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23 March 2012 23:12

Market & company news: Magnus Heystek - Brenthurst Wealth

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    On Shoprite: ‘I think they’ve just been very, very smart.’

    RYK VAN NIEKERK: Magnus, it has been quite an eventful afternoon, but not so much on the JSE. It seems to have been a quiet week.
    MAGNUS HEYSTEK: I think, Ryk, if you look at the last week to ten days, world markets – including South Africa and especially the commodity-producing countries – have been affected by the news from China. The slowdown in China and the possibility that the demand for commodities will decline or will not grow at the same rate that they have been for the last 10 to 15 years has impacted on the markets. You can immediately see the big commodity producers have been sold off fairly dramatically. We are a commodity-producing country and we were sold off, and you can see it in our currency. Five or six days ago the rand was at R7.55, R7.72, the same with the Canadian loonie, the Australian dollar, the New Zealand dollar. So there’s been a bit of a sell-off of commodity-producing countries and the key lies in China.
        The economic news coming from the US has been very good, and one would have assumed that the markets should be running – in the old days when Wall Street used to sneeze, we all got a cold or we got pneumonia, it's all focused in China now. China is the driver and our markets had a bit of a sell-off.
        But, bear in mind, we've had two very good months. You can't expect the markets to carry on running week after week, so there was a bit of a reason for looking to sell off in the markets.

    RYK VAN NIEKERK: It seems as if global markets, as you said, had two really good months, but there seems to be some negativity coming back. The manufacturing data out of China – it seems almost as though the market is overreacting on the negative.

    MAGNUS HEYSTEK: It could be. The markets as I said – the S&P 500 was up 14% year to date a week ago, and suddenly market participants are getting a little bit nervous, saying: “Let’s take some money off the table. We've had a great run.” The technology sector, for instance, is up 16 or 17%.

    RYK VAN NIEKERK: And the construction sector…

    MAGNUS HEYSTEK: Construction as well in South Africa. So the market tends to run ahead of itself, and it comes back. That’s just the way the markets fluctuate. But the key lies in China.

    RYK VAN NIEKERK: What do you think of the level of the market currently? Investors have seen a good run over the last few months. Do you think it's a good time to climb in at the moment?

    MAGNUS HEYSTEK: Timing is always very difficult. There are some sectors where one would still wait. I would like to have a bit more clarity and I think what you would need to look at is the rand exchange rate, where it's going to go, and that could determine the direction you take in the markets. If you start comparing year to date, global funds versus South African funds, South African funds are lagging a little bit. So look at that ratio – it’s quite an important one.

    RYK VAN NIEKERK: Corporate news on the JSE was quiet today. Shoprite/Checkers yesterday announced the R8bn right offer – well, it's going to sell shares and debentures. The price receded by 7% today, down another half a percentage point. But they indicated today that they will try to use that to pay off some debt. What did you make of this whole rights issue?

    MAGNUS HEYSTEK: It was surprising. It was amazing how in one day they raised $1bn. I think they are using their very high levels of valuation in the market. The market absolutely loves Shoprite. Foreign investors love it, and the speed at which they raised the $1bn – it's a quick way to get some cheap money. I think the P/E was very high and I think they’ve just been very, very smart. They are raising cash, they are perhaps paying off certain debts that they took on some time ago at a high level. So it's a very good corporate move. They are going to use a lot of that cash to expand into Africa. So yes, there’s bound to be a sell-off, there’s a bit of a dilution of shares. But I think in the longer term it's going to keep on growing because it's a very, very smart corporate move.

    RYK VAN NIEKERK: Just a last company announcement: HCI, which last year bought the majority stake in the Cape agricultural business, KWV. They did a mandatory offer to minority shareholders, but only 0.5% of the shareholders actually took that offer, the main reason being that the offer price was lower than the ruling market over-the-counter price. Have you been following this whole KWV saga?

    MAGNUS HEYSTEK: I have been following it to a certain extent. But I think that news broke this afternoon as we were battling through the traffic to get to the SABC studios. So I can't comment on the exact details because I haven't seen it yet this afternoon.

    RYK VAN NIEKERK: It may result in some good corporate activity within KWV, because the company has been underperforming and HCI is a good partner to steady the ship.

    MAGNUS HEYSTEK: Look, that whole story has been running for quite some time, and there’ve been a lot of hot tempers in the Western Cape about the valuation of KWV – what its worth and so on. A lot of people are saying it’s sitting with a lot of assets, and HCI is looking at these assets longer term and how to turn those into cash for better growth at some point in time. So there’s still a lot to come.

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