SIKI MGABADELI: Good evening and welcome to the SAfm Market Update with Moneyweb. My name is Siki Mgabadeli.
Let’s check where the market stands now. The all-share down 0.7% at 52 223 on the all-share. The Top 40 index down 0.9%. The rand is at R13.08/dollar, R16.22/pound and R13.90/euro.
The gold price is at $1 238.92, platinum at $1 003.58 and Brent crude oil at $55.59/barrel.
Wayne McCurrie is with Ashburton Investments. What a week, Wayne.
WAYNE McCURRIE: It has been a week, ja. It has ended on an interesting note.
SIKI MGABADELI: What do you mean? I have lots of things I think are interesting, but I want to hear what you think is interesting.
WAYNE McCURRIE: The big speculation now is once again – because it’s not new news – is that Brian Molefe has been appointed to parliament and he’s the next finance minister. But I doubt it, I don’t think so. But we will have to see.
SIKI MGABADELI: There is a lot in flux and going on at the moment. Sometimes we get press releases at midnight. So we’ll have to wait and see.
Well, the rand has really been the belle of the ball this week.
WAYNE McCURRIE: It has, yes. It’s been very strong on the back of very high commodity prices. Iron ore, for example, is at $90/tonne. Remember, a year ago it was $40. So this is very good for South Africa and very good for our commodity companies. Kumba Iron Ore a year ago, the total size, the total value of the company, was R8.5bn. Last year to December with the higher iron ore price they made a profit of R8.5bn. And thanks from all those taxpayers – they made a little R2.5bn contribution to the tax. Thank goodness for that, or our tax increases would be bigger.
SIKI MGABADELI: Hopefully that will make a difference next week. It’s also been a very big week for results. We had Woolies, Truworths – what did you make of those two?
WAYNE McCURRIE: The Woolies results were not good. Country Road in Australia is a problem. David Jones looks okay. Domestically clothing was terrible and food, even though they showed, what, a 7%-odd increase in sales, it was all due to the food prices going up. So they showed no volume increase whatsoever. Now this was a very disappointing result for Woolworths, but sometimes disappointing results aren’t the worst things in the world because then the share falls and you get a chance to buy a good company at a much lower price.
SIKI MGABADELI: Also you get the sense that they are doing all this work – there are the promotions, they are cutting prices and all of that.
WAYNE McCURRIE: They have cut prices. And on the clothing side they are facing competition, as are all the other clothing guys, by the H&Ms, etc. I don’t know, I don’t go shopping – all the overseas brands, they’ve all come here.
SIKI MGABADELI: Zara, etc.
WAYNE McCURRIE: It is competitive. Look, the outlook for South Africa is better this year than last year. It’s not good, but it’s better.
SIKI MGABADELI: Well, we are at least expecting above 1% [growth].
WAYNE McCURRIE: I think it could be as high as 1.5%, which is still inadequate but it’s better than 0.5%. Three times better.
SIKI MGABADELI: The banks are in the spotlight with the Competition Commission. What did you make of that?
WAYNE McCURRIE: The Competition Commissioner says they have a valid case and they must pursue it. And if industrials have breached any law, they must be pulled in front of the court and face the full might of the criminal system. We must not let companies off by just paying a fine. In fact, I found it ironic – I don’t know what to call it – when the construction companies announced their results. This fine that they paid, they called it a “socioeconomic contribution”. It sounds almost like they did a good thing, like they did this voluntarily. They paid a fine because they colluded in the World Cup, etc, so I think it’s actually wrong that you just settle a fine and then you can just disappear.
SIKI MGABADELI: I think the changes to the Competition Act last year would not allow for criminal prosecution.
WAYNE McCURRIE: As I said I think we’ll see what happens in all of this. There is a bit of a story that, if there is collusion in fixing the rand exchange rate – remember it didn’t happen in South Africa, it happened in London, and the majority of the banks are not South African – does the Competition Commissioner have jurisdiction on it. But if there is a valid case, we must pursue it.
SIKI MGABADELI: A quick look at the US. We had Janet Yellen speaking earlier in the week; we had Donald Trump speaking yesterday as well. Any of that have an impact on markets?
WAYNE McCURRIE: More than what they are saying is the actual economic data. Economic data point to a very strong US economy. But, more importantly I suppose, rising inflation means higher interest rates. Now initially interest rates and inflation are going up because the economy is stronger. It’s quite clear in America, that relationship. And initially stock markets love it because the economy is stronger, so they go up and they reach record highs night after night, just about.
But understand, ultimately higher interest rates are not good for the stock market. At the end of the day it’s not good. It might take a year for interest rates, especially the long-bond rate, to get to a level where it becomes a little concerning for the share market. But we must just be aware of that as investors, because you are surrounded by all this good news of a very strong economy, and you forget the negative effect that rising interest rates has on the share market at the end of the day.
SIKI MGABADELI: It was interesting to me that the dollar initially had weakened and, hold on, high inflation and high interest rates were where we should be. But now it’s come back a little.
WAYNE McCURRIE: The dollar is a funny one. It’s been in such a bull market. In fact we don’t know how President Trump is going to say he’s going to make America great again – it’s already great; it doesn’t get much better than this, quite frankly, when you’ve had a dollar bull market now for a sustained period. No bull market lasts forever. And no bear market last forever – look at the rand.
I actually think personally we are heading towards the end of the dollar bull market. I think the dollar could actually be weaker over the next year or two, because it’s been so dominant and so strong in the last six years. It’s been a long time. It’s been a very strong bull market in the dollar. So we’ll have to see on that.
A weaker dollar is actually quite good for South Africa because the commodity prices in dollars go up. It’s not a bad thing for South Africa at all.
SIKI MGABADELI: We can’t complain too much then. Thanks Wayne, for your time today.. Wayne McCurrie is senior portfolio manager with Ashburton Investments.