🔒 David Shapiro on Barrick, Buffett’s new pick – and Alec Hogg’s. Plus other market-moving stocks

Market commentator David Shapiro joins BizNews founder Alec Hogg for a discussion on what’s moving the markets in South Africa. In this excerpt from the Rational Radio webinar, the two stock market experts discuss Hulamin’s decline in market cap, the Nasdaq’s outperformance of the S&P 500 and gold. Also covered in this interview is Hogg’s recent purchase of Barrick shares and how tech is driving the markets. – Nadya Swart

Well, it’s a warm welcome to you for Monday’s usual event for our BizNews premium subscribers – it’s called the Rational Radio Webinar. David Shapiro, good to see you Dave. 
___STEADY_PAYWALL___

Good to be here. 

We’ve got a good show today. We’re going to talk about Phumelela: there’s a battle royale going on there. Have you been watching? 

I just see the Oppenheimer‘s name popping up all the time. So, it’s out of interest that I’ve been watching. I don’t know where it is at the moment, but I’m eager to hear and also, I suppose, it’s the future of horse racing in South Africa, which one wants to see survive: not because of the betting side, just that it’s such an honourable sport or such a good sport. Especially with the Oppenheimer’s having been associated with it for so many years. I’m just interested to see where it goes from here. 

I had an interview with Rian du Plessis. You’ll remember him from Comparex and before that he was at RMB – a very well known member of the South African business community. He was pulled into Phumelela 12 years ago. He ran it for 10 years. He left there: it was making R155m a year in profit – and now it’s bust. 

He had R50m in the rights issue that he put in there. So, all the money he made from Comparex, he seems to have jumped to put into Phumelela, and of course – it was almost liquidated. So, he’s pretty upset. He reckons that the Brits who are coming in and have made an offer are a better option, but we’re going to hear from Patrick Duff a little later – who is advisor and facilitator of the transaction to the Oppenheimer’s – exactly why the Oppenheimer offer is better and they are voting tomorrow. 

Read also: Phumelela’s ultimate insider urges creditors to reject Oppenheimers

So, the whole future of horse racing is on the line. The other story that we are tackling today is again controversial. I remember you and I on the radio some years ago thinking that Hulamin was a good value investment and my goodness – it’s been the opposite, hasn’t it? A little bit like Tongaat Hulett. 

Alec, it’s a fascinating story because I’ve been watching it very carefully. I mean, it was a sound and superb operation. I suppose the question we have to ask is whether it should have been there. You know, whether South Africa is a natural aluminium operator. 

We only started the Bayside, Hillside and Mozal refineries because electricity was so cheap. You know, we don’t mine bauxite or aluminium. I don’t know much about what goes into it, but I’ve always watched it and been fascinated. It was a wonderful business, very well run. But I mean, it’s under a billion rand. Today, I think it’s operating at about maybe five or six hundred million rand. That’s the market cap, which is very strange. 

Halve that, David. R338m is the market cap. They’ve lost R2.5bn, but we’ll talk about that in some detail later on. From where you are sitting, David, I’ve got to ask you the big question about gold. I wrote a little while ago that I’d missed out on my pal from Escort when he became CEO of the biggest gold mining company in the world. 

Mark Bristow, he was appointed by Peter Munk, who tried to get Bobby Godsell to do that job some years ago as the head of Barrick. Mark was there, I should have bought the shares. If you went off and became CEO of something, I’d buy just as a matter of support – I didn’t. But I have now gone and bought some Barrick shares in my own account to see whether Mark can continue delivering. Do you think I’ve made a mistake? 

No. I think if you listen to the virtual talk at the Jackson Hole Symposium, which is a once a year meeting of all the central bank geeks, and I mean – they really are geeks, because they talk the kind of language that you don’t understand unless you understand central bank economics.

But I think you can summarise it in one kind of sentence: interest rates are going to remain low globally for a long, long time. 

There are fears about inflation simply because rates are going to remain lower. You know, the US Fed has come and said: ‘If it goes beyond the 2%, which is our target, we’re not going to immediately put up rates’. They’re going to allow it to settle down. So, it looks like we’re there for a long time. 

And what that’s done is that it’s weakening the dollar, it’s pushing up commodity prices, and gold is back to 1970 and looks like it will continue together with equity markets. So, we’re going into something that we’ve never really faced before: extended low interest rates, strong equity market, strong commodity markets – simply because of the weaker dollar. 

At this stage, there’s no incentive to actually buy the dollar as long as rates are where they are. So, I think you’re still going to see gold picking up, and listen – Mark’s a great miner. You know what I mean? I love to listen to him when it comes to commodities. So you haven’t done wrong.

Yet! Well, I’ve just bought them, but I haven’t done badly at making the investment. It’s funny that – when you look at South Africans around the world – if you had just bought into shares run by South African executives, well, you start off with Barrick and then you add a little bit of Tesla, you would be doing extremely well. But we’ve spoken about Tesla before. What about all those stocks in the US that are being driven up by retail investors? 

They’re going to continue. I don’t think the retail investors are as influential as we say. They are influential and they push markets up – but they couldn’t do it alone. You know, there’s another move into equity markets. 

Heck, if we look now, you know, I was very nervous the last couple of weeks, because we were at a critical point where we were testing the all time highs in the S&P 500, which is the measure we use to measure US markets. So, we weren’t quite sure whether it was going to penetrate – it’s just sliced through, and it’s going!

Even now, looking to the right of me, I’m just looking at the TV screen: S&P futures are up again. So, we’re not stopping here. And this could continue for some time. And where does it stop? No one knows. And a lot of it is being driven by tech. But I have to say, the more I look at tech – the more I look at where we’re going to be in the next few years, the more encouraged I am by the theme. 

So as long as interest rates are low, I’m choosing the tech bubble rather than the bond bubble, because both of those markets could be described as bubble, but I prefer to go into businesses that are growing.

Their earnings are double digits, which I think most of the tech companies are. So, it’s fascinating to see what we are doing, what markets are doing. 

But the Nasdaq… I’m going to give you a comparison, and this scared me. On the JSE, because people seem to, you know, whenever you talk about offshore on the JSE – you go straight for Prosus and Naspers, but we have got a lot of tracker funds listed there. And there’s a Nasdaq tracker – I think it’s a Satrix Nasdaq tracker – it’s up in rand terms from the beginning of the year: 64% from the beginning of the year. 

If we look at the all share index, sorry, I’m going to use a Satrix 40 – which is our favourite – which is the 40 highest capitalised shares on the JSE. It includes Prosus, it includes Naspers, it includes all the gold companies that have done so well – that’s up 1.5%. So the Nasdaq tracker on the JSE is up 64% since the beginning of the year, the Satrix 40 – which is the JSE – is up 1.5%. So it gives you an idea of the huge difference in the performance of these markets as well. 

Boy, I’ll give you another little view on the property one as well. But there’s something to also compare with (forget about the JSE for a minute). The first line, the black line is Nasdaq: the tech stocks. The blue line is the S&P 500 index. And as you can see there: this year, or since the dip that we saw in March (and that was the time to be buying – late March, early April), we’ve seen the Nasdaq go up quite nicely. The Nasdaq has outperformed the S&P by (what’s that) 25%? 25 percentage points? 

In dollars – probably yes. In rand, it’s about 20%. And you know what? Who’s coming in number two? We spoke about it extensively here, you interviewed Magda. Her Fourth Industrial Revolution Fund is also up about, I think in the 40s, maybe even a little higher since the beginning of the year, which includes some of those tech companies that are involved in the vaccine in Oxford, in the UK. 

So there’s some big winners on the JSE – absolute winners, that you could have got without having to take your money, go into an asset swap, etc. So a credit to the ETF, to both Sygnia and to Satrix for providing these for local investors. 

Sygnia has actually been a very interesting story, given what Magda has done there, David. Is it a stock that you would be adding to your portfolio? I see there in the Sunday Times every week, they have a group of guys who give their views on what they should be buying. I mean, I really don’t think that they should be sticking their necks out in the way that they are, because a lot of those guys: you can see they haven’t done a heck of a lot of research beyond just looking at the momentum. 

But there was one this last week who suggested that he’d be buying 91. But if you have a look at that graph of Sygnia – it’s quite impressive, isn’t it? It’s a stock that has gone from around 770 in May this year, and it’s now sitting at virtually double that. And it hadn’t done a heck of a lot since then. 

So, if you’d bought at any time in the last few years or since listing, you would have been disappointed until the surge that we’ve seen lately.

She’s providing good products. Sygnia is providing excellent products. And I think the products have outperformed the share. And I think financial services are a very difficult issue at the moment. Your fees are very low, because people don’t want to pay fees anymore. You have to keep the turnover going, and at the moment in South Africa, things are tight – because investors, if anything, are cashing in on their investments, particularly policies, and you can sense it with consumers. 

But I think from the product, from the array that has been offered – and I’ve got to include Satrix now – at the moment, the one that I like very, very much is their China Fund. And Satrix has come out with a China Fund, which include Alibaba, TenCent, Ping An, and a whole lot of other companies: jd.com, Baidu and the food delivery service. There’s really, really good exposure there. 

So, you can cover all markets. And you see, Mr Buffett has now gone (it was his 90th birthday yesterday, August 30th – he was born in 1930, so he’s 90 years old) and today the news came out that he’s put $6bn into a selection of Japanese trading firms. I don’t know what kind of trading firms: commodity trading firms, stockbroking firms – I don’t know what they are, but they’re trading firms and one has to look further into that. 

Read also: Warren Buffett’s investment in gold miner Barrick adds lustre to Gold Fields

So there are plenty of opportunities, even if you remain in JSE and you don’t want to get involved in the local economy – by keeping your money here and looking – you can do pretty well. 

Dave, just to close off with. We did touch on property a moment ago. There’s Growthpoint, which is the biggest property stock in South Africa, as you can see. Let’s go on the year to date, and there you can see: it started off the year at R22.40, sitting now at R12.66 – which is not far from the low point of R11. 

 

People buying today, David, why would they be buying this, given the dramatic changes that we’ve seen that are being implemented around the world on the way people are not going to be going into offices to the degree they used to? 

You’re absolutely right. I think it’s not only that, it’s also what Covid has done to a lot of their tenants, particularly in the retail space. So, it’s not only offices – it’s a retail space as well. So, the Satrix – I was looking at the property index – it’s down about 50%. But there are companies in retail which (I think) must be 70% down on the year. I think, in August alone, they were down about 20%. 

So, it’s a sector that has been hurt really dramatically. Alec, the other thing where you also must measure is that you must look at what you call the capitalisation rate. In other words, the cap rate that you can get on the return that you can get on property trusts and that. And if you can go into RSA stock – in other words, safe sovereign stock: maybe in the 20 year – you can earn over 11, and in the 10 year – you can earn 9. 

It means that’s going to be the measure of which you’re going to judge property trusts and that. So, they’ve got to come down without getting too complicated. If interest rates go up, your capital value goes down – because you’ve got to match those rates. And at the moment, it’s difficult to match those kinds of rates, which is putting pressure on the whole segment. 

So, you have to look at the long rates to also get a view of where to pitch property trust. But it’s been a segment that has been absolutely destroyed over the last two years, as things have changed economically – globally and in South Africa.

Don’t try to catch a falling knife, or – in the case of South African property stocks – don’t attempt to catch a piano that’s been thrown off the top of a high rise building.