Investment Markets Recap: The Week That Was

There is never a dull week in the financial markets. Especially at a time when high equity valuations are associated with several big macro issues that both traders and investors are concerned about. The main concern in today’s global markets is inflation. Although Federal Reserve Chairman Jerome Powell remains convinced that this higher inflationary environment is transitory in nature, many big names in finance – including Mohamed El-Erian, president of Queens’ College, Cambridge and economic adviser in chief at Allianz – believe central banks, particularly the Fed, have been too accommodative in policy. This makes for a rational argument, especially when you add the global energy crisis and supply chain disruptions into the mix. Oil prices are at their highest levels in nearly a decade and supply chain disruptions have led to price increases across the board. It’s simple economics: when there is excess demand and a shortage of supply, the price goes up. Why is inflation so feared by capital market participants? It erodes the purchasing power of money.

Despite so many complex issues play out in the financial markets, both local and global markets continue to progress. The tech-heavy Nasdaq still fell below its September highsboth the S&P 500 and the Dow Jones Industrial Average hit new all-time highs last week. Despite all this uncertainty, equity markets remain the most attractive destination for generating returns. Indeed, interest rates have been kept at historically low levels by central bankers in an effort to stimulate the economy. Netflix and Tesla released quarterly results over the past week, beating expectations, rising 5.12% and 6.81% respectively. It’s going to be an exciting week with Apple, Amazon, Alphabet, Microsoft and Facebook all set to release their quarterly results. Fasten your seat belts!

Locally, the JSE was muted, climbing a meager 0.12%. However, the index still trails its all-time high, set in April, by around 4%. Encouragingly, the mining meters appear to have bottomed out as commodity prices, for the most part, appear to have stabilized across the board. Fears in China have eased somewhat, which has been a net positive for heavyweights Naspers and Prosus. Despite the recent rally in Naspers and Prosus, they still find themselves down more than 10% every year to date.

Indebted construction company Aveng was one of the most talked about stocks on the JSE this year. This week he announced that decorated mining director Bernard Swanepoel would be appointed to the board. Piet Viljoen, who owns shares of Aveng in his “bundle of twigs”, says the cool-headed Swanepoel will be a shrewd addition to the board and his mining experience will prove invaluable. Viljoen also shares his optimism on the energy sector, pointing out that underinvestment in the sector over the past five to 10 years will lead to supply shortages. The sector is a natural hedge against inflation, making it a much more attractive investment proposition given the current environment.

Pick n Pay was the first retailer to report results after the July riots affected around 10% of the Pick n Pay store footprint, resulting in hundreds of millions of rands in lost sales. Hedge fund guru Jean-Pierre Verster was relatively complimentary about the resultsdespite the retailer lacks direction. Verster called all of the major food retailers listed – Pick n Pay, Shoprite, Spar and Woolworths – “expensive”. Its pick in the sector is Spar and credits management for its successful international expansion, whose exposure includes geographies such as Ireland, Poland, Switzerland and Sri Lanka.

Finally, South Africa’s favorite market commentator, David Shapiro, gives us the scoop on the deception that took place on the local stock exchange, after Hulamin’s small cap share price rose 40% a few days before a warning announcement. These warning announcements are usually signposts to significant corporate transactions. Coincidence? Shapiro thinks not.

Lots to digest. Lots to ponder. Welcome to the new week…

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