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A rollercoaster ride on the JSE: Wayne McCurrie – Momentum Wealth

Markets: ‘When you look back over time what’s happening now is not that abnormal.’

SIKI MGABADELI: The all-share today – the market closed lower, pulled down by financial shares. They led the losses on the local market. Gold miners, though, continued their march upwards. The all-share 1.47% at 49 028. The Top 40 down 1.7%. The rand is at R12.92/dollar, R20.23/pound and R14.66/euro.
    Wayne McCurrie is with Momentum Wealth and joins us now. A rollercoaster.

WAYNE McCURRIE: Very much so. But I’ve actually found the answer to investments, Siki.

SIKI MGABADELI: Yes?

WAYNE McCURRIE: It’s this little dice I picked up at one of the stalls here at the Expo. You roll the dice and it says Sell, Go Big, Buy, Hold, and Panic. So I’ve got the answer to investments.

SIKI MGABADELI: We are on Panic now. That’s where we are.

WAYNE McCURRIE: At the moment it has come up panic, yes.

SIKI MGABADELI: What’s going on?

WAYNE McCURRIE: It’s this whole worry about Chinese growth. Is the growth 6%, is it 2%, is it 3%? But I’ve also learnt when you are in the middle of movements they seem so catastrophic but when you look back over time what’s happening now is not that abnormal. Our share market is off about 10% from its record high and it does that once a year. It’s not abnormal this.
    The rand weakening is not a rand story. It’s a commodity story. Other currencies, the Russian rouble, a lot of them, about three or four of them, are down 40%. So the rand has actually kept pace and done exactly the same as the Australian dollar. And against the Australian dollar it has actually been flat for 2.5 years. So people think this is a rand story. It’s a commodity-currency story.

SIKI MGABADELI: Let’s talk about those commodities then, because there’s been obviously an issue around the prices. There is the China story, there is the timing of the US interest-rate hike story. Is that the mix of what’s happening with commodities?

WAYNE McCURRIE: That’s quite correct. There are two things in the commodity cycle. The first and probably most important at the moment is that there’s massive oversupply. But we do know that call it 20% of global production is making a loss at the current prices. So eventually that will disappear off the market.
    Then there is the concern about the Chinese slowdown. We saw the Chinese purchasing managers’ index down six months in a row. It fell again – not disastrously. The economy is not in recession, it’s still growing. It’s just a question of how much it’s growing. I don’t think that’s the issue. I still maintain the first reason is the issue that there is just oversupply and no one is blinking yet. Someday someone is going to blink and say, why am I producing this at a loss – and then stop producing it.

SIKI MGABADELI: Well, lots of resources, mining companies this week have come out with results. A bit of a mixed picture. Northam seemed to have pretty nice numbers, even Gold Fields, though the South Deep continues to just a bit of a problem.
    And then on the other hand you have Harmony, you have Exxaro, and so on. What is the picture in this?

WAYNE McCURRIE: No mining company is making money at the moment at current prices – they are just not making money. And specifically the platinum mines and the gold mines. So one company will come up good the one quarter but then poor the next quarter. Two things need to happen. Either the rand gold price or the rand platinum price needs to go up significantly or they’ve got to restructure operations, which means closing expensive shafts.
    Now a lot of platinum companies have already announced that and so have a lot of gold companies. But understand, it’s a cycle. We’ve seen 20 commodity cycles before and we’ll see many more into the future. What is different about this one, though, is it has happened on the back of a reasonable global economy. Normally you only get such a severe down-cycle when the world goes into recession. That hasn’t happened. So this is the first time, certainly in my lifetime, that you’ve seen a collapse in commodity prices due to an oversupply situation that’s not due to an economic problem. But, as I said earlier, oversupply can’t last forever.

SIKI MGABADELI: Truworths out with annuals and, just looking at their commentary, they were saying that they think the credit environment…

WAYNE McCURRIE: … is getting a bit better.

SIKI MGABADELI: And they would know, because the bulk of their sales are credit sales.

WAYNE McCURRIE: Look, I can’t see that, but obviously they are closer to the coal face than I am. I thought they were relatively disappointing results, actually. Yet the share price is up on a day when the market is falling – and it’s not as though this share was cheap. It wasn’t particularly expensive, but it certainly couldn’t be classified as cheap. So maybe the commentary about the credit environment improving slightly has actually caught the market’s attention.

SIKI MGABADELI: We saw of course Shoprite a little bit earlier in the week as well.

WAYNE McCURRIE: But, you know, Shoprite is very interesting. Just, very simply, they did reasonably well. Wherever you looked it was 10% growth. No matter what the number was, it was 10% growth. But then the chief executive, Whitey Basson said a few very interesting things. He said listen, we are not going to steal any more market share. Growth in market share is out and our margin is at its highest. It’s highly unlikely to get any higher because competition is becoming stiffer. And Africa’s tough and South Africa’s tough. Yet this share is at a 20 price/earnings ratio, which is very expensive over time. I don’t think these results can support the current share price. I think we are going to see weakness in all the retailers, not just Shoprite. And there were a few of them today that actually came off quite a bit.

SIKI MGABADELI: Thanks, Wayne.

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