Some 27 years after they introduced business radio to the country, South Africa’s favourite stockbroker, Sasfin Securities’ chief global equities strategist David Shapiro, reunites with Alec Hogg in the debut of the new BizNews Briefing. Here’s the full interview, where Shapiro explains why he aligns with BNIC#1 keynote speakers Piet Viljoen and Cy Jacobs, who maintain JSE-listed small and medium-cap shares are the place to invest money today.
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Highlights from the interview
In his interview with Alec Hogg, David Shapiro discussed his positive outlook on the South African market and the broader economic landscape. He noted that Piet and Cy, key figures in the investment community, are optimistic about South Africa, largely due to several positive factors. They believe that the government of national unity will remain stable and that Eskom will successfully mitigate load shedding, both of which are seen as crucial for economic stability and growth.
Shapiro highlighted that Piet and Cy are particularly enthusiastic about the value offered by small and mid-cap stocks in South Africa, despite the broader market challenges. They see these smaller companies as potential bright spots in a market that has been largely driven by old economy stocks, such as resource companies and tobacco firms. Shapiro concurs with this view, suggesting that while the market has historically been dominated by large, traditional sectors, there are emerging opportunities in smaller, more dynamic businesses.
Overall, Shapiro and the investment community are hopeful that these positive developments will lead to a bull market, with significant potential for growth in various sectors, particularly if South Africa can leverage its political stability and infrastructure investments effectively.
Edited transcript of the interview ___STEADY_PAYWALL___
00:00:11:03 – 00:00:42:16
Alec Hogg:
South Africa’s favourite stockbroker and I have had a long relationship going back to Sho David, longer than Nelson Mandela was in jail. And I can actually say that I’m confident now because this is our first edition of BizNews Briefing. And we had the first edition of Business Radio 27.5 years ago at the SABC. You remember that? You remember coming into those studios in the dungeon?
00:00:42:18 – 00:00:58:18
David Shapiro:
I do very much, and it was very short. It wasn’t long. And I have to credit you with actually being the pioneer of business radio and business TV. I think you set the pace, which, of course, has grown dramatically since then. But you were a pioneer.
00:00:58:19 – 00:01:19:21
Alec Hogg:
Yeah, I got lucky. I went to the SABC, if you recall, in 1991 when Madiba was let out of jail. I spent some time there and got to understand a little bit more about broadcasting because, for many South African journalists, broadcasting wasn’t really a place where you could go and learn from.
00:01:19:23 – 00:01:40:19
Alec Hogg:
And then as we went forward, when I started Moneyweb, Dave, remember we wanted to make some cheap content because we were so small. You came into the studios of the SABC, and here we are, 27.5 years later. This being the first BizNews Briefing, you’re the only person I could be talking to. So thank you again for all the service you’ve given to South Africa and to our community.
00:01:40:19 – 00:02:06:06
Alec Hogg:
It’s extraordinary though, when you look at South Africa, because talking about all those years ago reminds me that we go in cycles, don’t we? South Africa has gone through a lot in those 27 years. Sometimes people were rushing into the stock market, and other times they were selling anything they could off South Africa. And right now, I get a feeling we might be going back into a bull phase.
00:02:06:08 – 00:02:12:16
Alec Hogg:
Are we going into a bull market?
00:02:12:18 – 00:02:44:10
David Shapiro:
There’s no doubt about that, a global bull market. And I don’t think people appreciate the kind of market we’re going into. I think what we forget — and I’m just giving a quick global perspective — we’ve had four years of very difficult markets in which interest rates globally have gone up dramatically. The only thing that kind of cushioned it was an event in November 2022, with the release of ChatGPT, which put a different perspective on the market.
00:02:44:12 – 00:03:17:03
David Shapiro:
But if it wasn’t for the release of artificial intelligence, and the money that was spent there, we would have gone through two and a half, three years of very difficult markets, dragged down by high interest rates and the impact that it had not only on businesses but consumers. But what’s happening now is that’s being reversed. From probably Wednesday, when the Fed meets, to our meeting on Thursday, you’re going to start seeing a succession of interest rate cuts, which could go on right through to the end of 2025.
00:03:17:03 – 00:03:26:24
David Shapiro:
When rates come down, then markets go up. So, I think we’re getting into very strong stages of equity markets and probably bond markets as well.
00:03:27:01 – 00:03:36:03
Alec Hogg:
That’s an interesting point you make there because, over the long term, when interest rates start dropping, it’s the time you should be owning shares.
00:03:36:05 – 00:04:01:00
David Shapiro:
Yeah, exactly. And the reason is obvious: it’s about confidence. You’ll see that once rates go down, confidence returns to the economy, mainly because people have more money in their back pockets, and they start spending it. Companies are not dragged down by high interest rates. I was looking at Growthpoint’s results the other day.
00:04:01:06 – 00:04:24:00
David Shapiro:
When you’re paying those rates, it’s almost impossible to make ends meet, especially with the prime rate at 11.75%. Not at Growthpoint Properties’ level, but at that priority rate. No business can survive if you’re borrowing money at those kinds of levels. So, we need rates to come down dramatically. It’s the same kind of thing in the United States, where rates are over 5%.
00:04:24:02 – 00:04:33:17
David Shapiro:
It’s very difficult for businesses to move forward. Therefore, when rates start coming down, it’s a big driver of economic growth.
00:04:33:19 – 00:04:41:14
Alec Hogg:
How confident are we that interest rates will be cut on Wednesday in the United States, triggering similar cuts around the world?
00:04:41:16 – 00:05:05:05
David Shapiro:
It’s not a debate about whether they will be cut, it’s about the rate at which they’re going to be cut. The big debate is: will it be 50 basis points? Will it be 25 basis points? I can’t find any clear view because there’s so much uncertainty. There’s the camp that believes the Fed has a dual mandate, which includes not only inflation but also employment.
Read more: Global markets brace for Fed easing amid 36-hour rate rollercoaster
00:05:05:07 – 00:05:26:20
David Shapiro:
And the labour market in the U.S. is starting to feel the pressure. It’s slowing down, and you don’t want it to slow down too much — you know, to the point where you bring about a recession. So, I think you’ll find two camps: those who believe a 50-point cut is necessary and others who think a smaller cut would suffice. I believe it’s almost 60% likely that the cut will be 50 basis points.
00:05:26:22 – 00:05:53:22
David Shapiro:
But it could also be 25 points. Whatever it is, it doesn’t really matter because if it’s 25 this meeting, it’ll be followed by another succession of 25-point cuts right through to the end of 2025. The general view in the U.S. is that rates could come down by as much as 2 to 2.25%, or 225 basis points, which will make a huge difference to spending and confidence in the U.S.
00:05:53:22 – 00:06:03:05
David Shapiro:
And we will follow suit. We need to come down dramatically. We need a lot more than 225 basis points, I think. It would be good for sentiment down here.
00:06:03:05 – 00:06:10:09
Alec Hogg:
So what are you expecting on Thursday in South Africa, given that the Fed is going to make their decision on Wednesday?
00:06:10:11 – 00:06:36:09
David Shapiro:
I hope they change their minds. I hope the Fed goes with 50 basis points, and I hope we’re more than 25 because I think, here in South Africa, I’m in the camp that we need growth. We really need something to kickstart the economy. It’s almost, in my view, tokenism. Sometimes the Reserve Bank needs to be a little bold in understanding what the underlying economy is doing.
00:06:36:09 – 00:07:01:07
David Shapiro:
We need it. We need it here. And you pick it up in the results. I know that markets are running ahead and share prices are picking up, but that’s only one part of the equation. The other part is the actual real economy. People are under huge pressure just trying to make ends meet. So I’m hoping the Reserve Bank is a little bold and goes beyond just a quarter per cent cut.
00:07:01:09 – 00:07:27:01
Alec Hogg:
We had the first BizNews investment conference on Thursday here in Hermanus. And David Shapiro was absent, but you will be with us in March. However, we did have Piet Viljoen and Cy Jacobs there, and the message was very clear: watch out in the United States. There are certain stocks there that are very toppy.
00:07:27:01 – 00:07:42:19
Alec Hogg:
But South Africa is offering great value, particularly in what they call small and mid-caps. Maybe you can just unpack what that means — small and mid-caps — and if there are any views of these that you would share?
00:07:42:21 – 00:08:16:09
David Shapiro:
I think we’re all going to benefit. In other words, I don’t think — I know there’s a view that America is overpriced. I don’t share the view that America is going to come down. You’ll find the market continuing upwards, even though you might find a de-rating. If I can explain that: it means that a lot of these companies, the tech companies that have led the way and, I think, will still be relevant for the next decade, simply have so much power and so much money.
00:08:16:11 – 00:08:38:20
David Shapiro:
What might happen is that they won’t increase at the same pace they have been, but I don’t think they’re going to collapse. I think Piet and I are right. Yes, there will be a shift toward other businesses that will catch up, but you’ve got to know which businesses are going to catch up because things have changed since Covid.
00:08:38:22 – 00:09:04:15
David Shapiro:
To give you an example without taking too much time: American beer sales are down to a 43-year low. And why? Because habits have changed. So, before making predictions, we need to understand how the world has changed and which companies are going to benefit.
00:09:04:17 – 00:09:33:02
David Shapiro:
It’s very important — this could be the subject of a whole discussion. You have to be very careful where you put your money if you’re moving away from tech. From our point of view, one thing that’s held us back here in South Africa is that we’re still heavily reliant on offshore businesses. But one area I’m starting to look at for a turnaround — and it might be premature — is the commodity sector.
00:09:33:04 – 00:09:54:11
David Shapiro:
I think that’s going to be one of the surprise factors on the upside. We’ve been dragged down by China, by concerns about global growth, but if you look today — even today — platinum shares, all of a sudden from very low levels, are going up. And I ask myself, “Hold on, the platinum price isn’t doing much, so why are these shares going up so fast?” Smart money is coming in.
00:09:54:12 – 00:10:16:12
David Shapiro:
And I think that’s going to be one of our surprises — the commodity side. It might be premature, I might be too early, but I’m looking for signs of what could drive our market. I think it’s going to come from that area.
00:10:16:14 – 00:10:51:08
Alec Hogg:
That’s so interesting. You mention that because Cy Jacobs told us that he started buying platinum shares after Sibanye-Stillwater blinked first by cutting 200,000 ounces from Stillwater production last week. He said it was like all the platinum companies were watching the prices fall but nobody was reacting — until now, when the first cut happened to improve the demand side.
00:10:51:10 – 00:11:11:08
Alec Hogg:
Sorry, improve the price. He says he saw this as a big signal last week. An interesting point you make about platinum shares today, which—this is Monday, the 16th of September—Anglo Platinum is up again, and we’re seeing some of the other precious metal stocks rising too.
00:11:11:08 – 00:11:17:15
Alec Hogg:
So, are you nibbling in there, David, given that these shares are down at multi-year lows?
00:11:17:17 – 00:11:40:19
David Shapiro:
I haven’t started yet, but that doesn’t mean I won’t. I still think there’s plenty of time to make that decision. Plenty of time. If I look at China today, the numbers coming out are really poor. That economy is struggling, or maybe “struggling” isn’t the right word, but it’s slowing down.
00:11:40:21 – 00:12:02:02
David Shapiro:
But I think we’re going to see stimulus coming. I think the authorities, the government, have to do something. And once the market gets a whiff of that and it starts coming through—the iron ore price is in the low 90s now, which is very low. It’s usually a level from which it bounces.
00:12:02:04 – 00:12:27:18
David Shapiro:
We’re talking about platinum, copper. Remember when BHP made the bid for Anglo, US copper was at $11,000; now it’s down to around $9,000. So I think all of these things will correct in a global economy that’s starting to pick up. Markets are made of swings and roundabouts, ups and downs. No one rings a bell and says, “Hey, it’s time.” It happens so fast.
00:12:27:18 – 00:12:47:09
David Shapiro:
It happens with immense speed. So, when you start to see these signals, that’s when you need to make the commitment. And I’m very bullish for the next couple of months, leading into 2025.
00:12:47:11 – 00:13:22:11
Alec Hogg:
Another bullish factor SA Jacobs was talking about in broader terms was the government of national unity, which he believes will hold. Then we had the chairman of Eskom, Mteto Nyati, who presented a keynote address that was so well-received, especially by the investment gurus present. Those are two factors making Cy Jacobs, the 36One guys, and Piet Viljoen optimistic about South Africa.
Read more: David Shapiro reveals surprising market shifts: Telecom struggles & luxury boom
00:13:22:17 – 00:13:30:15
Alec Hogg:
What’s your view on those two—government of national unity being sustained, and Eskom being able to keep us away from loadshedding?
00:13:30:17 – 00:14:05:17
David Shapiro:
I think those are positive moves. But I have to mention one thing: what I like about Cy and Piet is that they’re not index trackers. In other words, they buy portfolios—they buy specific shares. And I’ll tell you why that’s important. When I analyze the South African market, 70% of market capitalization comes from companies earning less than 25% of their income in South Africa.
00:14:05:17 – 00:14:33:11
David Shapiro:
In fact, I’m being generous with 25%. It’s probably closer to 16%. About 10% of income is in foreign currencies. For all intents and purposes, 80% of our market is Rand-hedged, made up of old-economy stocks like British American Tobacco, resource companies, and so on. So, only about 20%, and even that’s exaggerated, reflects the South African economy. That’s significant.
00:14:33:13 – 00:15:01:05
David Shapiro:
Now, if you’re Piet or SA, and you focus on truly good, underlying businesses, you’re going to do well. You might even see PPC—which has been absolutely trashed—turn around as fixed investment picks up because of Eskom, government, and national unity. As investment in infrastructure grows, companies like Wilson Bayly Holmes will do incredibly well. But you’ve got to pick your stocks; you can’t just buy an index like the Satrix.
00:15:01:05 – 00:15:30:21
David Shapiro:
If you do, you might not perform as well as someone picking individual shares. That’s where Piet and Cy are strong.
00:15:30:23 – 00:15:54:02
Alec Hogg:
That talk about small and mid-caps—you’ve really hit the nail on the head. Before we move on, last week President Ramaphosa mentioned in his speech that he’s not talking to Elon Musk regarding Starlink. We know East African countries have Starlink, and it’s a fabulous product. What’s going on in South Africa?
00:15:54:02 – 00:16:15:07
Alec Hogg:
It’s not happening yet because Elon doesn’t want to give away 30% to politically well-connected people. He refuses to do that. But now we see a shift in attitude from the president, saying he’s talking to Elon and encouraging him to come back. It seems like there might be a positive change, a bit of a bullish factor.
00:16:15:09 – 00:16:39:05
David Shapiro:
You know why? Because the world is moving at such a fast pace. I’m a big fan of big tech and I follow it closely, but it’s hard to keep up. And it’s not just technology; it’s also in the pharmaceutical sector with advancements like weight-loss drugs. There’s so much development happening globally, which will influence where spending is directed and how we live. South Africa needs to stay relevant and keep up with these technological advancements.
00:16:39:07 – 00:17:01:20
David Shapiro:
We can’t afford to lag behind in development. This is a crucial area we need to focus on. It’s essential that we keep pace with the rest of the world, so access to new technologies is very important for us.
00:17:01:24 – 00:17:20:00
David Shapiro:
We must ensure we don’t fall behind. Keeping up with technological advancements is critical for our progress and competitiveness.
00:17:20:02 – 00:17:30:03
Alec Hogg:
And my last point is we’ve had a few interesting companies reporting today, like Metrofile and Ark Invest. Do you know much about these two businesses?
00:17:30:05 – 00:18:00:09
David Shapiro:
I know Metrofile quite well; it dates back to the late 80s. The company has a significant history. The big issue is that volumes are starting to fall. Even Oceana, which reported today, is facing similar issues. Retailers are also experiencing a slowdown. When business volumes start to drop, it’s concerning.
00:18:00:11 – 00:18:24:00
David Shapiro:
Regarding Metrofile, it seems that their technology might be lagging behind. Although the underlying business is strong, the share price doesn’t reflect its intrinsic value, indicating a deep discount. It’s similar to how things were with Remgro—when you bought it, you knew what assets you were getting.
00:18:24:06 – 00:18:45:12
David Shapiro:
I still think Ark Invest needs to refine its portfolio. There are some good businesses in there, and I believe the discount will eventually narrow as the company makes adjustments.
00:18:45:15 – 00:18:57:07
David Shapiro:
I think with the right moves, Ark Invest could perform better in the future.
00:18:57:09 – 00:19:02:21
Alec Hogg:
David Shapiro, South Africa’s favorite stockbroker. I’m Alec Hogg from BizNews.com.
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