David Shapiro: JSE Report


BROADCAST TRANSCRIPT: David Shapiro, we’re going to be talking to Martin Jankelowitz a little later from Investment Solutions and he’s done some intriguing analysis. He reckons that the Alsi 40 index – you know, that’s the top 40 shares on the Johannesburg Stock Exchange – 75% of their earnings are exposed to the movements in the rand.

DAVID SHAPIRO: He’s probably right. In fact, if you look at the makeup of the All-share 40, if we take the top five or six shares, you’ve got Anglos, Billiton, Richemont, Angloplats, AngloGold and SABMiller. Just take those, which make up the bulk of the All-share 40, all of those are foreign earners, earning dollars or foreign income. So to an extent our market – and I’ve said this before on the show – is no longer dictated to by the local economy. So it’s going to be very interesting to see what happens at Budget time, because last night we spoke about the Budget. We’re going to get a good Budget. More money’s going to come into the economy. But I don’t think it’s necessarily going to affect the All-share 40.

MONEYWEB: In fact, it might negatively affect it because as the country gets stronger and as the economy improves, the rand presumably will keep improving and that means our shares, or the big shares are going to keep falling. So you’ve got to look outside those top 40 stocks.

DAVID SHAPIRO: You have to. You know, we discuss this all the time. We are no longer a local market. Our market is dictated to by what’s happening offshore and, if I had to take a back-of-a-matchbook calculation I would say that the biggest influences on this market are the gold, oil, platinum prices – let’s say that accounts for about a third. Another third would be movements in the overseas economy, for example SABMiller, Richemont, you know high global demand. And then, probably because of our banks, one-third here as well. You know, the banks and other industrials. Mainly the financials.

MONEYWEB: But if you’re a bull on South Africa you should be very cautious about just buying the indices, or just buying the market, as they say. You have to be really selective about the shares you invest in.

DAVID SHAPIRO: Bottom line. You’ve got to select companies which will benefit from improvements in the local economy. Those that are focused very much at home. Probably the retailers is a good place to go. Or alternatively some manufacturers.

MONEYWEB: One of my four stocks that I selected for this year is Abil. Last night we had a trading update coming out. We had Kokkie Kooyman, one of the financial services specialists, telling us he thought the company’s in fine shape and the market agreed today.

DAVID SHAPIRO: Agreed – up about 3.5%. So I think they are reacting. Alec, share prices today did react to news. I think I was listening to Byron’s review and there are two other companies, you know – Belinda mentioned MTN. That sparkled once the results were out. The other one was Omnia, and that was another one. If you look at the choices that people made, I think that Piet made – I can’t remember who chose Omnia ?also a very, very strong quarterly report and the market responded to it. So I think where you’re coming out with trading updates, the market’s taking notice.

MONEYWEB: If they are positive.

DAVID SHAPIRO: If they’re positive yes.

MONEYWEB: David, what about Sappi? It’s not often that one sees a share reacting that positively to the announcement of a new CEO.

DAVID SHAPIRO: I don’t know whether we can read anything into it. I don’t know. It’s a company that will respond to pulp prices, to paper demand. I think it had been hurt quite badly over the last few days, coming all the way from about R128 all the way to R112, and maybe responding upwardly now. I’m sure that they’re satisfied with the appointment of Jonathan Leslie, and now that a successor has been named it also removes some of the uncertainty. So maybe that’s right. Maybe it is because of the appointment.

MONEYWEB: After the show last night we had the opportunity of having a chat with Arthur Buchner, who comes in on a Monday evening to tell us about single-stock futures and, as he says, for him “long term” is three days. So take this from whence it comes. But he does follow the rand very closely, movements in the rand, and he was making some strong arguments for the rand to in fact lose a lot of ground in the next little while.

DAVID SHAPIRO: His argument was based on the dividend outflow, we’ve heard it on the show before, a lot of our gold companies have more shareholders offshore than onshore – Anglos, Billiton, Richemont, all of those have large shareholders offshore, so the money will flow out as they declare dividends. So I think his view is as the dividends get paid it’s going to put pressure on the rand. And we’re talking about significant amounts. The rand market is very thinly based and his view is that it could topple it from these levels, perhaps make it a lot weaker.

MONEYWEB: One of the stocks that he was quite bullish on, if you believe that the rand is going to fall, was Richemont, which has been under enormous pressure. Only after he mentioned it did I have a look at the graph and see that this is down to probably its all-time lows, David.

DAVID SHAPIRO: I think it’s trading in the low 1300c or mid. But, let’s be honest, what Arthur was saying, he says buy at 1350c, get out at 1400c. Now he comes from a trading point of view. He’s a futures trader. They take a few percentage points and they run, and then re-look at the situation. I still believe he’s right. I think that we are going to see the rand [fall]. The two stocks that we were discussing were Sappi and Richemont and I think at these levels looking very attractive.

MONEYWEB: Last time Richemont was at this level was in November 1999.

Posted in Market commentary

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