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‘Don’t ignore emerging markets as a consumer group’ – David Shapiro

On the LME there were big gains in metals like aluminium, zinc and copper.

SIKI MGABADELI: Let’s check those markets now. The all-share is up 0.8% at 47 923, the Top-40 index up 0.75%. The rand is R16.38/dollar, R23.31/pound and R17.82/euro.

So a busy day, David. 

DAVID SHAPIRO: There were quite a number of items that influenced the market. We did a lot better than global markets, and the big news on global markets besides oil – which still continues to be dragged down by worries about rising inventories in the United States – Apple put a dark mood on sentiment. It’s odd because it was their best quarter ever, but what has dragged markets down is that they missed their forecast. Tim Cook told investors that conditions in the world economy were unlike anything that they had ever witnessed before. You wouldn’t think that from the numbers. They were spectacular numbers still. But with the strong dollar profits that are coming in from outside and translated into dollars are lower. They missed forecast.

But throughout the day for a number of companies, even Boeing, earnings were good but revenue wasn’t there. And for some reason now they are starting to knock stocks that don’t meet revenue. So that’s what was happening on the outside, and that’s why we are seeing US and European markets down as well. Nevada also missed profits and so on.

SIKI MGABADELI: These are the things that are going to be weighing on the Fed’s mind because, if they can’t make the kind of profits they should be making when the economy is growing as well as it is, then obviously it’s going to …

DAVID SHAPIRO: The one thing that is very important, which we don’t seem to recognise – and it came through in Apple’s result – is Turkey, Russia, Brazil. Now we regard those as no-no markets. Oh, they are emerging markets, but they are big consumer nations. And when it comes to Apple it seemed to make a difference in the sense that the translation of those profits into dollars were down. So don’t ignore emerging markets as a consumer group. They can make a difference to businesses and to an extent to consumption and the global economy.

China was down, we know. That is a worry. That’s why we are talking about the Fed at the moment. I’m sure that the strong dollar is going to influence her decisions and also what’s happening in the global economy. But we’ll get some idea of where they are heading or whether they see the US economy as strong enough to sustain further increases.

SIKI MGABADELI: So what was the South African market like?

DAVID SHAPIRO: Lots of stuff. Miners were up quite strongly. I saw Glencore pick up about 6%. Going through commodity prices, gold was slightly down. But looking at the LME, that’s the London Metal Exchange, there were big gains in aluminium, zinc, copper, all those metals, on their three-month contracts up 2.5%. That’s where Glencore is focused. I don’t know whether that was behind it but a good day for miners.

And then retailers were very strong against the news that we are talking about. Tomorrow – is it going to be 25 points, is it going to be 50 points?

SIKI MGABADELI: It seems everyone is expecting 50.

DAVID SHAPIRO: Whatever. And we’ve got a drought as well. Numbers are coming out of how much we now must import and what that is going to mean, what it’s going to mean for milk sales as well, because milk production is down.

And our food companies go up and retailers go soaring – big, big gains in the region of 6%. Imperial, Spar, Pick n Pay, all of those up very, very strongly.

SIKI MGABADELI:   Are investors expecting them to just pass these costs on to us? That doesn’t sound good.

DAVID SHAPIRO: I think they’ve been a little oversold, they’ve sold down too much and there might be talk that interest rates might not go up all that amount. But that was one story.

Curro was another story today. It came out with a trading update. What I loved about it – their profits are spectacular, up over 50% to 64%, in that region. And the market marked them down. You can understand why. If you’ve got a PE of 150 you’d better give us 100% increase – 50 is not good enough.

SIKI MGABADELI: And I just wonder where that growth is going to come from. Obviously they had wanted to take over…

DAVID SHAPIRO: I think they can grow but they are going to have to finance that growth. I don’t think they are generating enough to finance. But PSG, the owner of Curro, also came down on that news.

SIKI MGABADELI: Alright. Gold Fields – their results are due out next month as well. We’ve got our own earnings season coming through in the next couple of weeks, but they are saying their gold output was within what they had forecast.

DAVID SHAPIRO: I think the big thing was costs, bringing down costs. When I looked through Gold Fields – remember Gold Fields don’t mine here any more, so it’s mainly in Australia, Ghana, Peru. Remember, they sold off to Sibanye and now only a very, very small amount comes out of South Deep. So it’s no longer a South African gold mining company.

SIKI MGABADELI: It’ll be interesting to see what Sibanye shows us when they come out.

Some good news from Murray & Roberts. We haven’t had a lot of good news from anybody from the construction sector in a while. They’ve got some contracts in South Korea and the US that they announced today.

DAVID SHAPIRO: They were also among some of the big gainers.

SIKI MGABADELI: Very much so. So we are obviously waiting to hear what Janet Yellen says a little later today – sort of at 20:30 our time, right? And then of course our own interest rate tomorrow.

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