South African Stocks Rallying to Record May Get Fed Puncture

South African stocks, which rose to a record this week, may halt their rally if Federal Reserve Chair Janet Yellen signals prospects for higher U.S. interest rates that would curb demand for emerging-market assets.

The FTSE/JSE All Share Index’s relative-strength index rose a fourth day to 71.8, above the level that may indicate to some traders the gauge is overbought. It increased 0.1 percent to 53,412.46 by 12:29 p.m. in Johannesburg as data showed South African gross domestic product growth beat economists’ projections in the fourth quarter.

Demand for assets in Africa’s second-biggest economy has been bolstered by low yields in the U.S. as money managers sought higher returns in developing markets. Investors will watch Yellen’s testimony to U.S. lawmakers at 5 p.m. Johannesburg time for clues on the timing of an interest-rate increase.

The rally is “all on the back of the fact that we are in this mode of low interest rates,” Ferdi Heyneke, a money manager at Afrifocus Securities, said by phone from Johannesburg on Tuesday. “What could turn things around is if interest rates start to rise in America.”

South Africa’s rally held after the country’s statistics office said manufacturing drove economic growth to an annualized 4.1 percent in the last three months of 2014, compared with the previous quarter’s revised expansion of 2.1 percent. The median estimate of 20 economists in a Bloomberg survey was 3.8 percent.

Gains on the bourse were lead by materials companies, with the 26-member FTSE/JSE Africa Basic Materials Index rising 1.7 percent to 25,515.70, the highest since Feb. 18. AECI Ltd., a Johannesburg-based manufacturer of commercial explosives and accessories, climbed 5.7 percent to 129.70 rand after declaring a special dividend following a land sale. BHP Billiton Plc, the world’s biggest mining company, gained 3.7 percent to 289.27 rand as it set out plans to cut project spending to the lowest since 2010.

“We’ve seen in recent times a bit of a recovery in the diversified miners,” Heyneke said. “There seems to still be a pretty good appetite for those kinds of shares.”

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