Episode Summary:
In this episode of JSE Direct, Simon Brown delves into the impact of anticipated interest rate cuts and how they may affect various sectors and stocks. He shares his thoughts on potential beneficiaries like consumer stocks, REITs, and companies with high levels of debt. The episode also covers key updates on Nvidia's earnings, Nike's stock valuation, and a new ETF listing by ETFSA.
Interest Rate Cuts and Market Impact:
- Jerome Powell's Jackson Hole Speech: The anticipation of rate cuts as early as September, with an expected reduction of around 75 basis points by the end of the year.
- Benefiting Sectors: Companies with significant debt, consumer stocks (Mr Price, Foschini, Shoprite), and REITs are likely to benefit from lower interest rates.
- Sector-Specific Insights:
- REITs: Discusses the potential for real estate investment trusts like Storage, Spear, and the concerns around office spaces with high vacancy rates.
- Consumer Stocks: Simon reiterates his positive outlook on consumer-focused companies and the strong performance of used and new car sales, highlighting stocks like CMH and Motus.
Stock Analysis:
- Nvidia: With results due, Simon highlights the market's expectations and the potential for significant movement based on the earnings report.
Nvidia | Close 27 aug 24 | Weekly chart- Nike: Simon discusses Nike’s current valuation, seeing it as a strong buy at its multi-decade support levels, despite its challenges.
Nike | Close 27 aug 24 | Weekly chart
ETF Updates:
- ETFSA's New Actively Managed ETF: Introduction of the Balanced Foundation ETF, which is actively managed due to the lack of a specific index and includes a mix of local and foreign equities, bonds, and property.
- Satrix Nasdaq ETF: The transition from a feeder fund to a standard fund, reducing total expense ratios and offering cost benefits to investors.
Housekeeping:
- No Show Next Week: Simon will be on vacation and the podcast will resume on 12 September.
- Money Summit: Scheduled for 10 September in Johannesburg with free tickets available using the code "MONEYWEBGEST" at MoneySummit.co.za.
ETFSA is listing an Actively Managed ETF, The ETFSA Balanced Foundation Prescient AMETF (JSE code: ETFSAB).
Simon spoke with Gareth Stobie from ETFSA about the ETF, the listing process, where it fits in a portfolio and what it will be holding.
- IPO opens: 26 August 2024
- Listing date: 02 September 2024
- JSE code: ETFSAB
- TER: 0.52%
ETFSAB
In this landmark 600th episode of JSE Direct, Simon Brown reflects on the podcast's journey from its beginnings as a radio show in 2008 to becoming a leading podcast for market insights. The episode covers a range of topics, from South Africa's local CPI and a strengthening Rand to the surprising twists in the gold market and a mixed bag of corporate earnings.
Local Inflation Data:
South Africa's CPI has come in better than expected at 4.6%, fueling speculation on whether the next rate cut by the MPC might be more aggressive than anticipated.
South Africa CPI | July 2024
Rand Strengthens:
The Rand has shown significant strength, dropping below 18 to the dollar, with Simon analyzing the contributing factors, including foreign investment in bonds and a weakening US dollar.
Bull Market Sentiment:
Simon reaffirms the current bull market, highlighting the JSE's all-time highs and advising listeners to stay invested while cautioning against the risks of sitting on the sidelines.
Top40 20 August 2024 | Weekly chart
Gold Market Rally:
Gold prices have surged above $2,500, driven by central banks' increased purchases and concerns about the US dollar's stability. Simon discusses the potential for further gains in the gold market.
Corporate Earnings Recap:
- Coronation Fund Managers: Special dividend announced but falls short of expectations.
- CMH*: Despite low liquidity, the stock continues to climb, reflecting the breadth of the bull market.
- Sasol: Disappointing results with no dividend payout, a situation Simon had previously predicted.
- Spur Corporation: Strong earnings, signaling improving economic conditions.
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Sasol's Struggles:
Simon revisits Sasol's recent production and trading updates. Despite some positive news, the company's financials remain grim due to significant write-downs and a challenging pricing environment, especially in the chemical complex. With a forward PE ratio hovering around 3, Simon questions the actual value in Sasol and advises caution, emphasising the importance of waiting for a stock to show signs of recovery before investing.
Sasol weekly chart | 13 August 2024
ADvTech's* Solid Performance:
Simon provides insights into ADvTech's latest trading update. Despite a voluntary update (not mandated by a 20% variance), the company shows strong growth in earnings per share. He discusses the stock's valuation, historical performance, and why he remains optimistic about its future prospects, even as it trades at a PE ratio of around 15.
ADvTech weekly chart | 13 August 2024
Combined Motor Holdings* (CMH):
Simon shares his thoughts on CMH, a stock he has held for years. Despite a stagnant price movement over the past three years, the stock offers a solid dividend yield. He discusses the broader consumer environment, the potential impact of reduced interest rates, and why he continues to favour CMH over competitors like Motus.
CMH weekly chart | 13 August 2024
Renegen's* Milestone:
After a year and a half of delays, Renergen finally starts producing helium. While the stock has seen a recent uptick, Simon highlights the challenges that still lie ahead, including scaling up production and the company's upcoming NASDAQ listing. He also reflects on the broader sentiment in the junior mining sector.
Coronation's Active ETFs:
Coronation has launched six actively managed ETFs on the JSE, a significant development in the local ETF market. Simon explains the concept of actively managed ETFs and why this move could be a game-changer for both Coronation and the JSE, even if he personally isn't planning to invest in them. Find details here.
US Inflation Update:
The latest US CPI data shows a slight decrease to 2.9% for July, but core inflation remains elevated. Simon discusses the implications for future interest rate cuts by the Federal Reserve and the potential impact on South African monetary policy.
Tribute to Brett Duncan:
Simon pays tribute to Brett Duncan, a former stockbroker and warrants market leader at Standard Bank, who recently passed away. Brett was a key figure in Simon's early career and played a significant role in the South African warrants market. His passing is a significant loss.
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Apple's Financial Performance and Buffett's Decision:
- Apple's recent financial results showed steady revenue growth across various segments including iPhone, MacBooks, and iPads.
- Warren Buffett's Berkshire Hathaway reduced its stake in Apple by half, sparking market speculation.
- The implications of Apple's valuation and Buffett's strategy in maintaining a significant yet reduced position in Apple were discussed.
Market Movements in Japan:
- The dramatic drop in Japan's Nikkei 225 index, which fell nearly 27% from its recent highs, was analyzed.
- Possible reasons behind the sell-off included the unwinding of the Japanese carry trade and broader market concerns about global economic stability.
- The role of low liquidity in exacerbating the market decline was highlighted.
Nikkei 225
Nedbank's Financial Results:
- Nedbank reported solid financial results with HEP's up 11% and a near 15% return on equity.
- Improvements in impairments and concerns over the cost-to-income ratio were noted.
- The banking index's performance and its implications for Nedbank's stock were discussed.
Anglogold Ashanti's* Performance:
- Anglogold Ashanti's strong production and profitability metrics were reviewed.
- The importance of holding gold miners and gold ETFs in the current market environment was emphasized.
Launch of Ethereum ETFs:
- The approval of Ethereum ETFs by the US SEC was announced, with eight new ETFs available for trading in New York.
- The differences between Ethereum's proof-of-stake blockchain and Bitcoin's proof-of-work blockchain were explained.
- Potential implications for investors and the broader crypto market were discussed.
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Jerome Powell's Statement:
- Rates left unchanged in the US.
- Possible rate cuts on the table for September.
- US MPC meeting on 19 September.
- Data needed: improving inflation and higher unemployment.
Oil and Gold Market Update:
- Brent Crude:
- Under pressure, signaling weak global demand.
- Lower highs trend since June 2022.
- Support at $72.50 and resistance around $88.
-
Brent Oil | 01 August 2024 - Gold:
- Trading near all-time highs.
- Strong central bank buying.
- Uncertain targets, but bullish sentiment persists.
Gold | 01 August 2024
Potential JSE Delistings:
- Criteria: Dividend yield > 0, market cap < 5 billion ZAR, NAV price > 100, P/E < 10, and profitable.
- Initial search yielded 53 stocks, refined criteria (dividend yield > 5%) narrowed it down to 25.
- Top candidates: African Media Entertainment, Argent, Combined Motor Holdings*, eMedia, Frontier Transport, Home Choice, Mustek, PrimeServe, Transpaco.
Shoprite*:
- Trading at all-time highs.
- 12% revenue increase, 6.3% like-for-like growth, 5.8% inflation.
- Successful new store formats (PetScience, Checkers Outdoor, UNIQ Clothing, Little Me).
Woolies:
- Disappointing trading statement.
- Comparable store sales up 6.9%, inflation at 7%, volume decline.
- Heps down 14-19%, market expectation miss.
RSA Retail Bonds Update:
- New Rates: Two-year at 8.75%, three-year at 9%, five-year at 10.25%.
- Rates have been declining since June.
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