What a start to the trading week. The JSE All Share Index closed more than 3.5% lower on Monday, its ninth worst trading day in the last decade. All of the major US indices – Dow Jones, S&P 500 and Nasdaq – all slipped more than 3% before ending the trading session in the green. It was the first time in history the Dow Jones recovered more than 1,000 points, in the single biggest reversal the stock market has seen on any given trading day. The Nasdaq, which comprises technology-focused companies, was down by around 5% before finishing the day up. All the major US indices have had a horrid start to the new year. With inflationary pressures and an imminent interest rate hike cycle on the Federal Reserve’s agenda, investors are fleeing from risky assets such as equities that are at historically record valuation levels. The good news for local investors is that despite yesterday’s sell-off on the local bourse, the JSE All Share Index has held up well in the face of negative sentiment from the world’s most dominant economy. Traditionally, when the US sneezes, the rest of the world catches a cold.
Today the JSE closed down -3.57%.
Over the last 10 years, the JSE has only had 8 worse days than today – they were all seen in Feb/Mar 2020!
So basically today was the worse on the local market the last decade excluding the events during the Covid sell off.
— Johann Biermann 🇿🇦 (@JohannBiermann1) January 24, 2022
In the price action, cement producer PPC – which was on the brink of financial collapse 18 months ago – has been the subject of substantial insider selling. Insiders sell shares for many reasons and it shouldn’t necessarily be seen as a negative sign. However, given the enormity of the transactions in this case, there should be some concern. First, chief executive Roland van Wijnen sold half of his stake in the business, worth R25m. The reasoning was to “rebalance his investment portfolio”, which makes sense given the rally in PPC’s share price over the past 12 months. Diversification is the only free lunch in investing, and no one wants to have all their eggs in one basket. Value Capital Partners – activist investors with concentrated positions in a limited number of JSE-listed counters – sold over R230m in shares last week. That accounts for 3.1% of the business at its current market value. Value Capital Partners has been a consistent buyer and still owns more than 13% of the business (worth around R1bn), so this could be seen as simple profit taking. Still, two big insiders selling may be an indication the share price is at or above fair value.
Sasol, the darling of the JSE since the onset of the pandemic, has boomed past the R300 level as Brent crude nears $90 a barrel. It has been an incredible journey for shareholders, with the stock being a 15-bagger since the lows in March 2020. To put that into perspective: a R100,000 investment would be worth over R1.5m. Of course, timing the market to these extremes is near impossible; even the oracle of investing, Warren Buffett, cannot determine short-term price action. The Sasol investment case remains strong, supported by robust oil and chemicals prices, and is the perfect inflation hedge for a portfolio. The valuation at current spot prices isn’t demanding and the resumption of dividends should be imminent. My analysis of the company back in August last year still holds true and is attached for ease of reference.
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