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SA waits for Fitch’s ratings update: David Shapiro – Sasfin

Why the rand is weak is that there’s a barrage of foreign selling’.

SIKI MGABADELI: Let’s check the markets now. A down day. Losses seem to be across the board. The all-share down 0.66% at 51 850 points. The Top 40 also down 0.63% today. The rand at R12.27/dollar, R18.81/pound, and R13.83/euro. Gold is at $1 190.05/oz, platinum at $1 102.75/oz, and Brent crude oil at $65.33/barrel.
    David Shapiro is with Sasfin and joins us now. David, losses across the board. I should stay in town more often.

DAVID SHAPIRO: I wish you could prevent it. I think you’ve got to do a lot of talking down there in Cape Town. Ski, do you know where the answer lies? If you look at that rand at R12.27, the euro is actually improving dramatically or significantly against the dollar – that’s after Draghi’s talk today at the ECB meeting, where he said that inflation and growth are going to continue and also he promises to see through his monetary stimulus programme.
    So the market responded very positively to that. So the euro goes up and usually when the euro improves against the dollar, so does the rand. But why the rand is weak is that there’s a barrage of foreign selling. We see it ease at times, like yesterday it eased and the market recovered, but we are still seeing this persistent move out of the South African market by foreigners. Now that’s associated with foreigners simply because the rand is pretty weak against the backdrop that I’ve painted. We are just going to have to sustain it.
    And we’ve seen quite big losses – we’ve seen big losses in property stocks, companies like Redefine, Redefine down almost 20% from its all-time peak, Capitec, PSG, and so on. We are seeing it in the retailers – Mr Price continued to fall again. Aspen has been under a lot of pressure – and so on. So this move out of the market is making us underperform the rest of the world. Europe was strong today, the US is strong today; we were weak.

SIKI MGABADELI: And of course globally we are waiting for those employment figures out of the US – non-farm payrolls and employment data.

DAVID SHAPIRO: They come out on Friday. The market is forecasting round about 220 000-odd. I know that the analysts would love 250 000, but a steady 220 000 is eventually going to take away any over-capacity and should start to push up wage levels there, wage rates. And I think Yellen has been waiting before they start to raise rates and so on. But I think incomes are increasing there, which means that even though they haven’t started to spend, people are earning more money, their savings are going [up], and looking at the motor sales yesterday in the US it’s just a matter of time before they spend.

SIKI MGABADELI: We are also waiting for Fitch, for their ratings update. I don’t think they are going to move but are we worried at all about that?

DAVID SHAPIRO: I don’t think the market is worried. Yesterday we saw bond rates kick up globally and we also kicked up with that and our 10-year rate I think went up to about 8.30% from about 8.26% or thereabouts. So we are not moving out of line with bond yields in the rest of the world. I think the news is that they will maintain probably a negative outlook, but they won’t downgrade our debt.

SIKI MGABADELI: For our market, then, for this week do you expect this weakness to continue? What could be a catalyst for buyers coming back?

DAVID SHAPIRO: I suppose we’ve got to wait for the orders to exhaust themselves. When foreigners decide to get out – and these are all assumptions because I don’t handle them and I haven’t got the actual orders, I can just try and put things together – if they are going to get out, they do it at fast speed. They don’t finesse the orders. So maybe it’s one particular seller or one particular fund, and you’ve just got to wait for them to exhaust the selling – and then I think bargain-hunters will come out. It’s starting to look a lot a lot more attractive. If you look at companies like Aspen, if you start to look at some of the retailers, they are not as expensive as they were; certainly some of the banks as well. So I would imagine that locals are waiting, just holding back, waiting for the market to settle before they start to pick up stock.

SIKI MGABADELI: Were there any positive points in the market, like any shares that bucked that trend?

DAVID SHAPIRO: Of course. There are always stocks that buck the trend. Platinum shares were strong. I see Kumba reversed its trend, it was stronger. Anglo American was stronger. I can’t remember which industrials picked up. Whenever I looked at my screen I did see a whole lot of green there, but I haven’t got the exact stocks that were up today.

SIKI MGABADELI: Thanks, David.

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