The world is changing fast and to keep up you need local knowledge with global context.
There’s never a boring week in the financial markets. Especially at a time when lofty equity valuations are coupled with several broad macroeconomic issues that are troubling traders and investors alike. The primary concern in current global markets is inflation. Although Federal Reserve Chairman Jerome Powell remains steadfast in his notion that this higher inflationary environment is transitory in nature, many of the top minds in finance – including Mohamed El-Erian, President of Queens’ College, Cambridge and chief economic adviser at Allianz – believe that central banks, particularly the Fed, have been too accommodative in their policy-making. It makes for a rational argument, especially when you add the global energy crisis and supply chain disruptions into the mix. Oil prices are surging to their highest levels in almost a decade and supply chain disruptions have led to price increases across the board. It is simple economics: when there is excess demand and a shortage of supply, the price goes up. Why is inflation so feared by participants in the capital markets? It erodes the purchasing power of money.
Despite so many intricate issues playing out in the financial markets, local and global markets continue to march higher. The tech-heavy Nasdaq still fell below its September highs but both the S&P 500 and Dow Jones Industrial Average hit fresh all-time highs last week. Even with all this uncertainty, equity markets remain the most attractive destination to produce returns. This is because interest rates have been kept at record low levels by central bankers in an attempt to stimulate the economy. Netflix and Tesla released quarterly results in the course of the past week, beating expectations, rising by 5.12% and 6.81% respectively. It’s going to be an exciting week with Apple, Amazon, Alphabet, Microsoft and Facebook all set to release quarterly earnings. Fasten your seatbelts!
Locally, the JSE was muted, having climbed a paltry 0.12%. However, the index still finds itself trailing its all-time high, set in April, by around 4%. Encouragingly, the mining counters seem to have bottomed out as commodity prices, for the large part, appear to have steadied across the board. The fears in China have cooled somewhat, which has been a net positive for heavyweights Naspers and Prosus. Notwithstanding the recent rally by Naspers and Prosus, they still find themselves down more than 10% each year to date.
Debt-laden construction company Aveng has been one of the most talked-about stocks on the JSE this year. This week it announced that decorated mining executive Bernard Swanepoel will be appointed to the board. Piet Viljoen, who holds Aveng shares in his ‘bundle of twigs’, says the level-headed Swanepoel will be an astute addition to the board and his mining experience will prove invaluable. Viljoen also shares his bullishness on the energy sector, outlining that the underinvestment in the sector over the past five to 10 years will cause supply shortages. The sector is a natural inflation hedge, making it a much more attractive investment proposition given the current environment.
Pick n Pay was the first retailer to announce results following the July riots, which impacted around 10% of Pick n Pay’s store footprint, resulting in hundreds of millions of rands in lost sales. Hedge fund guru Jean-Pierre Verster was relatively complimentary about the results, despite the retailer lacking direction. Verster labelled all of the large listed food retailers – Pick n Pay, Shoprite, Spar and Woolworths – as ‘expensive’. His chosen pick in the sector is Spar and gives credit to management for its successful international expansion, whose exposure includes geographies such as Ireland, Poland, Switzerland and Sri Lanka.
Lastly, South Africa’s favourite market commentator David Shapiro gives us the inside scoop on the skullduggery that took place on the local bourse, after small-cap Hulamin share price increased by 40% days before a cautionary announcement. These cautionary announcements are generally signposts for significant corporate action. Coincidence? Shapiro thinks not.
Lots to digest. Plenty to ponder. Roll on the new week…
- Insider trading on the JSE is a big problem – David Shapiro
- Bernard Swanepoel is an astute addition to the Aveng board – Piet Viljoen
- Magnus Heystek on Mauritius and contradictory data coming out of the local bond market
- ‘Spar is the least overvalued SA food retailer’ – Jean-Pierre Verster
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