Trump, Trade Wars, Tariffs, Tanker attacks all that’s missing are tidal waves and tsunamis.
Given all the T’s one cannot help but think the final T will be tears, yet still the USA powers
higher on cheap money and central bankers promising to do all it takes to provide liquidity.
The quarter has been characterized by illiquidity and volatility, JSE volumes have halved as
asset managers sit on their hands hoping to be the first to react when things normalize. The
SAFEX open interest which topped at 260 thousand contracts in 2017 now only has 75
thousand. The Rand had four moves over 6%, two of these moves happening in under five
days. (Currency traders are crying over this, but when I tell them a 10% move in a day for a top
100 JSE share is becoming the new norm they realize their lives are sheltered).
This quarter saw moves over 5% on a day in 21 of the top 40 shares listed on the JSE, this is
neither rational nor sustainable and the biggest issue is that the next day the stocks reversed on
no new news flows. Algorithms search for the volume and sell or buy until they find it, the
moves have very little to do with fundamentals and reality.
Willem and I have always had the mantra that in the SA markets someone else always knows
and when seeing big moves its best not to second guess or be arrogant and believe you know
more, this means we have missed some opportunities but at the same time we have not risked
the portfolios having possible big write-downs. (Steinhoff, CIL, Aspen, Brait and Tongaat have
taught many a newbie that pride comes before a fall).
Looking forward we believe SA small caps are becoming incredibly cheap, unlisted shares are
now trading at higher multiples than the listed ones. The biggest issue however is after entering
a trade how does one exit and in the case of small caps we can only see MBO or corporate action
as the solution. We have allocated a small portion of the portfolios to these opportunities in the
belief that offers to minorities are the next step.
UK property shares have been decimated in the wake of Brexit and the Amazon effect killing the
high street, some of these are now 80% off their highs and we are upping our exposure to these
too. The yields are high for a hard currency asset and the discount to NAV they trade at. Even if
NAV is over stated it still makes them a low risk annuity income stream.
The winter solstice has come and gone; before we know it Christmas will be upon us. Let’s hope
the markets deliver the portfolios some early presents.
All the best.
Arthur & Team