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GDP raises concerns about SA consumers’ health: David Shapiro – Sasfin

Talks about Greece improving ‘just brought optimism to the European market’.

SIKI MGABADELI: Taking a look at the markets now. A flat day, but a negative flat day. The all-share down 0.06%, the Top 40 not far off that same mark. The rand is at R12.10/dollar, R18.49/pound and R13.17/euro. The gold price is $1 186.70/oz, platinum at $1 119.20/oz and Brent crude oil at R62.80/barrel.
    David Shapiro is with Sasfin and joins us now on the line. Hi, David.

DAVID SHAPIRO: Siki, you know, when you say we ended flat, thank goodness we ended flat because at 10 o’clock this morning it was carnage. Having lost 1.5% yesterday, we were round about down another 1% at the opening, and then slowly as the day went by we actually clawed our way back and did a lot better.
    But trying to find what got us better and where it comes from, I can only think it was Greece. There is talk there that things are starting to improve. They are heading in the right direction. And that just brought optimism to the European market. So European markets were very strong. We can take it from the db x EURO, which is a tracker of what’s happening on the European markets, that was up about 2%. Admittedly some weakness in the rand also gave us a bit of a boost.
    And then, just on Europe, it filtered through to the American market. From their offers they are also trading up. So that gave us a bit of a lift.
    But still a lot of different kinds of movements, some really up, some really down and so on.

SIKI MGABADELI:  And some quite flat – if you look at those dual-listed shares, BAT and Millers and so on and Richemont, they all are a bit mixed.

DAVID SHAPIRO:  [Laughs] In fact, British American Tobacco was the strongest – up 2%. SAB ended kind of down a little bit. Naspers was up. Funnily enough, they closed down – we get slight differences because of the Hong Kong close. Chinese markets are still very strong.
    But we did close up in Naspers. Richemont was a little firmer. Then it did spread through to Billiton and Anglos. Not much else happened on the resource markets. But the gains in Billiton and Anglo were enough to push the resource index into positive territory.

SIKI MGABADELI:  All right. That dollar strength, though, it’s just a rampant dollar. And obviously, as we continue to talk up this interest-rate hike thing, it’s going to stay on that trajectory.

DAVID SHAPIRO:  I tried to attribute what was happening here to offshore selling, because the rand at one stage was like R12.13/12.14. And I think we did see quite a few foreigners getting out of the market. It might have been a balance from overnight, and we saw some big plunges in a lot of our heavyweight shares. I think there is this kind of move out of South Africa and back into the United States. Especially where you get European markets up I think this trend might continue.
    So mixed. You can’t draw a line through this market and say “this is the trend – some up, come down, some improved, some didn’t” and so on.
    But I think, Siki, where there was news– Oceana I see down 4%. They announced a rights issue; it’s just part of the funding they need for their US acquisition. I’m surprised, because the market has punished the share so, even 4% down today. Over the last few weeks I think they are down about 20%. This has been a great market favourite up till now. And there were lots of shares like that, so you got extremes at both ends of the market.

SIKI MGABADELI:  Absolutely. Then Lewis reported that drop in the headline earnings per share, and they are going to open more stores with Beares and maybe potentially get more higher-end clients.

DAVID SHAPIRO:  They were positive. If you read through the statement, the second half was a lot better than the first half. That’s also because of acquisitions, and they continue to acquire stores. They are building up a lot of new stores as well. But the market didn’t buy it. The market marked the shares down. The headline earnings are down 4% and the market marked the shares down about 1.5%. Relative to the market, they are on a dividend yield of about 5.6% and a PE of about 10.4, which is cheap and probably should attract people. But no one is rushing in.

SIKI MGABADELI:  I wonder why.

DAVID SHAPIRO:  Siki, I think yesterday’s numbers – our GDP – have just raised concerns about the strength or the health of the South African consumer. And I think that’s at the back of their minds. In fact, if you look at Capitec today, it also came plunging down. Admittedly Capitec has rushed. It has been a huge, huge performer – which might have been on the back of foreigners coming into the market – but maybe raising a few concerns. And Capitec came down. It was one of the few financials that was under a bit of pressure.

SIKI MGABADELI:  But if you look at those unemployment numbers out yesterday, and the GDP growth data, it doesn’t bode well for those shares that have exposure to consumers.

DAVID SHAPIRO:  That’s my worry. I’ve been saying it for some time – how can banks expand their business in a climate where the economy is not growing? From my point of view it means that the people that you lend money to are getting weaker, they are not getting stronger. I don’t think companies are borrowing at this level. So I’ve got concerns about what this means for the consumer market.

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