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Industrials and financials did pretty well today: David Shapiro – Sasfin

In the UK inflation fell below zero for the first time in 50 years.’

SIKI MGABADELI: The all-share today is down about 0.01%, the Top 40 down 0.25%. The resources index tumbled today, along with the gold miners. Resources were down 3.4%. gold miners down 3.8%.
    David Shapiro is with Sasfin and joins us now. Hi, David.

DAVID SHAPIRO:  Hello, Siki.

SIKI MGABADELI:  What sort of day was it?

DAVID SHAPIRO:  Not good if you are in resources. The gold and platinum price came down quite a lot, and that’s really a consequence of a stronger dollar. Why did the dollar strengthen? That in itself is a story. The euro came under pressure, with their policymakers saying they are going to boost their QE programme – in other words, that reversed rates.
    And also in the UK we had inflation fall below zero for the first time in 50 years, again delaying any chance of an interest-rate rise there. Remember, they set targets round about 2%. So the pound came under pressure, the euro came under pressure – and the dollar gets strong, commodity prices come down.
    So that was the backdrop. Oil also continued to retreat. There are now stories that Brent oil, which is $65/barrel now, could come back to $45… So that’s putting pressure on oil markets. We saw Sasol come down.
    We’ve still got the Billiton/South32 story unfolding. Billiton came under pressure. South32’s up 7%.

SIKI MGABADELI:  I know. What’s going on there?

DAVID SHAPIRO:  Siki, there are a lot of analysts who have turned very positive on it at these levels, still feel that there is upside. So most of the reports that have come out with the listing of South32 are “outperform’, expecting this company to do better from here. We saw 46m shares – as I say, a lot of trade. But it’s still trying to find a level.
    Kumba also under pressure. Sasol I mentioned coming under pressure, platinum shares coming under a lot of pressure as well.
    But if you look at the industrials and financials, they did pretty well. I know you are going to talk to a couple of results out there as well, and they seem to be dominating.

SIKI MGABADELI:  Ja, PPC, Coronation. But the story that broke this afternoon from the Competition Commission about the foreign exchange trades – that’s quite interesting because similar investigations are taking place in Europe, in the United States. In fact, JP Morgan, which is one of the banks that we are told by the Commission they are investigating, paid nearly $100m recently to settle a similar case in the United States. So it is a potentially major story.

DAVID SHAPIRO:  Well, there are a lot of banks that have been named and I’m not quite sure how those rates are settled here. I’m really not sure. It’s an area of the market that I’m unfamiliar with. But they’ve named virtually every bank that actually deals in currencies or helps set the rates. So it’s going to be a huge investigation. I’m not sure what’s going to come out of it.

SIKI MGABADELI:  And that’s one we are going to have to watch quite closely, obviously.

DAVID SHAPIRO:  I would have thought that we are such a small country, it’s such a small market, that probably people talk to themselves all the time. Anyway, who knows how these things are happening. But it didn’t seem to affect the market because banks were firm right across the board. That whole sector was significantly better. So I think people have brushed it aside.
    You are going to talk to PPC – their share was up 7.5%. I think those recent anti-dumping measures did help turn sentiment around. The result itself still reflects troubles in the cement industry, with competition and with volumes down and also a lack of infrastructure spend.

SIKI MGABADELI:  And hence they are concentrating quite a bit on their cross-border plant, building over there in the DRC and Rwanda and Ethiopia and so on – investing in those markets. They want to make up I think they said 40%.

DAVID SHAPIRO:  Well, my worry is that if they keep shrinking here that is going to go up – I’d rather that they grew both sides. As things get worse here of course the offshore side becomes more important.

SIKI MGABADELI:  Absolutely. And Coronation? What did you make of their financials?

DAVID SHAPIRO:  The share is down 20%. I think credit to them – and we’ve discussed this on air before – they do give you warnings about the volatility in their earnings, particularly as they take performance fees and these can be extremely volatile as the market moves. They did come up a little today. They bounced on the announcement of the results – and look, it’s still a big business. My view is that markets are going to be tougher and it’s going to be harder for them to try and get the same kind of growth in future that they did before. But they do declare a lot of it.

SIKI MGABADELI:  If you think about it, with the expectation that the Fed is going to raise interest rates later, it might just then put pressure on equity markets in those developed markets.

DAVID SHAPIRO:  I think so. I think it’s going to be a lot harder for asset managers to get the kind of growth that we have been seeing. And of course they are highly geared to performances, as I would imagine are Sanlam and Old Mutual and everybody else who sells products. I think they will all find it difficult to try and get the kind of performance. … [Line break].

SIKI MGABADELI:  Unfortunately I wanted to ask him about Bidvest’s offer for the whole of Adcock Ingram being rejected by an overwhelming majority. I wonder if that’s the end of that then. But that conversation is for tomorrow.

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