Old Mutual Investment Group

Portfolio Manager, Arthur Karas talks calmer markets with The Money Show’s Bruce Whitfield

June 21, 2022 Old Mutual Investment Group
Old Mutual Investment Group
Portfolio Manager, Arthur Karas talks calmer markets with The Money Show’s Bruce Whitfield
Show Notes Transcript Chapter Markers

Arthur Karas discusses calmer markets this week, led by local mining stocks and banks, as well as unpacking potential new listings on the JSE and a slightly lower oil price.

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 Bruce Whitfield  00:06

 On to Arthur Karas at Old Mutual Investment Group, he's our market commentator this evening, and Arthur Karas, welcome to The Money Show tonight. 

 The US markets are closed for a public holiday, and that seems to have caused things to calm down quite a lot globally, where European markets have been positive and the JSE today certainly had a much calmer day.

 Arthur Karas  00:27

 Yes, we've had a very difficult period really on the back of that huge US inflation number, which has led to everyone being quite convinced that we're going to see some very sharp interest rate hikes. And that led to concerns about those ultimately leading to recession and hence a very rough couple of days during a rough month.

 Bruce Whitfield  00:51

 Ja, it has been rough, and I'm hoping you can hear me, Arthur, the line doesn't sound great this evening. What were the standout features of today's JSE trading for you?

 Arthur Karas  01:00

 I think what we could see is some of the differences in some of the underlying stocks coming through. So, our mining stocks did quite well, being Glencore and Anglo American, partly on the back of a very good trading update from Glencore last week. But then on the other hand, BHP Billiton, the world's biggest mining company, which earns the majority of its money from iron ore these days, had a rough day on the back of that. 

 Our banks, looking very good. Again, last week came out with about a 7% increase that being for May in their lending, so that seems to show that South Africans are coming back in lending, both corporates and individuals. So, that seems to suggest that SA banks are still in quite a good space. 

 Then amongst those we also had the more defensive stocks, like a Shoprite, the kind of company that you think will be able to deliver profits, even while inflation is going up and consumers are being squeezed. Those companies doing well. The bottom of the table, the platinum miners, I think they need people to be buying cars, and that's becoming a bit of a concern, even as the car companies still struggle to produce cars these days. So, that's the kind of picture that we had today.

 Bruce Whitfield  02:11

 Ja, and quite encouraging, I was looking at Business Times yesterday and just looking at the list of potential listings over the next year for the JSE. And we're seeing a few delays in terms of listings, people are waiting for markets to settle down a little bit and goodness knows if and when that happens. But Coca Cola Africa's already told us due to macro-economic conditions, they're postponing their listing. But there's Sebilo Resources, there's Fidelity Security, African Bank wants to come back to the market, Premier Foods, and then of course, OUTsurance. I don't know if it's a new listing, because it's essentially RMI - Rand Merchant Insurance - but it is... there is some activity and there is some interest in this thing, which I think will come as a bit of a relief to the JSE, which has taken quite a lot of strain.

 Arthur Karas  02:56

 Absolutely. We've had a shrink in the listings, we've had a couple of tough years on the JSE in general, and I think the state of the market, so the enthusiasm of the market for new listings, I think, is a key determinant in when you want to list, because after all, if you're the owner of a company bringing it to market, you only really have one opportunity to cash in. So, you need a stronger stock market. We've had a fairly good stock market and this year has now slid into negative territory, we've had a better stock market and that I think has sparked people saying right, this is a good time. It's trying to get those listings away.

 Bruce Whitfield  03:34

 Ja, look, it can't come a moment too soon, based on how many de-listings we have seen from the JSE, and I suppose if there was one little silver lining on the day, that silver lining came in the fall of an oil price, which has come off quite sharply, oil price down to $112/113 a barrel, still high by historical standards, but it's the sort of movement we need to see sustained, in order to take a little bit of pressure off the inflationary picture. Because probably by the end of this week, we're going to be outside of the Reserve Bank's target range of 3 to 6% - on the wrong side, higher than 6% inflation this week, is what I'm expecting, I don't know about you.

 Arthur Karas  04:13

 Definitely, I think we're going to continue to see strong inflation, we're going to continue to see rates edging up. The one interesting thing out of this is that the gap in our inflation rates and our interest rates between ourselves and that of our major trading partners. If you just look at the difference between home loans in the US and home loans in South Africa, that used to be enormous and that gap has closed substantially, and it's something that we're quite used to in our economy. It's not something that they're used to on the other side. So, while interest rates go up, it's actually hurting in many respects in the developed markets more than it's hurting us. We're not even back to where we were pre-Covid yet. So, definitely lower oil price is a good thing for markets, good thing for economies, and it will give people - the Federal Reserve a little bit of pause as to how fast they raise interest rates.

 Bruce Whitfield  05:08

 Thank you very much to Arthur Karas. Arthur is with the Old Mutual Investment Group. He is a Portfolio Manager on the line to us this evening from Cape Town. 

What were the standout features of trading on the JSE today?
Looking at potential listings coming to the JSE in the next year or so
The drop in the oil price and continued strong inflation expected