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Simon’s weekly wrap-up: corporate debt and its impact on investors climbs

We also looked at the effect of US job data and interest rates on markets; rental collections rising; offshore vs local property; views on cash, equities, access bonds, and deposit safety; and more.

Debt remained firmly in focus this week, with technology service provider EOH updating the market on its debt repayment programme that is ahead of schedule. On the other side was Tsogo Sun Gaming with annual results to end March 2020 showing debt of over R11 billion.

I spoke to Keith Mclachlan of Alpha Asset Management on Thursday to understand the risks of corporate debt and how we as investors should be looking at debt, the repayment profile and debt covenants. It’s likely that most lenders are engaging clients with new loan terms and waiving debt covenants rather than calling in the loans.

The US Federal Open Market Committee’s announcement on Wednesday evening saw no rate change. But chairman Jerome Powell did say it will likely see rates at the current zero through to 2022 and will keep buying bonds at current purchase levels. Powell also commented that it expects US 2021 GDP to be around 5% as the economy bounces back. So, in short, it’s confident and will continue to do everything it can to support the US economy and remain committed to do ‘whatever it takes’.

After a week of new highs for the Nasdaq, Thursday evening saw an aggressive selloff in the US with major indices down over 5%. Whether this is the start of a new collapse in global equity markets or just a blip in the new bull market remains to be seen. But Mia Kruger of Kruger International commented that panic is never a strategy and we should always be thinking long-term and positioning our portfolio accordingly. Kruger International has been holding more cash than usual but it’s still not jumping into the market as the disconnect between main street and Wall street remains a concern.

The listed property index rallied some 25% over five days to Tuesday’s highs and an update from Hyprop confirmed what we saw in the Liberty Two Degrees’ update of a few weeks back. Malls are re-opening at about 65% capacity on average with foot traffic for early June down only 24%, after being off 70% in April. But Stanlib’s Keillen Ndlovu remains very cautious on local property, still preferring Eastern European exposure.

Also listen to June 8’s podcast: US job data, cash vs equities and the Sarb’s bond-buying programme

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