Weekly Market Update | 15 July 2024

???? Local Market Indicators & News Highlights

?? Pick n Pay Announces R4bn Rights Offer in Major Revamp

Pick n Pay Stores has unveiled a R4 billion rights offer as part of a significant restructuring of South Africa’s third-largest grocery retailer by revenue. The Cape Town-based company will issue 252.2 million shares at R15.86 each, a 42% discount from the closing price on July 10.

Ackerman Investment Holdings, associated with Pick n Pay’s founder Raymond Ackerman, will subscribe up to R1.01 billion. Combined with commitments from other shareholders, around 45% of the shares in issue are covered.

This rights offer precedes the anticipated initial public offering (IPO) of Pick n Pay’s low-cost Boxer division, expected by the end of 2024. The restructuring is part of a three-year turnaround plan led by CEO Sean Summers, which includes assessing 100 underperforming stores for potential conversion, refurbishment, or closure to restore profitability.

?? Foreign Investors Flock to South African Bonds

Foreign investors have shown renewed enthusiasm for South African government bonds, purchasing a net R4.6 billion ($256 million) on Thursday, the highest daily amount since January 2022, according to JSE data compiled by Bloomberg. This capped an eight-day buying streak, the longest in over seven years.

The new political landscape has boosted investor confidence, betting on reforms to address state inefficiency, power shortages, and logistics issues.

Yields on benchmark 2035 bonds have dropped 130 basis points since late May to about 10.95%, still among the highest in major emerging markets. The debt has delivered an 11% return in dollar terms since the election, outperforming other emerging-market local-government debts in Bloomberg’s index.

Overall, non-residents have brought in more than R12 billion since the election, indicating strong foreign interest in South Africa’s bonds.

?? Capitec Predicts Strong Earnings Growth

Capitec Bank, anticipates a 25% to 35% increase in earnings for the six months ending 31 August 2024. The bank expects group headline earnings to be between 5 090 cents and 5 497 cents per share, up from 4 072 cents per share in the same period last year.

The earnings growth is driven by improved credit loss ratios, increased net transaction and commission income, and the inclusion of value-added services like licence disc renewals and prepaid airtime.

Additionally, Capitec’s acquisition of a majority stake in Avafin Holdings, an international online lender, is expected to significantly boost its income statement. Capitec increased its shareholding in Avafin from 40.66% to 97.69%, effective from 1 May, incorporating nearly all of Avafin’s profits into its earnings.

Capitec stocks finished trading at R2,732.25 on Friday, 2.91% up for the week. Capitec will release its detailed financial results on or around 1 October 2024.

?? PIC Cuts Stake in Renergen Amid Helium Production Restart

The Public Investment Corporation (PIC) has slashed its stake in Renergen to 4.84%, down from 5.118%, reducing its holding by over 1.1 million shares. This move follows Renergen's announcement of resuming liquid helium production at its Virginia Gas Project after multiple setbacks and delays.

CEO Stefano Marani highlighted the successful restart and ongoing performance tests needed for continuous operation. Despite promising developments, Renergen has a history of unmet production targets dating back to 2016. Investors remain cautious, seeking concrete results in the company's financial statements to validate its profitability and future potential.

?? Global Market Indicators & News Highlights

???? United States: Market Dynamics and Inflation Trends

Broad Market Uptrends: All major U.S. stock indexes, including the Dow Jones, S&P 500, and Nasdaq Composite, hit record intraday highs, with the small-cap Russell 2000 Index leading with a 6.00% gain, marking a broad market advance.

Inflation Eases: The U.S. Consumer Price Index (CPI) showed a decrease of 0.1% in June, the first decline since early 2020, while core inflation also slowed, underscoring easing inflation pressures which supported stock market advances.

Mixed Earnings Start: The unofficial earnings season began with mixed results from major banks like JPMorgan Chase and Wells Fargo, affecting their stock prices negatively despite broader market gains.

???? Europe: Market Movements and Economic Data

Stock Market Gains: Major European stock indexes, such as France’s CAC 40 and Germany’s DAX, advanced, buoyed by positive reactions to U.S. inflation data.

Bond Yield Movements: European bond yields dropped, aligning with global trends influenced by U.S. economic data, affecting expectations for future ECB interest rate decisions.

Economic Stability Concerns: The market is attentively watching the ECB’s approach to potential rate cuts amid ongoing economic uncertainties and mixed inflation signals within the Eurozone.

????United Kingdom: Economic Growth and Monetary Policy

Post-Election Market Response: The FTSE 100 Index saw gains following the Labour Party's electoral victory, with markets responding positively to potential new economic policies.

GDP Growth: The UK's GDP growth in May was robust, propelled by services and construction, suggesting a potential delay in anticipated monetary easing by the Bank of England.

Interest Rate Speculation: Despite growth, the uncertainty around the Bank of England's rate decisions persists, especially with some policymakers advocating for steady rates amidst ongoing inflation concerns.

???? Japan: Currency Movements and Policy Expectations

Yen Intervention Speculation: The Japanese stock market pulled back slightly at the end of the week after reaching highs, amid rumors of government intervention to support the yen, affecting export-driven sectors.

Bond Yield Adjustments: Japanese government bond yields reflected movements in global markets, with potential expectations of monetary policy adjustments due to shifting inflation perspectives.

Economic Data Insights: Reports on machinery orders and industrial production provided mixed signals about the strength of Japan's economic recovery, influencing market sentiment and policy forecasts.

???? China: Export Data and Market Reactions

Strong Export Performance: Chinese markets reacted to unexpectedly strong export data, which suggested resilience in the manufacturing sector despite ongoing economic challenges.

Inflation and Deflation Concerns: Consumer price inflation remained low, which, along with falling producer prices, pointed to sustained deflationary pressures affecting policy decisions.

Real Estate Sector Woes: Ongoing struggles in the property market continued to dampen domestic consumption, with government measures yet to fully stabilize the sector.