Old Mutual Investment Group

Peter Brooke talks latest market news on the Money Show this week

November 08, 2022 Old Mutual Investment Group
Old Mutual Investment Group
Peter Brooke talks latest market news on the Money Show this week
Show Notes Transcript Chapter Markers

Portfolio Manager, Peter Brooke, discusses how the market managed to hold its ground starting out the week, led by news out of China, as well as covering performance from Raubex 

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Bruce Whitfield  00:06

And on to Peter Brooke, who is a Portfolio Manager at the Old Mutual Investment Group, on the line to us this evening from Cape Town. It was... after Friday's madness on markets, Peter Brooke, I really did think today would be a bit of a sell-off. And that didn't happen.

Peter Brooke  00:24

Ja, a bit of an anti-climax, if you're used to markets going up 5% a day. But nice to have held it as opposed to have given it all back. And that's one of the things that we've been seeing, you know, a tremendous amount of volatility in markets recently.

Bruce Whitfield  00:39

That huge volatility, of course, is informed by the stuff that we know. There is a big inflation problem across the world, central banks are responding with higher interest rates, those facts haven't changed. In the meantime, tiny little factoids changed, little points, little points on employment, whether China is going to open up or stay closed. And these then caused the huge swings and roundabouts that we see, is there any hope of any calm anytime soon?

Peter Brooke  01:04

I think it's normal that we get this sort of volatility as we start heading towards turning points. So, one of the big drivers is we've had the theme of liquidity tightening, higher interest rates. And now markets are starting to test that. So, if you look at for instance, the US Federal Reserve, it feels about in line with reality. So, where the Fed forecasts are, where the market is, and then it becomes very sensitive to news flow, in terms of the good news, the bad news, is it the end of the rate cycle. The other thing that I think feeds this volatility is, and these rumors, is the fact that generally people are positioned very conservatively. So, you take China, it underperformed hugely. So, you get the news flow, it's quite easy to jump. But that's because of jumping from a low base. So, just take South African Naspers. You know, it's up 16% in the last week, but it's still down 7 over the last month, so the gain was just recovering some of the loss. And I think until we establish the next sort of trend, which is when we start coming out of the recession, when is that priced in, and I think that's next year's story, you'll probably get a more stable market.

Bruce Whitfield  02:31

Ja. For now, ride the waves, I suppose. I mean, ja, the All Share Index at 69 and a half thousand there or thereabouts today. I didn't think we'd see it this year, frankly, based on all the negativity around the world. But there is this, sort of this desire to push higher, if not the underlying market means in order to do so. 

Bruce Whitfield  02:50

Multichoice with a disappointing update today. And it's leading to all kinds of prognostication over the internal health of Multichoice, and its once revolutionary now quite dated business model.

Peter Brooke  03:06

Ja, so a fairly dull trading update, talking about results pretty flat and 5% up. And the market actually didn't really move at that, actually I think the more interesting result was Raubex, which produced their interim numbers, and they were up 4.4% today. So, a bit more activity there. 

Bruce Whitfield  03:26

Okay, talk to me about Raubex, why that excites you more than Multichoice, which has, you know, got big problems getting cash out of Nigeria, and is, you know, wondering how on earth to keep its subscribers interested with a world of competition that's coming its way. 

Peter Brooke  03:39

So, I think Raubex is important because it's the last man standing. Well, it and Wilson Bayly Holmes in the construction sector. And so, South Africa is going to build its way out of its problems. And you might recall, I've spoken before about how poor our investment's been in the share of GDP has been for the last 20 years. So, we're running at about 15%, which is way below where it needs to be. So, over time, that compounds into less electricity, less water, less roads. And we need to fix that. So, these are the companies that have got the potential to fix it. And so, really important as a bellwether for South Africa, and how we're doing. Their actual numbers were very good. And a lot of that was driven to a really big project, fixing the Beitbridge border post, which is good news for our fellow Zimbabweans heading home over Christmas. But the... I think the concerning element within the results was actually the fact that their order book is not growing any more. So, just if you take for instance, the renewable energy. They don't have - they've put none of the IPPs, the government next wave down as going project. So, you probably if you haven't got solar, you should probably lay it in.

Bruce Whitfield  05:10

Yeah. And there's just been such a disappointment in terms of government infrastructure delivery, it's spoken about, spoken about, promised. And, you know, all of the construction companies are telling us that simply the orders are spoken about, but don't get executed on, don't get acted upon, because of, you know, all of the issues with which we are all too familiar, unfortunately, in South Africa. But Raubex's last man standing is in an ideal position should one day the taps open on infrastructure spend, they should be massive beneficiaries of that. Have they got the capacity, of course, to take up the slack that does occur?

Peter Brooke  05:42

I think they definitely do. I mean, it's a well-managed business that's delivered consistently over time. And they do have, ja. They've got the people; the people exist in South Africa. Now, this is one of the interesting little quirks out there. I'm not sure if you're aware that Sanral pulled back a whole wave of contracts. And apparently, a lot of those have now been re-awarded. And they've gone out to the Chinese, who were the lowest cost bidders. And this is a fascinating thing, because are the Chinese going to employ South Africans? Or are they going to bring in Chinese labour, which is what they've done in the rest of Africa? And what does that mean for black economic empowerment and transformation and the requirements? Because the South African companies are compliant with this, are the Chinese companies?

Bruce Whitfield  06:37

Good point, Peter Brooke, thank you very much for raising it. Peter Brooke at the Old Mutual Investment Group, tonight's market commentator. Ja, reports over the weekend of the Chinese contracts, and there's a huge amount of hypocrisy, of course, that comes with this sort of deal, where there's a huge amount of pressure on you to buy local and demand that you buy local. And, you know, local companies agreed and they're mispricing their contracts. Well, that's one thing. But they've got a huge South African cost base, of course, and if the Chinese are gonna come in and do these projects, but as Peter Brooke suggests, do them in the way they've done projects in other parts of the continent, then those jobs don't stay here. Then those aren't local jobs. I think there's a lot more detail still to be beaten out of that one. 

With tremendous volatility in the markers recently, is there hope of any calm soon?
Discussing the update from Multichoice
Discussing a more interesting update from Raubex
Can Raubex pick up the slack if infrastructure spend increases?