JSEDirect with Simon Brown

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.

Simon Brown

* I hold ungeared positions.

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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.

Simon Brown

* I hold ungeared positions.

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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.

Simon Brown

* I hold ungeared positions.

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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 100, P/E
• 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.

Simon Brown

* I hold ungeared positions.

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Presidential Vision for Infrastructure Development:

The South African President's recent speech emphasised making the country a hub of construction and infrastructure development. The potential for public-private partnerships and the types of infrastructure that might be developed, including roads, energy transmission, and public buildings.

Stocks That Could Benefit:

• Construction Stocks: A detailed look at various construction-related companies and their potential to benefit from the President's infrastructure plans.
• PPC: Potential benefits from increased construction activity.
• Murray & Roberts: Despite historical losses, they have a division in infrastructure and renewable power that might benefit.
• Stefanutti Stocks: Focus on their claim against Eskom, which is crucial for their future.
• Wilson Bayly Holmes (WBHO): Expected growth, though a significant portion of their revenue comes from Australia.
• Raubex: Strong performance and solid management, with significant involvement in road construction through Sanral.
• Afrimat: Supplier of construction materials, benefiting from Sanral and Transnet orders.
• Reunert: Involvement in industrial cabling and commercial battery storage, critical for new power facilities.

Market Insights:

• Mr Price* Update: Gaining market share and performing well post-elections and during a late-arriving winter.
• Sasol Production Update: Management's effective handling of controllable factors and slight improvements in Transnet's performance.
• Kumba Iron Ore: Confirmation of slight improvements in Transnet, echoing Sasol's observations.

JSE Listed Construction Stocks | 1 year return | close 23 July 2024

International Market Movements:

• CrowdStrike* Incident: A significant security update issue affected numerous systems, impacting the stock but not signalling an end for the company.
• US Small Cap Stocks: Rotation into small caps like those in the Russell 2000 index, offering a cheaper alternative to large-cap tech stocks.

Simon Brown wraps up the episode by emphasizing the importance of infrastructure development for South Africa's economy and reiterates his top stock picks to benefit from potential future construction projects: Raubex, Afrimat, and Reunert. He also touches on the potential 3% GDP growth for 2025 and the broader market implications.

Simon Brown

* I hold ungeared positions.

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SA GDP Growth Prospects

• IMF's projection: 0.9% GDP for South Africa this year.
• Potential factors for growth next year:
• Reduced load shedding could add 1% to GDP.
• Two-pot system introduction, expected to inject around 40 billion rand into the economy.
• Potential rate cuts: half a percent by the end of the year, possibly 1% by mid-next year.
• Inflation targeting at 4.5%.
• Optimistic outlook with a 60-70% probability of achieving 3% GDP in 2025.

South Africa GDP

Delistings and Market Movements

• Bell and Sasfin delisting announcements.
• Other potential delisting candidates in the small-cap space.
• Importance of constructing a portfolio that can benefit from economic growth and potential takeouts.

Bell weekly chart

Pick n Pay Rights Issue

• Explanation of the rights issue and its implications.
• Instructions for shareholders on handling nil paid letters.
• Simon's perspective on waiting for dust to settle before considering Pick n Pay shares.

Today is the last day to trade before Pick n Pay rights issue kicks in. ° If you hold at close tonight you will receive 51.11 rights per 100 PIK shares, code will be PIKN ° You can sell then in market ° Or pay 1596c per each to get a new PIK share ° HAVE to do so by 30 July

— Simon Brown (@SimonPB) July 16, 2024

Property Stocks and Income ETFs

• Analysis of South African property stocks and their recent performance.
• Attractive yields in local and international income ETFs.
• Recommendation to explore defensive income stocks and ETFs for potential investments.
• Find local ETFs here.

Interest Rate Outlook

• MPC and FOMC meetings' impact on interest rates.
• Simon's forecast on rate cuts in South Africa and the US.

Simon Brown

* I hold ungeared positions.

Load Shedding Update

• Milestone: 100 days of no load shedding by Friday.
• Factors: New capacity online, Kusile unit 5 (800 MW), upcoming additions from Medupi and Koeberg.

Impact:

• Reduced GDP loss (previously 1.8% of GDP due to load shedding).
• Positive effect on inflation and economic stability.

Winners:

• Retailers: Shoprite*, Pick n Pay, Spar (less expenditure on diesel).
• Manufacturers: Invicta, Hudaco (benefit from increased customer stability).
• Real Estate: REITs with shopping centers, reduced generator use.

Interest Rates

• Jerome Powell's Speech: Potential for a single rate cut in November.
• Impact on Markets: Minimal immediate impact, with expectations already priced in.
• Local MPC Meetings: Predictions for rate changes on 19 September and 21 November.

Market Insights

• Mr Price*: Ex-dividend yet the stock price increased, indicating strong sector performance.

Tesla Analysis

• Market Share: Decline in second-quarter sales but maintains a significant market share (~50%).

Challenges:

• Increased competition from other EV manufacturers.
• Need for cheaper models.
• Significant share dilution over the years.
• Stock Performance: Historical highs and current rebound to 231.
• Future Prospects: Continued relevance in the EV market despite competition.

[caption id="attachment_42560" align="aligncenter" width="849"] Tesla weekly chart | 02 July 2024[/caption]

SARS Tax-Free Changes

• Impact: Minor changes affecting pro rata contributions for part-year taxpayers.

RSA Retail Savings Bonds

• Rate Change: Significant drop in 5-year bond rate from 11.5% to 10.5%.
• Action Required: Reset by the 20th for current holders. The form is here.

Simon Brown

* I hold ungeared positions.

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Key Takeaways

• MultiChoice Trading Opportunity: Potential for profit if the Canal+ deal goes through, despite current low stock prices.
• Futures Trading: Importance of understanding margin, liquidity, and strategy when trading ALSI and ALMI futures.
• Market Conditions: Current cheap valuation of SA Inc stocks presents opportunities, pending political stability and cabinet announcements.

MultiChoice Mis-pricing:

• Discussion on the 125 Rand mandatory offer from Canal+ for MultiChoice.
• Current stock trading at 102 Rand due to poor financial results.
• Analysis of Canal+'s offer document, potential deal completion, and possible trading opportunities.

Index Futures - ALSI and ALMI:

• Detailed overview of trading ALSI (All Share Index) and ALMI (All Share Index Mini) futures.
• Explanation of points trading, margin requirements, and contract specifics.
• Tips on trading strategies, including liquidity considerations and handling overnight gaps.
• Trading as a side hustle, watch the video.

Market and Stock Updates:

• Cabinet Announcement Awaited: Market reactions and fluctuations in the Rand.
• Individual Stocks: Analysis of Mr. Price*, Foschini Group*, Nedbank, Spur, and CMH*.
• Banking Sector: Observations on price to book ratios and the overall market valuation of SA Inc stocks.

Simon Brown

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* I hold ungeared positions.

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Face-Ripping Rally on the JSE:

• Surge attributed to the formation of a coalition government involving ANC, DA, and IFP.
• Top 40 index rose 3.5%, a significant increase not seen since February 2018.
• The rally, likened to the start of a marathon, suggests potential long-term growth, despite possible volatility.

RAND and Resource Stocks:

• RAND trading under 18, affecting resources positively.
• Potential for RAND to strengthen further, possibly reaching 17.

Coalition Government and Market Impacts:

• The coalition's stability is uncertain but critical for long-term market confidence.
• JP Morgan upgraded South Africa from underweight to overweight, signaling positive outlooks.

SA Inc Stocks and ETFs:

• Retailers like Shoprite*, Mr. Price*, Foschini Group*, and Truworths hitting 52-week highs.
• ETFs for local investors, focusing on SA Inc..
• Recommendations include avoiding heavy Rand Hedge dual-listed miners in a strong RAND environment.

RSA Retail Savings Bonds:

• Interest rates for RSA Retail Savings Bonds to drop in July.
• Current rates: 11.5% for a 5-year bond, expected to decrease to 10.75%.
• Opportunity to reset bonds before the rate change on the 20th of the month.

Inflation and Interest Rates:

• Local CPI stable at 5.2%, within the target band but aiming for 4.5%.
• US FOMC holds rates steady, hinting at a possible future rate cut.
• Prospects for lower local interest rates and their impact on retail stocks and disposable income.

Market Opportunities:

• Interest in retailers and brokers like Purple Group* and PSG Konsult, considering the potential increase in disposable income and trading volumes.
• Positive long-term outlook, but caution against immediate full investment.

Simon Brown

* I hold ungeared positions.