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‘Resource shares can still go up’ this year

A big market swing factor in 2018 will be if the ANC leadership can deliver what the market wants – Wayne McCurrie on Friday’s market moves.

WARREN THOMPSON:  Good evening and welcome to the SAfm Market Update with Moneyweb. My name is Warren Thompson.

Let’s have a little look at the markets and how they fared today. The All-Share closed more than 0.75% higher and is back over 60 000 points, finishing at 60 083.

It was green across the boards today with industrials up 0.5%, financials up 0.66%. Gold mining is up 0.5% and resources had a great run – nearly 2% higher. It’s quite unusual to see all of those in the green at the same time.

Here to discuss this with me is Ashburton’s Wayne McCurrie. Good evening, Wayne.

WAYNE McCURRIE:  Hello Warren.

WARREN THOMPSON:  The market looks solid. I don’t know if you’ve been keeping track? There is a metric that counts how many companies’ share prices rose and how many fell and, certainly when we look at the performance of 2017, it was generated by relatively few companies. How’s the market been this year so far in terms of that?

WAYNE McCURRIE:  It’s been okay. It’s been reasonably good. The gains are relatively widespread, although still quite modest, I suppose, after the massive December we had. December was just go-go.

WARREN THOMPSON:  We’ve seen a few of the smaller hedge fund managers closing because of the incredible trade. First of all we had the Steinhoff debacle. There was a bit of follow-through I think from Consolidated Infrastructure as well, and then there was that massive swing in the rand, making the markets very choppy.

WAYNE McCURRIE:  The rand and the politics were the big ones – obviously excluding the companies you have spoken about.

WARREN THOMPSON:  Typically I know that the academics have a kind of paradigm that they see, that stock markets tend to bounce in the new year. It’s a time that people are generally more optimistic, I think, in terms of their psyche and everything like that. What’s your sense of the market at the moment as we still digest Steinhoff and a couple of the other companies that are suspected of being rather creative with their accounting?

WAYNE McCURRIE:  Look, we’ve still got to see which ones they are. So far it’s just rumours. We’ll have to find out whether there are any other Steinhoffs sitting out there. Even if something is discovered I doubt it’ll be anything like the magnitude of Steinhoff – I really doubt that. But we’ll have to see. We just don’t know.

And just on the new-year rally, its sounds very good and when you examine it statistically it seems to make sense except, in the year where you try and profit out of it, that’s probably the year it goes down in January.

But what can the market do? The resource shares can still go up. Surprisingly, given the rand strength they’ve just gone up. Anglo and all these companies are at 12-month highs regularly. So despite quite a significant strengthening in the rand, which normally you would expect to be negative for commodity shares, the underlying commodity prices and global growth have been very supportive of commodity shares. So maybe they can go a little more.

South African shares – simplistically banks and retailers – can still go a bit more, as long as the positive momentum continues and the government institutes the right policies and says the right things and presents the right budget and that all of these good things which we hope they are going to do, do actually transpire. Then they can run a little bit.

But, given that sort of scenario, with one or two exceptions, the rand-hedge shares could come under pressure here because of the stronger rand. Well, not pressure – they just might not perform.

So your outlook for the year – and of course the moment you say this you know you are going to be wrong, you just hope you get the direction right – maybe a small positive year this year.

WARREN THOMPSON:  I think the longer-term returns of the JSE, while we had a fairly good year last year, have been disappointing. We work on an average of about 15%.

WAYNE McCURRIE:  Look, 15% is probably high over time. I think an average of 11% is probably closer to the true long-term average, maybe only 10%. But something in that sort of range. But you must remember we had a serious bull market up until 2008. Then the market collapsed. Then we had a massive bull run again and up until last year the market has been swinging sideways for three years. There were big movements within the market, effectively with resources going down and rand hedges going up.

WARREN THOMPSON: Right, yes.

WAYNE McCURRIE:  In the last two years it altered a little bit. The resource shares have recovered, etc. But the true big-swing factor is what happens in the world. That’s always a swing factor. So far that looks quite good.

Then the other big-swing factor is will the new ANC leadership be able to deliver on what the market wants? Whether they deliver on it because of economic reasons or whether they don’t deliver on it because of internal politics or whatever, that will be the other swing factor. Will there be delivery – yes or no?

WARREN THOMPSON:  All right, we’ll have to leave it there. Thank you for your time, Wayne. Always good to talk to you and we look forward to engaging with you in the future.

WAYNE McCURRIE:  Thank you.

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