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Markets this week: Sell MTN – Goldman Sachs

Looking back: Kumba Iron Ore, Anglo Platinum and Impala Platinum make a reappearance on the top decliner’s list.

The prospect of rising rates in the US continued to cause tremors in global markets as Federal Reserve members took turns in addressing the public over the last week on the issue of monetary policy.

While Fed vice chairman, Stanley Fischer, indicated that the hike in the interest rates nearing zero would probably be warranted before the end of 2015, James Bullard (Fed policy maker) indicated that the Federal Reserve should start raising interest rates sooner rather than later in light of improving unemployment and economic growth.

Federal Reserve chairperson, Janet Yellen, soothed the expectation of what now appears to now be an imminent rate hike in 2015, by the frequent use of the word “gradual”. The “gradual” reference relates to a conservative progression of monetary tightening and looks to have replaced the previously frequented word “patience”, which alluded to a postponed timeline relating to the tightening of rates.

Local catalysts

Following on from the current low inflationary environment (CPI data at 3.9% y/y and PPI data at 2.6% y/y) the South African Reserve Bank (Sarb) left lending rates unchanged at the Monetary Policy Committee (MPC) meeting. The Sarb governor reiterated that the low level of economic growth within the country further aided the decision not to tighten lending rates, although the reserve bank remains paused at the beginning of the tightening cycle.

Movers

Locally listed shares fell victim to broad-based market weakness in line with global market weakness following on from the aforementioned comments from the Federal Reserve as well as fears relating to conflict in the Middle East as Saudi Arabia started bombing Yemen rebels.

Top decliners

The initial decline on the MTN Group’s share price could be attributed to the share price adjusting for a healthy R8 dividend last week, although weakness persisted throughout the week in the absence of any new news. Political uncertainty and the threat of Boko Haram interfering with the election process in Nigeria perhaps hampered sentiment for businesses (such as MTN) operating in an already stressed Nigerian economy. The new week sees Goldman Sachs recommend a sell on the share as currency risk in Nigeria combined with “regulatory pressure” and “licence renewal risk” leads the investment firm to suggest a price target of R188 for the company’s share price.

The decliner’s lists also finds the reappearance of mining shares Kumba Iron Ore, Anglo Platinum and Impala Platinum. In the wake of depressed commodity prices these shares have exaggerated declines and ranked among some of the worst performing blue chip counters in our domestic equity market over the last year.

Movers n shakers

Top gainers

Steinhoff International is the only “blue chip” counter to have posted a meaningful gain (in the absence of news relative) over the course of the last trading week. The market awaits a timeline relative to when the share will list on the Frankfurt stock exchange.

This week

A buoyant start to the new week would suggest that markets have started to adjust to the nearing of rising interest rates out of the world’s largest economy, although Friday’s US employment data will provide clues as to the extent of the adjustment.

In light of the ECB’s measures, to try stimulate inflation and growth within the euro area, the eurozone’s Flash CPI estimate will also be closely monitored mid-week.

* Graph sourced from IG Insight

** Shaun Murison is a market analyst at IG. Follow him on Twitter: @ShaunMurison_IG

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