FFM podcast ep12: SA inc rotation; Share buybacks; Watch those insurers
Volatility is still the name of the Fantasy Fund Manager game, as Richemont and Pick n Pay are down more than 10 percent for the week. But what is this signalling? On the Fantasy Fund Manager podcast, BizNews' Stuart Lowman was joined by Corion Capital's Garreth Montano and Dylan Bradfield, a portfolio manager at Sharenet, to dissect the current rotation happening in the local market. But where does the opportunity lie, Dylan points to a potential rotation into insurers. The pros and cons of company share buybacks were also discussed, with both leaning towards the former, potentially better use of capital than dividends. Remember to make your picks each week by the market open on Monday to have a chance to win any of the prizes up for grabs. And invite your friends. Register at www.fantasyfundmanager.co.za—thanks to our platinum sponsors Sharenet, Terebinth Capital, ClucasGray Asset Management, and Money Better. Remember to subscribe to the podcast so you don't miss an episode.
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In the 12th episode of the Fantasy Fund Manager podcast, host Stuart Lowman from BizNews was joined by Garreth Montana from Corion Capital and Dylan Bradfield, a portfolio manager at Sharenet.
Garreth Montana remained optimistic about the prevailing positive sentiment in the local market. He attributed this to global inflation tempering and strengthening of the South African Rand. These factors not only boosted investor confidence but also contributed to a sense of well-being among South Africans at large. Dylan Bradfield shared his expectations of a market rotation, noting that it was driven more by dollar weakness than Rand strength.
The podcast highlighted recent market swings, with particular attention given to the significant drops in the stocks of Pick 'n Pay and Richemont. The pair discussed the specific reasons behind these drops, with Pick 'n Pay facing issues related to high diesel costs and restructuring, while Richemont experienced selling pressure due to being down-weighted in the top 40 index and missing earnings expectations. Both experts acknowledged that such market dynamics were consistent with the ongoing rotation from dual-listed companies to South African Inc. stocks.
The conversation then turned towards share buybacks, focusing on the recent example of Omnia, a fertilizer group listed on the Johannesburg Stock Exchange. Garreth Montana and Dylan Bradfield explained that share buybacks involve listed companies repurchasing their own shares when they consider them undervalued. Such actions create demand in the market and can be seen positively by investors. However, there was also a mention of potential negative perceptions when companies lack investment opportunities and opt for share buybacks instead.
The experts discussed the various benefits of share buybacks, such as bolstering stock prices, increasing book value, and supporting liquidity in the market. In the South African market context, they emphasized that share buybacks can be crucial for companies experiencing undervaluation or facing limited growth opportunities, as they may help prevent delisting.
When considering sectors for potential rotation, Dylan Bradfield pointed towards local insurers like Sanlam, Old Mutual, and Outsurance. These companies could benefit from selling insurance in a developing economy with a large and relatively young population. Garreth Montana highlighted interest rate-sensitive counters, particularly South African banks, due to their attractive dividend yields and potential for profit in a rotation scenario.
The experts also shared their investment tips. Dylan Bradfield advised listeners to use the Rand as a proxy to gauge market sentiment. Meanwhile, Garreth Montana recommended keeping an eye on stocks with ongoing share buybacks, as they tend to stabilize share prices and reduce downside volatility, making them potentially interesting opportunities for investors.
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