ARTICLES

Rand Recovery

The rand is arguably one of the most volatile and difficult currencies to predict. It is very liquid and is the preferred emerging market currency of international currency speculators. It has become a ping-pong ball which reflects the spasmodic shifts between “risk-on” and “risk-off” sentiment on the world stage.

If international investors get scared, then the rand falls – and quickly – as they withdraw their funds from here and buy long-dated US treasury bills. And then it rallies gradually as panic fades and awareness grows of our low inflation rate, relatively stable and high real interest rates.

Last Thursday (11-6-20) Wall Street had a momentary panic attack which drove the S&P down 5,9% in a single day. This panic was caused by a sudden renewed fear of a “second wave” of the coronavirus pandemic and concerns that the recovery in the US would not be as rapid as previously hoped.

The rand, which had been strengthening steadily to that point, responded by immediately collapsing from around R16.43 to the US dollar to R17.30. It lost over 5% in just two hours. Then, as the panic in the US subsided, it stabilised and began to claw its way back. Consider the chart:

(Chart by Dynamic Outcomes: https://www.forexforecasts.co.za/resources/live-charts/)

That panic may not yet be over and there may be further downside both in the S&P and the rand, but it shows clearly how the rand is a sensitive and volatile barometer of international sentiment.

What seems undeniable to us, however, is that the rand is fundamentally under-valued on world markets and that it is steadily strengthening over the longer term. While there can be little doubt that the economy’s situation is parlous from a local perspective, everything is relative and overseas investors tend to see us as a better investment opportunity than other emerging economies such as Brazil, Turkey or Russia. Consider the chart:

Here you can see the upside breakout above the R15.50 support level in late February 2020 and the sharp impact on the rand as international sentiment, faced with COVID19, moved rapidly to “risk-off”. This was followed by a “double top” in April 2020 and then a fairly quick recovery – which is still on-going.

We see the rand as exposed to periodic waves of “risk-off” sentiment, but as continuing to strengthen over the medium term. This perception should inform your decisions on rand hedge shares as you look forward to next year and the inevitable recovery of the world economy. The simple fact is that international investors will always be flighty – but they always are drawn to real rates of return on our long bonds and so, as soon as any panic is over, they return here in their droves.

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