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Market watchers see a buying opportunity

A whopping 37 of the Top 40 stocks are in negative territory for the year to date.
The banks have been particularly hard hit. Standard Bank, FirstRand, Absa, Nedbank and Investec are all down between 11% and 26%. Image: Shutterstock

Until the middle of February, world markets were enjoying a positive start to 2020. The MSCI World Index was up over 3% in the first seven weeks of the year.

The JSE was not quite as buoyant, but the FTSE/JSE All Share Index (Alsi) was also up around 1.5% for this period.

Since then, however, that picture has changed dramatically. Fears about the impact the coronavirus will have on the world economy have sent markets into a sharp correction.

Read: Coronavirus: The biggest economic risk is not China

The MSCI World Index is off 17% from its February levels. The Alsi is down 16%.

The local picture

Every single stock in the Top 40 was in the red on Monday. Just five are now showing gains for the year to date. Two of those are Naspers and Prosus. Two more are gold miners that have been buoyed by a rising gold price, with the precious metal seen as something of a safe haven.

Outside of those two themes, only British American Tobacco has seen a gain so far in 2020.

Even Clicks, one of the most resilient stocks in the local market, dipped into the red for the year in Monday’s sell-off.

For the rest of the Top 40, the sell-off has been even more severe. Not even the big diversified mining stocks that were such a big part of the market’s positive performance in 2019 have been spared. Anglo American and BHP Group are both off more than 20%.

Sectors under fire

The banks have been particularly hard hit. Standard Bank, FirstRand, Absa, Nedbank and Investec are all down between 11% and 29%. Even Capitec, which has been by far the most resilient local banking stock, has fallen 9%.

The two big local property counters have also been sold down aggressively. Growthpoint is off 21% and Redefine is 31% lower for the year.

The biggest casualty, however, has been Sasol.

Already under pressure because of internal challenges – evidenced by the 72% decline in its earnings for the six months to the end of December – the company has now been hit by both fears around the coronavirus and a sharp drop in the oil price.

Read:

Sasol keeps hurting investors, but management remains positive
Oil drops 31% in worst loss since Gulf War as price fight erupts

Oil fell as much as 30% early on Monday after Saudi Arabia effectively began a price war in the face of falling demand.

Sasol’s share price has now more than halved in the last week – falling from R192 to under R90. It is down over 70% in 2020.

Investor response

While this period of volatility has been alarming for a lot of investors, many market watchers are seeing the correction in stock prices as a buying opportunity.

“The stock sell-offs of the past few days after news that the outbreak continues to spread beyond China are hard to stomach, even for seasoned investment professionals,” notes Andrew Evans, manager of the Sanlam Active UK Fund.

“We have no idea how this escalating global health crisis will unfold, but we can say that macro events, even ones as severe and scary as this one, don’t usually have material long-term impact on the true value of high-quality companies.”

As Peter Armitage, CEO and co-chief investment officer at Anchor Capital, points out, the intrinsic value of most of these businesses has not changed in the last few weeks. However, their shares are now significantly cheaper.

“While there are certainly businesses whose values will change – for example cruise ship companies or airlines – for the most part, we think this scenario will pass with time and most businesses will not be permanently negatively impacted,” he points out.

“Market declines feel very uncomfortable, but real money is made by investing at the bottom of the market in quality companies at good prices.

“We cannot predict when exactly this will be and investors have to accept that you can never buy precisely at the actual bottom, but we aim to be taking advantage of the current scenario.”

The table below shows the performance of all Top 40 stocks for the year to date.

Top 40 share price performance
Counter YTD
Naspers 5.66%
BHP Group -30.21%
Richemont -9.05%
Anglo American -22.75%
Standard Bank -11.08%
FirstRand -20.95%
Prosus 0.48%
British American Tobacco 3.49%
Mondi Plc -5.34%
MTN Group -22.36%
AngloGold Ashanti 5.32%
Sanlam -21.91%
Sasol -71.91%
Impala Platinum -16.37%
Sibanye Stillwater -6.20%
Bidcorp -15.89%
Absa Group -20.03%
Remgro -21.30%
Goldfields 15.51%
Anglo American Platinum -30.59%
Old Mutual -24.20%
Nedbank -29.20%
Capitec Bank -8.52%
Vocadom Group -7.24%
Bidvest Group -11.64%
Clicks Group -1.53%
RMB Holdings -19.49%
Growthpoint -21.37%
Investec Plc -16.54%
Shoprite -7.43%
Multichoice Group -16.06%
Nepi Rockcastle -5.46%
Mr Price Group -22.03%
Aspen -12.92%
Woolworths -27.78%
Discovery -22.12%
Redefine -30.68%
Spar -14.05%
The Foschini Group -16.72%
Tiger Brands -23.12%

Source: ProfileData

 

FTSE/JSE All Share Index over the past year

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Ironic… the only stock that’s up in this mostly health-related-chaos is the tobacco stock… guess ppl smoked more in a crisis or when stressed… and of course when they relaxed and partying..

Yep … and the lipstick effect … Clicks up 38%

According to my most “investment gurus” its been a buyers market for years…

MW please do not quote Armitage – after he and fellow directors wanted to take HUGE bonuses shortly after listing, he should work for govt.

End of comments.

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