Market watcher: Wayne McCurrie – Momentum Wealth

A raft of IPOs expected next week in China.

SIKI MGABADELI: Just looking at our market, we are up 0.66% on the all-share at 51 998. We’ve seen an increase in resources – they are up just over 1%. Financials are up 0.75%.
   But globally the picture is mixed. In the Far East the Nikkei was up on the day, with people watching the rising oil price. There is some optimism that Greek banks might get that required funding. But China was on the negative side today. There is a raft of IPOs that are expected next week in China, so a lot of investors are staying on the sidelines.
 In Europe – a mixed picture there. A few concerns about the Greek debt situation, but that’s been weighing on our markets the whole week, hasn’t it, Wayne McCurrie?
   But we’ve had some good news from the US as well. I don’t know how you would characterise the past week on the markets.

WAYNE McCURRIE: Well, look, the past week has actually been a reasonably good market, but certainly the job numbers out of the US today were superb. They were incredibly strong. And the last set of figures were also revised upwards quite strongly – so immediately a strong US dollar, weaker rand by about 10 or 11c. But of course it is good news that that the US economy is growing strongly but that also brings the possibility of higher interest rates in America closer. They were really, really good job numbers.

SIKI MGABADELI: So let’s talk a little bit about those numbers. As you say very, very strong. We’ve needed at least one champion in the global economy, seeing what we are seeing in other major economies around the globe. But we can’t run the global economy on just one wheel, can we?

WAYNE McCURRIE: No, but it’s certainly better than running it on no wheels. Look, the US economy is fine. China – the growth rate is slowing down, so the real swing economic region is Europe. Will these stimulus packages work? By and large I think they will, because Europe’s economy is driven essentially on exports. So a weak euro certainly helps those exports quite dramatically. I think there will be some sort of recovery in Europe. I don’t think the Greek thing is a be-all and end-all thing that’s going to cause the euro to collapse or the European economy to collapse. The big thing will be: is there a demand for European exports?
   And by and large China is doing OK, the US is doing better, so they should be all right.

SIKI MGABADELI: US companies of course are quite concerned about the strength that we’ve seen in the dollar. So far, if you look at the corporate earnings, they have beaten analysts’ expectations. But there are concerns that the dollar is getting too strong.

WAYNE McCURRIE: Ja. It is actually a bit of a concern, but a lot of US companies – even though obviously they have huge overseas interests – a lot of their companies earn the majority of their money from local businesses. So a stronger US economy clearly is better for them. But the US stock market is not massively overvalued, so there is no real reason to be concerned about the US stock markets, specifically given the fact that bond rates have fallen so much, both in America but specifically in Europe.
   So I don’t think investors are going to start panicking quite yet about the possibility of higher interest rates.

SIKI MGABADELI: It’s been a rather choppy week for the rand. We had some gains – I think at one point it R11.36/dollar earlier in the week with the global risk appetite seeming to come into play today at around R11.48. What’s gong on with the rand?

WAYNE McCURRIE: Look, the rand is starting to benefit at long last from all the money flowing in from Europe, specifically into our bond market, also into our listed property and listed equity. So the rand has strengthened. I think we got to R11.30 at one stage yesterday, but the job numbers in the US and the strong dollar put a quick end to it. So the rand reversed or, more correctly, the dollar strengthened immediately when those numbers came out and we saw the opposite, a weakness in the rand. Everyone obviously measures the rand most of the time against the US dollar.
   But when you compare the rand against the euro, actually the euro has done worse against the dollar than the rand has. So this is more of a dollar strength story than rand weakness. Of course, all the reasons why we should have a weak rand don’t help our currency, but it’s just in fact dollar strength.

SIKI MGABADELI: And finally we’ve had a raft of trading updates from companies. Obviously our reporting season is creeping closer and closer. We’ve got all the gold majors coming next week. So far, when you’ve looked at the trading updates, what have you thought about the state of South Africa Incorporated – just the private sector?

WAYNE McCURRIE: Trading There may be one or two smaller companies, but nothing’s been massively disappointing. Generally I thought the retailers coming up with trading updates I think didn’t measure up to what the share prices were anticipating. But that doesn’t seem to matter any more – what valuations are. As long as free money is flowing out of Europe it’s got to find a home in our retailers and in our bond market. So I think the retailers’ updates, while they weren’t bad, certainly I don’t think justified where the share prices currently are.
   We saw a trading update out of Curro today. Now, that was quite an interesting one because this is at a 200+ price/earnings ratio. So it was expecting phenomenal earnings growth. The earnings were up 30%, but to me that’s not good enough for the price that the market has put on it. So we saw a bit of weakness there.
   Sasol on the other hand – remember, the results that Sasol has just come out with only include part of a very, very low oil price. But, even having said that, the results beat what the market was expecting. So we saw a strong rally in the Sasol share price. And of course Sasol has come up from below R400. So it has had a very strong run in the last while.

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