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Buyers are returning to local stocks

Rand is just taking a bit of the edge off the market – David Shapiro on Thursday’s market moves.

NASTASSIA ARENDSE:  Good evening and welcome to the SAfm Market Update with Moneyweb. My name is Nastassia Arendse.

I’m joined on the line by David Shapiro from Sasfin. David, thank you so much for your time.

DAVID SHAPIRO:  Pleasure. Nice to be here again.

NASTASSIA ARENDSE:  How did the market do today?

DAVID SHAPIRO:  Slightly down. It was one of those really boring kind of days, nothing really on the global markets to sway direction. Just watching the news, the only big story was that Bitcoin traded about $5 000 a coin – a record. I don’t follow it, I don’t understand it, but I’m merely passing on what everybody was talking about.

Read: Bitcoin breaches new milestone by smashing past $5 000 mark

But Nastassia the one story that captured me today – even though global markets are holding steady and I’m looking at the US now and it’s going to creep into another record high – is that we’ve seen the return of buyers in local stocks, and it’s broad.

Really what they are buying is financials, but also they are seeking bargains in industrial shares that have been beaten down quite a lot recently. If you look at Grand Parade, up 8.5%. That’s associated with gaming and also of course with Burger King. Mpact is another share that’s been down about 26% this year, up 5%. Group Five up 4.5%, Aspen up 4%, EOH up 3.75%. So it gives you an idea of the depth and the aggression that we are seeing on that side of the market. No news to back it up, nothing new. But I also think it has to do with a better feeling about the global economy and also the return of maybe foreign buyers to emerging markets. So I think local people are feeling a bit better about valuations here and buying shares. That seems to be the only story that I can hang onto that’s of any interest here.

Just at the top end of the market – those are the big heavyweights that have actually led us higher – Naspers and British American Tobacco and those kind of companies are all coming down a bit, mainly because they are kind of flat in their local markets and their primary markets. But the rand continues to pick up and that’s taking our valuations down as we convert the prices from foreign currency into local currency. So the rand is just taking a bit of the edge off the market as well.

NASTASSIA ARENDSE:  There were a couple of results out. The one that I focused on, and in fact have been waiting for it since last week, was Taste Holdings. Did you get a chance to look at that?

DAVID SHAPIRO:  Ja. Not pretty. I think they are going through a tough time and a lot has to do, of course, with the state of the economy. I think people are becoming a lot more budget conscious, and probably not spending. But I don’t think you can ignore that there is a lot of competition building up in that area as well, in the quick-service restaurants. They are heavily committed to building out Domino’s and also Starbucks. It’s chewing into whatever capital they have. So they’ve come down and I think the big question is how they are going to fund future expansion. It’s a difficult position they find themselves in.

Read: Taste still bets its recovery on Starbucks and Domino’s Pizza

But poor old Carlo is not alone. We are seeing a similar picture with Famous Brands under pressure, Spur under pressure and even Grand Parade has been under pressure. I think that whole area is feeling the pinch.

NASTASSIA ARENDSE:  I always feel like I haven’t spoken to you in a long time, especially as the week goes by. But, as we get to the close of the week, what kind of news are you expecting, whether it’s Brexit, if you are watching any news out of there, or even some of the comments on the Fed-meeting minutes?

DAVID SHAPIRO:  I think what’s going to dictate to us it is going to be earnings from the US. We are already going to start seeing them come through now with banks and the like. I think that’s going to set the pace. Overall this market’s going to keep going higher. It might not go at a frantic pace, but I still think there is much more room left here as well.

Also a focus on what Trump’s going to do with taxes. So it’s all America-focused. I think the rest of the global markets are doing well. I’ve got nothing to complain about. If the world feels good, I think it will follow through here. We’ll feel it even though our economy might be slightly behind where the rest of the world is. I still think our market is going to do okay.

NASTASSIA ARENDSE:  The one thing I’m keeping an eye on – perhaps not so much the Fed meeting minutes – is who is going to be the next person to take over as Fed chair. As we get closer to the end of the month everybody is waiting for a name that Trump will put forward.

DAVID SHAPIRO:  I hope it’s Janet Yellen. I think she is a solid person. She has done incredibly well. If you take Bernanke and Janet Yellen, I think a lot of credit to both of them for doing what they’ve done and for steering the US economy in the right direction. We are starting to see it now. I hope President Trump doesn’t fiddle around with it and just leaves the status quo because I think the market will like that. The market will actually respond very positively to her having a second term. But he’s a man that you don’t know from one day to the next. You can’t read him, you just don’t know what he’s going to say, you don’t know how he’s going to act. He’s a man full of spite. He’d do well in a kindergarten sandpit. He’s that kind of character. But I have no views on whom he is going to choose.

NASTASSIA ARENDSE:  When you started off by saying Bernanke and then Janet Yellen, I was wondering whether you were going to mention Greenspan and Bernanke.

DAVID SHAPIRO:  Greenspan was okay. I know he’s been vilified, and I think he had too much faith in the banks self-correcting – in other words, running themselves rather than him having to control them. I think that was his biggest problem. But he’s still a highly intelligent man with a deep understanding of economics. I’m sorry Stanley Fischer is no longer going to be there. He’s the doyen of central bankers and whenever they speak you get a feeling of comfort that they know what they are doing. Gary Cohn – I don’t know. He’s a businessman, he’s a trader, he’s a commodity trader. Do we really want someone like that in charge of the central bank?

NASTASSIA ARENDSE: .Thanks, David, for your time.

DAVID SHAPIRO:  Pleasure. Nice to talk to you.

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