Time to buy Capitec?
19 June 2023 By PDSNETThe S&P500 index is my benchmark for the stock markets of the world including the JSE. When it is rising consistently, as it now appears to be, then experience tells me that the other markets of the world will follow. The fundamentals of the US economy still appear shaky to me because of the impending recession and rising interest rates. The Federal Reserve Bank’s monetary policy committee (MPC) paused in its hiking cycle this month but spoke of the potential for two more twenty-five basis point hikes - meaning that it intends to continue tightening. Despite this, the progress of the S&P500 is telling us that corporate profits will be strong, perhaps because of the impact of artificial intelligence or some other factor which has yet to become clear.
Notably, the rand, which is usually quite a good indicator of the state of international investor sentiment, has turned strongly positive since 1st June 2023. Sentiment appears to have switched from risk-off to risk-on resulting in a flow of overseas funds into our beleaguered, but heavily over-sold economy. In the last 18 days, the rand has strengthened from R19.76 to the US dollar to its current level of R18,24 – a gain of 7,7%. Consider the chart:
So, in this situation, as a private investor, you can be cautious and stay on the sidelines, or you can begin to nibble at those quality shares which you think are over-sold.
One of the high-quality shares which has been sold off most heavily during this bear trend is Capitec. It has fallen from R2373,48 on 4th April 2022 to a low of R1350 on 31st May 2023. It has started rising as international sentiment improved, but it is still well below its high and looks like particularly good value to us. Consider the chart:
What this chart shows is the relationship between Capitec and Wall Street. The upward trend this month on Capitec shares mirrors the upward trend on the S&P500. As you can see, Capitec shares are still well below their 200-day simple moving average, but on the brink of crossing over their 65-day exponential moving average.
If you are of the opinion that world markets are now in a bull phase, then buying Capitec at this early stage is probably one of the best options on the JSE. It is a high-quality company that has an incredible track record of growing market share and profits. It is very well capitalized and has excellent management.
Just be aware that this bull market is still very new and therefore dangerous. Be sure to implement a strict stop-loss level.