The world is changing fast and to keep up you need local knowledge with global context.
Three trading weeks in and it has been an interesting start to 2022. The major US-indices, specifically the tech-focused Nasdaq, have struggled. The Nasdaq has corrected more than 10% this year alone. The emerging tech, high-growth names that outperformed by multiples in 2020, were smashed last year. But this year, we are seeing a broader downturn in the blue-chip growth stocks, which has been primarily driven by inflation fears and possibly a policy mistake by federal reserve chairman Jerome Powell.
“In football terms, this is the equivalent of the Fed losing control of the game, having to scramble to catch up and, therefore, being forced into a riskier hurry-up offense — one that increases the probability of interceptions and fumbles”@elerianm 👇https://t.co/I6iA5ymtoc
— Jonathan Ferro (@FerroTV) January 10, 2022
The JSE on the other hand had a strong start to the year, consistently reaching all-time highs. This is predominantly thanks to the value bias on the JSE and the defensive nature of many of the index heavyweights. Commodities have had an incredibly strong festive period and this has continued into the new year as robust demand is being met by limited supply. Simple economics tells us when supply can’t match demand, the price goes up. Good news for many of the JSE-listed counters is that the inflation and monetary policy concerns at the top of mind in the US are less prevalent here. The bad news … when the US sneezes, the rest of the world tends to catch a cold.
Nasdaq down -13%
Sp500 down – 9%
Top 40 – reach all time high yesterday.
This essentially depicts the value in Top 40 vs. US markets and supports my view that SA equity will out perform in 2022. Driven mainly by Resources & perhaps gokd shares.
— Rod Lowe (@RodloweLowe) January 21, 2022
Netflix released quarterly results after the bell in New York last night, with the entertainment platform posting strong numbers. All-important financial metrics were in line with, or beat, consensus estimates. However, despite incredibly strong subscriber numbers for the fourth quarter of 2021, its muted forecast for subscriber growth in the first quarter spooked the market. The stock was down 20% in after-hours trading, shedding more than $40bn in market value. To put that number into perspective, it’s the same size as FirstRand and Capitec put together. South Africa’s two largest banks by market capitalisation.
$NFLX I think Netflix will be a great buy at 375-400. Let the dust settle. 3 day rule after earnings usually it calms down. We shall see. But wow, 4 yrs of gains wiped away in a one swoop.
— Heisenberg (@Mr_Derivatives) January 20, 2022
Food retailer Woolworths announced a trading update that was worse than expected, with headline earnings falling by around 40%. The high-end retailer cited lockdown restrictions in Australia, coupled with the civil unrest in South Africa, as the primary headwinds during the period. Ironically, discretionary retailer Foschini announced strong results and an encouraging showing in Australia, where Woolworths had blamed Covid-19 restrictions. David Jones has been a perennial underperforming unit for the business. There have been calls from analysts and investors to split Woolworths food from its beauty and fashion business, owing to the latter’s persistent drag on performance. Ex-Levi Strauss executive Roy Bagattini has been brought in to the group for his clothing retail expertise and, nearly two years in, there is very little to show in respect of his progress. Failure to get things right in the next few years could well see the business units separating, given the growing pressure from shareholders.
On the positive side, fashion retailers Foschini, Mr Price and Truworths all posted buoyant trading updates. All economic indicators point to the South African consumer being under tremendous pressure; however, the numbers coming out of the discretionary retailers paints a different picture. A booming informal economy?
Lots to digest. Plenty to ponder. Roll on the new week…
- The week that was: Inspiration from Byron Wien’s 10 market surprises
- The week that was: Omicron spoiling the Santa rally?
- The week that was: Stocks on discount for Black Friday?
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