faster growth in real M1 money supply and rising export commodity prices measured in US dollars. These factors typically signal strengthening economic conditions and improved business confidence.
“The fundamentals actually looked quite positive,” Wesonga observed. “But investors seemed more focused on taking profits after the recent rally than on the underlying data.”
Market participants are now turning attention to Thursday’s release of July producer price inflation figures. June’s PPI reading hit a four-month high of 0.6% year-over-year, raising questions about cost pressures facing South African businesses.
A stronger-than-expected PPI number could weigh on equity markets by signaling increased input costs for companies, potentially squeezing profit margins. Conversely, a softer reading might provide support by easing concerns about cost inflation.
The South African market has experienced significant volatility this year as investors weigh domestic economic recovery against global uncertainty. Recent sessions had shown positive momentum before Tuesday’s profit-taking activity.
Energy and utility stocks bucked the broader trend, benefiting from ongoing focus on the country’s power sector reforms and commodity price movements. Consumer durables also found support, possibly reflecting expectations for improved household spending.
However, the weakness in communications and commercial services highlighted ongoing concerns about economic growth sustainability and business investment levels.
Technical analysts suggest the market may be entering a consolidation phase after recent gains, with investors waiting for clearer signals about economic direction and policy developments.
The Reserve Bank’s business cycle indicator improvement offers some optimism for economic recovery, but market participants remain cautious about broader global factors that could impact South African assets.
Thursday’s PPI data will provide important insights into whether inflationary pressures are building in the economy, potentially influencing monetary policy expectations and market sentiment going forward.
Source: newsghana.com.gh
