Photographer: Nadine Hutton/Bloomberg

Resource-Stock Slump in Johannesburg May Just Be Getting Started

  • Technical analyst sees bearish signal for mining, oil, paper
  • `Relief rally' on China has gone too far: Imara S.P. Reid

A drop of more than 4 percent this week for Johannesburg-traded resources stocks may presage further declines, according to analysts citing technical indicators and excessive optimism among investors about Chinese economic stimulus measures.

A “relief rally” in commodities prices that started in March and ended eight months of losses has been overdone, said Stephen Meintjes, head of research at Johannesburg-based Imara S.P. Reid.

“Quite a few of the prices are way ahead of the fundamentals,” Meintjes said Wednesday by phone. “China has ticked up in the last few months, but the stimulus measures probably won’t last forever, it will taper off this year.”

Johannesburg’s FTSE/JSE Africa Resource 10 Index ended two days of losses, climbing 2.1 percent by the close on Thursday, paring its losses this week to 4.2 percent. Diversified mining company Anglo American Plc and gold producers Sibanye Gold Ltd. and AngloGold Ashanti Ltd. are among its 11 members, along with Sasol Ltd., the world’s largest producer of motor fuel from coal, and South Africa’s two largest paper producers.

Trading data suggest the stocks are poised for short-term weakness, said Peet Serfontein, a technical analyst at Nedbank Group Ltd., with the index set to drop below its 200-day moving average.

“That’s also indicating that the price has been extended to the upside and it needs to release some pressure in the strong trend,” Serfontein said. “You can definitely expect some weakness coming through in the index.”

Investors keen to increase their holdings of Johannesburg mining and resources stocks should wait, the two analysts said. “You’ll probably get opportunities to buy at the same, or better prices, in a few months’ time,” said Meintjes.

Before it's here, it's on the Bloomberg Terminal.