KAP Jumps 6.4% to R200 as Rand Strength Fuels a Fresh Breakout Bid
KAP Limited (JSE: KAP) has seen a sizeable 6.38% jump in a single session, finally poking its head above the R190 mark, before largely...
Quick overview
- KAP Limited experienced a 6.38% increase, briefly surpassing the R190 mark, amidst a positive shift in local market sentiment.
- The surge in KAP's stock price is attributed to a stronger rand, easing bond yields, and a growing optimism about economic conditions.
- Technical indicators suggest that KAP is in a favorable position for further gains, with support levels established above R190.
- The overall market dynamics, including rising gold prices and lower bond yields, are contributing to improved financial conditions for businesses like KAP.
KAP Limited (JSE: KAP) has seen a sizeable 6.38% jump in a single session, finally poking its head above the R190 mark, before largely settling back down. There wasn’t any company-specific news that led to this jump. Still, it does fit with a larger shift in local market sentiment, largely driven by a stronger currency, easing bond yields, & a growing feeling that things are actually not as bad as they used to be.
The surge was brief, but it did push KAP to the R200 handle – that’s a big psychological number that has been acting as a major ceiling on price action for months now. Even after a bit of a pullback, KAP is still way above where it was before, suggesting that this jump is more than just a one-day blip – people are starting to think that this is the start of a renewed rally, rather than just a flash in the pan.
For portfolio managers, this is good news for KAP, as lower interest rates and a stronger rand are likely to make their lives much easier. Lower rates mean lower costs of funding for businesses like KAP, while a stronger rand is great for businesses that import a lot of stuff – or that want to make more money from their exports.
Rand Gains, Gold Strength, and Capital Flows
The rand has been doing very well lately, thanks largely to the strength of gold prices, which are also supported by falling US Treasury yields. This scenario historically helps emerging-market currencies like ours. ETM Analytics thinks the rand has some momentum now, having broken through the key level of 16.90 per dollar, and it’s likely to head down to around 16.60 by the end of the year. This creates a self-reinforcing cycle where a stronger currency boosts equities and encourages even more money to flow in.
As South Africa is one of the world’s largest precious metals producers, a strong gold price is also great news for us, in terms of both sentiment and our export revenue streams.
Bonds Signal Improving Financial Conditions
Meanwhile, the fixed-income market is telling a similar story: the yield on our 2035 government bond fell by 5 basis points to 8.39%, reflecting investors’ improving expectations for inflation and growing demand for local debt. There’s a lot of interest in the upcoming South African Reserve Bank’s bulletin for Q3 and the inflation prints for November, because any confirmation that policy is still supportive would be great news for the market.
So what’s driving this positive story? Well, there are a few key factors at play, including:
- A stronger rand, which is helping businesses with imports.
- Higher gold prices are supporting both sentiment and our export revenue streams.
- Lower bond yields, which are helping businesses to keep costs down.
- And of course, the expectation that investors will keep putting money into the market
KAP Limited Technical Picture: Breakout With Room to Breathe
From a technical perspective, KAP’s chart has a much better chance of success now. The stock is trading near R190 and is holding above that ascending trendline from the October lows. The recent strong daily close above the previous consolidation range indicates that buyers are back in control.
KAP has even re-taken its 50-day EMA, and the 100-day EMA has flattened, indicating the underlying momentum has largely disappeared. This former resistance zone is now acting as a major support level, and KAP could push on to the next resistance zone around R202-R214.
On the downside, if things do start to go wrong, R184 is the first place to watch, followed by R173 if momentum really does start to fade. But with the RSI at around 66, momentum is still firm but not stretched, so we’re probably in for a bit of a consolidation above support before the next big push.
Overall, when you put it all together, it’s pretty clear that this recent move by KAP is part of a broader reassessment of domestic growth prospects rather than a one-off jump.
- Check out our free forex signals
- Follow the top economic events on FX Leaders economic calendar
- Trade better, discover more Forex Trading Strategies
- Open a FREE Trading Account
Save