Few bright lights on otherwise dismal stock markets

By Edward West Time of article published Apr 6, 2020

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CAPE TOWN - The first quarter of 2020 will be remembered as one of the worst in the history of global markets, as the spread of the Covid-19 virus caused the world to head into recession.

The S&P 500 index in the US was down 23percent over the three months, the Dow Jones Industrial Index ended March 26percent lower and the Nasdaq ended the three months 15percent down compared with the start of the year. Market volatility remains unprecedented.

The JSE did not escape the sell-off and the JSE FTSE All Share Index-level of 41150.27 points on Friday morning had declined by 23.3percent over a year.

But for the really adventurous individual investors, and for those who buy and sell shares as their job, there were a few bright lights last week in an otherwise uncertain and volatile stock market environment.

One surprise, which was not an April Fool's Day joke, was British American Tobacco (BAT) announcing that it was developing a potential vaccine for the Covid-19 virus, using proteins extracted from tobacco leaves and production of 1million to 3million doses per week could start in June, on a not-for-profit basis.

BAT is working with the US Food and Drug Administration on the next steps and also with the UK health authorities to bring its vaccine to clinical studies, as soon as possible.

On Friday, BAT was one of the top shares traded by value, rising 0.32percent to R676.45 in the morning. This brought its gain over a week to more than 22percent.

Another share gaining while most other shares were falling on the JSE on Friday morning was AngloGold Ashanti, which was up 1.32percent higher at R334.57.

The dollar gold price held its own through the first quarter rising 4.8percent, true to its history of being a safe haven investment in tough times, and this is also reflected in the flattish one-year trend line of AngloGold’s share price, in spite of the increased volatility in March. And yes, the trend is up over a three-year price chart.

AngloGold, which mines on four continents, nearly doubled its free cash flow in 2019 to $127million (R2.4billion) last year, raised its dividend 74percent to R1.65, improved leverage to below its target level and met guidance for seven years in a row.

The share price of Mediclinic also climbed on Friday morning, increasing 2.7percent to R59.31. The private hospital group’s price was slightly down from R61.73 a week ago, but well down from more than R76 per share in early January. Its earnings outlook from its hospitals and clinics in South Africa, Namibia, Switzerland and the UK has remained unchanged. It’s price: earnings ratio of 9.86 looks reasonable, with scope for growth.

Africa’s biggest retailer Shoprite was up 1.2percent to R124.34 on Friday afternoon, bringing the share little changed from the R120.86 that it was trading at a week ago.

Shoprite is interesting because while its stores remain open in South Africa through the lockdown, its sales are likely to nevertheless be heavily impacted over the next few months by the predictions of many economists that South Africa’s gross domestic product will remain in negative territory by year end.

It is difficult to predict the consumer market after the national lockdown, but some shopping centre owners have predicted a slow resumption of consumer spending to previous levels.

Shoprite is also reviewing its operations outside South Africa and limiting expansion after its non-South African supermarkets’ trading profit slipped 62.3percent to R58m in the half-year to the end of December, due to currency devaluations in other African countries and challenging trading conditions.

Its * :e was round 16.5 on Friday, which seems pricey. But given the volatility of the price in the past few weeks, individual investors are not likely to have to wait too long before being able to snap up the shares at a lower price.

Also among the top gainers on the JSE on Friday was Kumba Iron Ore. Its share price was up more than 6percent to R316.59 at midday, bringing its gain to more than 12percent over a week. It has about 50percent of staff operational through the national lockdown, and exports are continuing.

China, the biggest global consumer of iron ore, is firing up its economy again after a hiatus from their Covid-19 virus outbreak.

Iron ore prices have also held relatively firm this year due to lower supply from Australia, Brazil and China.

My problem is the demand outlook. Steel is principally used for cars, trucks, trains, planes, buildings and machinery, and from where I am sitting, there seems an awful lot of spare capacity at present.


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