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Guest market watcher: Magnus Heystek – Brenthurst Wealth

‘The US is still the place to be, most fund managers think.’

SIKI MGABADELI: Now a market wrap with Magnus Heystek, who is with Brenthurst Wealth. It looked like all things were good. We started the week negative then we went into the green. And today the all-share is down 1.3%, down 1.5% on the Top 40. The rand is looking better, though, at R11.49, than what we’d started with. I think we were around R11.70 earlier in the week. How was your week?

MAGNUS HEYSTEK: It was like the stock market – up and down and unpredictable. Yes, good afternoon. That’s quite right. This morning it was looking positive and round about lunchtime it started dipping and then in the afternoon it had a big sell-off. I think it’s a combination of a couple of things.
   Eskom is one. Load-shedding is not good for the South African economy. We see it in the confidence levels and then the big miners like Sibanye say we cannot drill deeper because we don’t know if we’ve got power. It sends a message. I think there was an interview with Neil Froneman saying, “Look, we would like to, but we are not sure about the power supply.”

SIKI MGABADELI: It does affect the planning that any business will have. And it’s the same things with for example, the rand. They’ve got to have some sort of predictability. They don’t know where they may or may not be, they can’t plan ahead. So they don’t know if they are going to have power next week, they can’t put the money across for that.

MAGNUS HEYSTEK: The big investors are looking at the situation and say Well, we are not sure about the power supply. They are not worried about next week or next month or next year. They want to know that for the next 10 to 20 years we have a good, affordable power supply. And they say we can’t take that chance of putting in a new motor plant or a ferrochrome plant.
   Unfortunately already for a long time our economic potential is being squeezed quite substantially. We’ve got to live with it for the next five to six years. We are all paying the price. We are all a little bit poorer than we cold have been had we had a better power supply. So yes, our GDP is under pressure, your and my net worth is lower, our earnings potential. So it has a vicious effect on the whole economy.

SIKI MGABADELI: Globally we are seeing other markets around the world as well – I think the US has been down, Europe also down, we’ve got a new hostage situation [in France].

MAGNUS HEYSTEK: A new hostage situation which seems to be linked to the other one. But the markets themselves I think have shrugged that off.
   The US market was firm yesterday, and today opened a little bit better. So a very good figure coming out from the US in terms of employment. They created 254 000 jobs in one months. We would love to do that in one year! Their unemployment is down to about 5.4%. This may spook the markets a little bit, because the Fed has always said if unemployment comes below 6% that’s when we start looking…

SIKI MGABADELI: At rate increases.

MAGNUS HEYSTEK: … worrying about wage inflation. But with the massive deflation coming from China and from Europe, I think they are not too concerned about inflation at this point in time, thereby postponing potential increases in interest rates a little bit further into the future.
   So a good bounce in the market. The US is still the place to be, most fund managers think. The economy is doing far better than expected, so any South African with some offshore exposure I think needs to be in the US.

SIKI MGABADELI: And another theme of course for this week, as people watch what the European Central Bank is going to do, is expecting more stimulus measures when they do make the announcement.

MAGNUS HEYSTEK: Yes, of course. A lot of people are criticising them for not doing it sooner, saying that the deflation train has been coming for a long time. Southern Europe in particular is very badly hit by deflation. For instance, I saw the average wage in Spain dropped – in fact also in Greece – down by about 25% if you compare it with five years ago. So people have been taking the pain, the austerity pill, hoping to get the economy going – and it hasn’t worked. So there could be some more pain in southern parts of Europe.

SIKI MGABADELI: Oil?

MAGNUS HEYSTEK: Who knows? Six months ago we were debating peak oil – we were talking about $140, $150, maybe $200.barrel. At least we know we are in good company. The Goldman Sachs of the world wrote that piece five years ago about peak oil at $200.barrel and blah, blah, blah. So even the clever guys can get it totally wrong. But, as I wrote on Moneyweb today, I think South Africa must count itself very, very lucky as to what has happened in the last six months. Can you imagine the oil price still at $100/barrel today, Eskom sucking up the diesel that they need, our balance of payments, the rand, etc? So we must be very, very thankful for this bonus. And I suggested, tongue in cheek, if I was government now is the time to use the decline in the oil price, and hence the petrol and diesel prices, to increase the fuel levy – let me repeat, increase it by R1.
   And I’ll tell you why. We know the government is in a big fiscal hole. So it’s not going to be from the fuel levy, it’s going to be from VAT, personal income taxes or corporate taxes or estate duty or capital gains taxes. Of all the evils I would say a petrol fuel tax while the price is going down is perhaps the smartest way to do it.

SIKI MGABADELI: We’ve got the budget speech in the last week of February, so let’s hope they are listening. That’s one tip for our Finance Minister.
   Your stock pick for the year?

MAGNUS HEYSTEK: I’ve been following a company called Anchor Capital, a young start-up company. It is priced very highly but I’m backing the entrepreneurs behind it. They’ve come with very smart guys, Peter Armitage and his crowd. They are putting together a nice wealth-management company, good backing, so really it’s my stock pick. It’s one of these things that could become a 10-bagger over time. It’s like Coronation 20 years ago, or an Investec 25 years ago – smart young people, aggressive and they do things in a very aggressive manner. I like what they do.

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