Weekly Market Update | 24 June 2024
Fabio Brogneri CFP?
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???? Local Market Indicators & News Highlights
?? Ramaphosa’s Crucial Cabinet Choices
With the ANC’s support plummeting to 40% and a new government of national unity, President Ramaphosa faces the critical task of forming a new cabinet. This cabinet needs to prioritize competency over loyalty, addressing the failures of previous ministers.
Key figures such as Gwede Mantashe (energy and mining), Pravin Gordhan (public enterprises), and Bheki Cele (police) have been criticized for causing significant economic damage. Fortunately, Gordhan has retired, and Cele did not return to parliament. Mantashe remains a concern due to his close ties with Ramaphosa.
Replacing anti-business figures like Ebrahim Patel with pro-business leaders could significantly improve the economic landscape. Recent collaborations between the private sector and the government bring hope for more competent appointments.
Ramaphosa now has the chance to boost national confidence by appointing capable individuals and removing underperforming ministers. South Africa’s future depends on a cabinet that values effectiveness over ideology.
?? Rand Surges as Investors Welcome New Government
The South African rand has become a top bet against the Japanese yen, hitting its strongest level in 10 months after the May 29 election signaled a more business-friendly government. The rand gained 2.63% to R17.96 per dollar, reflecting investor confidence in President Cyril Ramaphosa's re-election and the formation of a government of national unity.
Simultaneously, the JSE All Share Index reached a record high, boosted by banking, financial services, retail, and consumer goods stocks. The index climbed 3,53%? for the week at 79,768 and hitting an all time high on Wednesday at 80,714 points.
The positive market reaction indicates optimism about the new administration's potential to implement market-friendly policies and drive economic growth.
?? SPAR Eyes Acquisitions to Expand Beyond Food
SPAR plans to acquire smaller retailers to boost its market share and diversify beyond food, aiming to increase South Africa's revenue contribution to 70% from 60% in five years. The strategy includes expanding into pet shops and other categories.
The company is selling its loss-making Polish unit, freeing up about R500 million annually. It may also divest from Switzerland, the UK, and possibly Ireland to focus more on the South African market.
SPAR’s shares have dropped 1.2% this year compared to a 7% gain for rival Shoprite. The expansion aims to leverage the nation's new government of national unity to drive economic growth, adding jobs and boosting disposable income.
??? Nampak Shares Surge on Improved Earnings Forecast
Nampak's shares soared nearly 22% on June 20 after the company announced a significant turnaround in its financial performance for the six months ending March 31, 2024.
The packaging company expects headline earnings per share (HEPS) for continuing operations to be between R47 and R55, up from a headline loss per share (HLPS) of R55 in the same period last year. Earnings per share (EPS) for continuing operations are projected to be between R46 and R54, compared to a loss per share (LPS) of R310.37 previously.
For total operations, HEPS is expected to be between R30 and R34, a big improvement from the previous HLPS of R115.24. The company also forecasts an LPS for total operations of R10.50 to R12.50, much better than the prior LPS of R838.82.
The previous figures have been adjusted due to a share consolidation and rights offer in September 2023.
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?? Global Market Indicators & News Highlights
???? United States: Market Trends and Consumer Behavior
Broadening Market Gains: U.S. stocks achieved modest gains, with the S&P 500 reaching new highs, indicating a broadening market appeal as value stocks outperformed growth shares.
Consumer Spending Cautions: Retail sales showed minimal growth, reflecting consumer caution potentially due to dwindling savings and subdued labor demand.
Strong Manufacturing and Services Sector: Contrary to retail, manufacturing surged with factories operating at a high capacity, and the services sector showed significant strength, suggesting diverse economic dynamics.
????Europe: Monetary Policy and Market Response
Market Recovery: The pan-European STOXX Europe 600 Index and major national indexes like Germany’s DAX and France’s CAC 40 saw gains, reflecting easing concerns over political instability and a brighter outlook for monetary policy easing.
Central Bank Stance: Despite the European Central Bank's recent interest rate decision and the ongoing restrictive monetary policy stance, there were no indications of further rate cuts, affecting market sentiment.
Economic Slowdown Indicators: Business activity across the eurozone showed unexpected slowdowns, with both services and manufacturing sectors not performing as expected, highlighting challenges in economic momentum.
????United Kingdom: Inflation Targets and Market Movements
Inflation and Interest Rates: UK inflation reached the BoE’s target, prompting discussions about potential interest rate cuts later in the year.
Stable Yet Cautious Market Conditions: The FTSE 100 showed resilience with a slight gain, despite broader economic uncertainties and ongoing political factors influencing market sentiment.
Sectoral Shifts and Consumer Spending: While there was a cautious optimism in the markets, sector-specific movements and a significant rebound in retail sales highlighted the uneven recovery pace.
???? Japan: Monetary Policy and Market Responses
Subdued Market Performance: Japanese markets saw slight declines amid ongoing monetary policy debates, with a focus on the potential changes in the BoJ’s approach to interest rates and JGB purchases.
Inflation and Interest Rate Concerns: Inflation pressures persisted, influencing the BoJ’s cautious stance on rate adjustments, with potential implications for future monetary policy.
Currency and Bond Yield Movements: The yen weakened further, impacting export dynamics, while JGB yields showed slight increases, reflecting the market's reaction to monetary policy expectations.
???? China: Economic Indicators and Property Market
Economic Slowdown Indicators: Chinese industrial production and fixed asset investment growth slowed, showing signs of continuing economic challenges despite some positive retail sales figures.
Continued Property Market Decline: Home prices extended their decline, raising concerns about the effectiveness of recent government measures intended to stabilize the sector.
Monetary Policy and Market Liquidity: The People’s Bank of China maintained its lending rates, reflecting a cautious approach to monetary easing amid mixed economic signals.