Bruce Whitfield 00:06
Markets considerably calmer today than they've been for much of the past week or so. The bond market almost back to where it was on Wednesday. Currency also looking like it is in the mood for a bit of a strengthening phase after blowing out last week, in the midst of the chaos and uncertainty of Cyril Ramaphosa and the Section 89 report. Arthur Karas, Portfolio Manager for MacroSolutions at the Old Mutual Investment Group. Are things calming down a little bit? Give me any comfort at all, Arthur, you're just waiting for another storm to break.
Arthur Karas 00:38
I think that we're seeing a bit more calm in the markets as far as South African assets are concerned, because we now... I think we're expecting things to stay as they were politically for a little while longer at least. I think that the international markets continue to walk down the same path, concerns about a recession in the US and Europe and excitement about potential reopening in China or Covid opening in China. And so, we've got those two opposing forces pulling us left and right.
Bruce Whitfield 01:11
Ja, but certainly that opening up of China a little bit, it comes after weeks of protests in China against very, very stringent lockdowns and the zero-Covid approach, I think is beginning to bear some fruit in terms of opening up China's economy a little bit, getting a bit more growth back into the system and allowing trade to begin to resume.
Arthur Karas 01:32
Yes. And I think we're also expecting that to have an impact on manufacturing. There's a lot of companies around the world that have suffered, maybe not as much as during Covid, but certainly have had concerns about supply chain issues, about the ability to get their goods in and out of China. And so, you'd expect that to ease and might help things along a bit as well.
Bruce Whitfield 01:51
Ja, I mean, today's activity on the market was very clear. I mean, it was everything that was, you know, sort of got a South African focus in it does well, anything with the Rand hedge element came off. The banks bounced back; the retailers bounced back. Not too much fresh news on the table, other than just a resumption of tentative confidence, I suppose.
Arthur Karas 02:11
We had a trading update from Nedbank out for the 10 months of this year. And I think it's sounding very much like the other banks. So, they're talking about slowing of momentum, so still growing but growing at a slower rate. And some concerns about what next year will bring with high interest rates, but on the whole, still very credible results. Double digit growth on the revenue line, most of the businesses lending at a reasonable pace. And as of yet very little concern about credit loss ratios. In fact, we think that there's room for them to go up without any kind of panic simply because they've so low. So, Nedbank kind of confirming that picture, all the banks, which give you a very good barometer of what's happening in the overall economy, are all still on quite a steady path forward.
Bruce Whitfield 02:57
And then we also had results out today, Nampak, not a good set of results, but a fairly decent set of results coming out of Oceania.
Arthur Karas 03:07
Well, both of those results... and Nampak being at the extreme end, kind of show me what's happening in the economy. So, they're seeing no problems selling their goods. So, both companies - Nampak's able to sell cans, Oceania able to sell tinned fish and other products and services. But they're not making quite as much money on a trading profit line, because their costs are rising and they're unable to pass those costs on at the same pace as they receive them to their consumers. So, that means that their profits are rising but not quite the same rate. They're also both suffering from having increasing working capital. So, that means they're having to hold more stock, they're having to pay more for the inputs of raw materials into their business. And that's causing their balance sheets to grow, means they're not generating quite as much cash as one would expect if you look at their income statement. The issue that Nampak faces is that they entered this phase in a weak financial position, there's simply too much debt on their balance sheet, and they've come to an agreement with their lenders, with a consortium of lenders, that they're going to reduce the debt by at least a billion Rand. And the challenge that they faced is while they're able to sell all the cans, they're simply not able to turn that all into cash. Because the price of steel has gone up, the price of aluminum has gone up, the price of driving their products around has gone up. And because of their weakened financial position, the people that would be sending them those goods are simply not in a position to offer them the same kind of credit terms that they would have offered them in the past. So, we've got this blooming balance sheet, and they simply don't have enough equity on their balance sheets, so they're forced to come to their shareholders and say, listen, we're going to have to raise some more capital to put the group into a better position.
Bruce Whitfield 04:55
Thank you, Arthur Karas, Portfolio Manager at MacroSolutions at the Old Mutual Investment Group.