By Neo Khanyile and Janice Kew, Bloomberg
20 Jan, 2015 – South African retail stocks climbed to a record on speculation the central bank will reduce borrowing costs to spur an economy struggling to reignite growth.
The FTSE/JSE Africa General Retailers index climbed a fourth day to an all-time high in the longest stretch of gains since the six days through Nov. 14. The International Monetary Fund on Tuesday lowered forecasts for South Africa’s expansion for 2015 to 2.1 percent from 2.3 percent as part of the steepest cut to the lender’s global-growth outlook in three years.
“They’re reacting because of external factors,” Bruce Main, who helps manage the equivalent of $65 million at Ivy Asset Management, said by phone from Johannesburg. A drop in oil prices and interest-rate reductions in countries including India and Turkey is helping investors “to look a bit more positively on everything,” he said.
A slump of more than 50 percent in crude prices since last year’s peak in June is driving down the cost of fuel in South Africa, helping to keep inflation within the central bank’s target range at a time when the economy is expanding at the slowest pace since the 2009 recession. Forward-rate agreements, used to speculate on interest rates, show investors see more chance of a cut than an increase over the next two quarters, the first dovish occurrence since May 2013.
Gainers on the 10-member gauge of retailers included Woolworths Holdings Ltd. (WHL), the food and clothing chain, which jumped 1.5 percent to the highest since November. Woolworths last week said sales in the six months through December increased more than 55 percent.
Cash Retailers
Massmart Holdings Ltd. (MSM), the general merchandise, food and liquor retailer owned by Wal-Mart Stores Inc., said on Jan. 14 that sales climbed more than 10 percent for the 52 weeks through Dec. 28. The shares added 1.1 percent to 166.35 rand, the highest level since October 2013. Truworths International Ltd. (TRU), which sells more than 70 percent of its clothing on store-credit cards, rose 2.3 percent. The Cape Town-based company dropped more than six percent in the three days through Jan. 15 after saying sales in the six months through Dec. 28 increased 5.2 percent.
“The cash retailers are still a good place to be,” Main said, referring to companies such as Massmart and Mr Price. “The credit cycle still worries me so I still prefer the cash retailers, which I don’t think are going to perform particularly well, but they’re certainly good long-term investments.”-Bloomberg
