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Market reacts positively to Mediclinic’s UK deal: Nerina Visser, ETF strategist, ETF.co.za

Three new financial companies in the Top 40 index today – Capitec, Brait and MMI.

SIKI MGABADELI: Looking at the markets, we are back above 52 000 on the all-share and it’s up 0.75% at 52 189. The Top 40 is up 0.9%. The rand is firmer as well at R12.11/dollar, R19.13/pound and R13.78/euro.
    A mixed day. We’ve had financials back, industrials back. Gold shares of course are just not having any luck today.

NERINA VISSER: Still not. Siki, ja I guess so. Everybody that was saying “sell in May and go away” forgot to mention “when do you change your tune and come in June?” It seems as though all is forgiven. Really, I think there is some optimism about a deal being struck in Greece, although there is little tangible evidence. I hope this is not misplaced – neither unity nor hope. But I think a lot goes to reading body language and certainly Tsipras was not looking very confident and I think a lot of people took that to mean that they will have to actually give way on some of the austerity measures that would be required. Time is fast running out. Of course, next week is the deadline for that almost €1.5bn payment that they’ve got to make. So time is running out. I don’t think that Europe can actually afford for Greece to leave the EU. This is not an economic issue. This is a political issue. They are such an important physical defence towards the Middle East, towards Isis. And then Greece talking to Russia and even China I don’t think sits very comfortable with the political leaders within Europe, and I think they will do whatever is necessary to ensure that Greece does actually remain in the Eurozone.

SIKI MGABADELI: And I think we forget that, that it’s not just a money issue, it’s not that at all.

NERINA VISSER: Not at all. In fact, Europe can probably easily afford to do without Greece. This is a geopolitical issue at play and that’s why you see it takes such a long time to actually reach this deal that is required.

SIKI MGABADELI: Well, let’s look here at home. All those heavyweight industrials – your Naspers, your BAT, your Richemont –all of those.

NERINA VISSER: I must say they were all up but outshone by Mediclinic. I’m sure we’ll talk about the Mediclinic deal.
    And then of course financials also shone very brightly on the day, certainly the best-performing overall economic group. And interesting enough, Brait is another sort of private-equity company in the news there. But Brait is also a new entry into the Top 40 index today.

SIKI MGABADELI: Imperial dropped out.

NERINA VISSER: There were three that dropped out – Impala, Imperial and Life Healthcare and then entering into the Top 40 index today was Brait, Capitec and also – I forget the third one. It’ll come to me. What was important to notice now is that the Top 40 and the JSE are no longer the resource, top-heavy indices that they used to be.

SIKI MGABADELI: And that’s important. Let’s chat about that a little bit.

NERINA VISSER: There are actually only five resource companies left in the Top 40 index, of which really only Anglo American, BHP Billiton, AngloGold Ashanti make any real contribution. Angloplats and Kumba Iron Ore are in there because their full market cap is big, but their free float is so low that they really are such minions that they really don’t make much of a difference.

SIKI MGABADELI: I was thinking about that this afternoon, that I would be doing my radio report. You would say ten years ago “the heavyweight, the resources index” – you don’t say that any more.

NERINA VISSER: It’s not that any more at all. And in fact obviously industrials have received quite a boost, and I just remembered – MMI. MMI was the other new entrant. So three new financial companies in the Top 40 index. So Capitec, Brait and MMI came in today and the financial index certainly proved its worth today – it was up by far the strongest on the market.

SIKI MGABADELI: And what did you make of the Mediclinic transaction?

NERINA VISSER: Clearly the market likes it a lot. I think it’s definitely a bet on a couple of things. It’s an ageing UK population, it is a region in the world that’s definitely in need of the healthcare that they’ve got there. But it’s also a bet on a strong pound. So a currency that I think Mediclinic likes getting into their portfolio, and Remgro is very happy happy to support them in that. So with Remgro owning just over 40% of Mediclinic, they will in essence almost be financing the deal – first doing the buying of this almost 30% of the Spire Healthcare Group in the UK, and Mediclinic will in turn take it over from Remgro.

SIKI MGABADELI: The other international exposure that Mediclinic has is in the UAE and Switzerland.

NERINA VISSER: Exactly. So this is their first foray into the UK market. And of course Netcare has been very successful in the UK market. So I think it’s a good deal for Mediclinic and certainly the market liked it. That share price was up well over 3% on the day.

***

POSTSCRIPT (end of show)

SIKI MGABADELI: Nerina, is it just me or is the rand…?

NERINA VISSER: You actually need to look at the dollar and see where the dollar is, and I think that is where a lot of the movement has come from. The movement against the crosses has not been nearly as sharp, but I think today we definitely are seeing the risk-on trade being back on. So you see the flow back into emerging markets, into riskier assets. And of course with that goes the money out of gold. So gold, the precious metal, the physical asset itself, has been hurt. So really the gold sector has just been hit from all fronts today.

SIKI MGABADELI: Goodness. And the thing is, again, from our conversation earlier with Elize Strydom, I don’t know if you are going to see a gold price above R2 000 any time soon.

NERINA VISSER: No, I think there is more than enough gold above ground at the moment to sort of satisfy the current supply. In recent years we saw a lot of demand come from the East, from sort of the “new money” in China and elsewhere in Asia. And with the Chinese economy just moderating somewhat, that demand has flattened somewhat.
    In India also we saw a bit of a moderation. It’s become a lot more seasonal. So I do think that there is not a lot really in favour of the gold price at this stage, and these are the sort of things that I guess that really should be brought into consideration when the wage negotiations in the gold sector are under way. But unfortunately I don’t think there is enough scope within the way that the negotiation process is to unfold to actually take that into consideration.

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