ARTICLES

R186 Long Bond

Sometimes things happen in the markets which cause you to ask the question,

"What can they see that I can't see?"

The progress of the yield on South Africa's long bonds is like that.

South Africa has just been downgraded by both Moodys and Standard & Poors. We are officially at junk status - so you would think that our government debt instruments would be out of favour among international investors. Here in South Africa everything seems so bad. There is hardly any good news and investors are almost universally negative.

And yet the yield on our long bonds continues to fall.

The yield on a bond moves inversely to the price of the bond. Bonds have a fixed "coupon" on interest rate - so when the price of the bond goes up the effective yield on it falls. Our long bonds are sought after by international investors because they offer a real return - in other words, the yield is higher than our domestic inflation rate. In South Africa the yield on our bonds was as much as 13% at the height of the COVID19 panic and our inflation rate was around 4% giving investors a real return of as much as 9%.

So when overseas investors like what we are doing they buy our bonds and push the effective yield down. Their perceptions are impacted by how they see our political leadership and management.

And overseas investors have been piling in - pushing the effective yield on the R186 bond down to as little as 7,65% - amazingly, that is lower than it was before the start of COVID19 - consider the chart:

You can see here that prior to COVID19, the effective yield on the R186 had been falling gradually and steadily as overseas investors gained confidence in what President Ramaphosa was doing on many fronts. Then the yield spiked up as "risk-off" sentiment caused investors to flee into safe haven investments like gold and US Treasury bills. Then, as many countries began to relax their lockdowns, the mood changed and the hunt was on for real return. The yield fell heavily as investors gained confidence in Ramaphosa and saw how effectively South Africa was handling the pandemic.

Sometimes it is difficult for South Africans to see anything except "doom and gloom" - but clearly overseas investors see our situation quite differently. They are obviously really beginning to appreciate the strong leadership displayed by Ramaphosa over the crisis - something which has been notably absent from other first world countries, especially America.

So, here is a glimmer of hope amid all the negativity.  

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

Bell Equipment

We are often asked what prompts us to add a share to the Winning Shares List. The answer is that it is a variety of factors – but usually because the share appears to be very cheap in relation to its fundamentals. In other words, we expect it to be upwardly re-rated as its fundamental value becomes recognised by the institutional fund managers. A

JSE All Time Record High

On Friday last week, the 12th of July 2024, the JSE Overall index closed at 81686 – an all-time record high. Consider the chart:

The chart shows that the Overall

Construction

The entire construction industry was decimated by the 2008 sub-prime crisis, the ANC under Jaco Zuma’s presidency and then finally by the pandemic in 2020. Hundreds of thousands of jobs were lost and massive companies like M&R were reduced to penny stocks on the JSE.

The JSE Construction and Materials Index (JS5011)

Murray & Roberts

A company’s debt is critical in establishing the risk inherent when investing in its shares. High debt levels expose the company to high interest and capital payments and can swallow up a large part of whatever profits it makes. Low debt levels give the company the headroom to invest in further growth either organically

Mr Price

Mr Price is a well-known and focused retailer of clothing in South Africa. It is a quintessentially South African company, and its performance is a direct reflection of the state of the economy and the level of consumer spending. It is an extremely well-managed company in a very tough and competitive market. Clothing is sold by many dedicated outlets in South Africa and almost

Uncertainty = Risk = Volatility

We live in uncertain times. Among the sources of this uncertainty are the final outcome of the recent local elections (i.e. what the shape of our future government will take) and the prospect of the American elections on 5^th November 2024. In the background are the wars in Ukraine and the Middle East which constantly threaten to escalate.

The uncertainty

Winning Shares List

Investment in the share market is not about certainties – it is about probabilities.

Success comes from bending the odds in your favour, so that it becomes like playing a roulette table where you have a 60% or 70% chance of winning.

That, of course, means that you must fully expect to lose 30% or

Wall Street and the Rand

As South Africa edges closer to election day, the ANC has been desperately doing everything in its power to pass populist measures to bolster its waning support, especially with the country’s lower income groups. This includes the signing of the highly controversial National Health Insurance (NHI) bill into law by President Ramaphosa.

There

Pan African Resources

In our opinion, the gold price in US dollars should continue to perform well for the rest of 2024 with the potential for rising inflation and increasing political instability in various parts of the world. The upward trend will, of course, be marked by corrections, but the overall direction of the trend is clear. Consider the chart:

Market Overview

This week, the US Federal Reserve Bank’s monetary policy committee (MPC) held interest rates unchanged at their historically high levels and said that they intended to hold rates at these high levels for longer than previously expected. This information was followed by the April 2024 non-farm job creation number which came in at 175 000 – considerably