Portfolio Manager, Neelash Hansjee, takes a closer look at US employment data released this week, the direction of the dollar and US geopolitics, as well as performance out of the local resources sector.
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Portfolio Manager, Neelash Hansjee, takes a closer look at US employment data released this week, the direction of the dollar and US geopolitics, as well as performance out of the local resources sector.
Thanks for listening! Follow us on Linkedin.
Bruce Whitfield 00:00
To Neelash Hansjee, who is the Portfolio Manager at the Old Mutual Investment Group, on the line to us from Cape Town this evening. And markets around the world, Neelash, taking a beating off the back of those astonishing US jobs numbers. I looked a little while ago, US markets are one and a half percent weaker. Europe was similar. And the JSE lost some ground too.
Neelash Hansjee 00:29
Ja, good evening to you, Bruce, and good evening to your listeners. That's exactly the news of the day. I mean, it was a monster jobs report and clearly showing the economy is still strong. And the Fed still has more to do in terms of the rate hiking cycle. I think what we're basically listening to is that we're not near the end of the peak, and there's a bit more to go. And we've seen that sorted through in this strong dollar through the markets. We've seen PGMs come off on the JSE. And EM markets also just a little bit today.
Bruce Whitfield 01:02
Ja, and quite sharply in terms of the huge impact, of course, of those jobs’ numbers, the 518,000 versus fewer than 250,000 that were expected. What was in addition to that, of course, currency markets took a big, big whack. We lost three and a half percent against the US dollar today, again, probably within line of expectations. Just how far does this dollar go before it starts really hurting the US economy, I wonder?
Neelash Hansjee 01:33
I think we've got to take the news in the context of the way the markets have moved this year. We've had a spectacular run through to January, all markets up, you know, more than 15% across the board. We came off a week where, you know, we had the Fed rate hike of 20, you know, slightly in line with expectations. But basically, a part where we thought inflation was under control. The strong jobs number tells us that the economy or the spending can still continue. I mean, most of the jobs came through the leisure and hospitality sector. More jobs is more people have money to spend, which can still support inflation. And we still need to feel that through. I think the other thing that happened over the weekend was, you know, the China shooting down of the Chinese spy balloon. I think that just highlights the fact that there's still some more geopolitical risks out there. And the market just hasn't been pricing that in.
Bruce Whitfield 02:31
Yeah, that's that tension, it's a constant tension, and of course, it comes to the fore. The Chinese claim it was a weather balloon, the US authorities feared it was a spy balloon. It followed a really odd trajectory and track across the United States. And eventually they shot it down. They're looking for the wreckage and they're hoping to piece it together to discover exactly what was part of that air balloon, weather balloon, spy balloon, whatever balloon, that got shot down. And that's, ja, that's never good for relations when one of the world's superpower's shoot down another superpower's hardware, it's never going to end well on that particular front. Then quite interesting updates today as part of the Mining Indaba, no doubt, Thungela Resources. When Thungela was spun out of Anglo American, it was like, if Anglo American doesn't want this thing, then what's it really worth? And suddenly Ukraine happened, and suddenly coal prices went through the roof, and Thungela's talking about certainly emerging market demand for coal is going to remain strong for an awfully long time. This isn't a story that ends Thungela anytime soon.
Neelash Hansjee 03:32
No, so I think Thungela are being clear that demand is going to remain firm, especially from the Asian countries. And their recent acquisition announcement with the Ensham Mining in Australia supports that. I think what we liked about Thungela is they've been very clear around their status strategy, and clearly looking to use this enormous cash pile that they've built up with coal prices to deploy the capital to diversify out of the South African operations, but also to feed into the Asian markets. As you know, Australia is very close to all the key markets that they're looking at, which is China, Japan, and the surrounding countries. So, I think that plays quite well. I think what we're seeing in the near term is clearly with the prices falling off, is that, you know, there is still a question mark around demand for coal energy. Europe's gone through just a warmer winter, which has given time for the Europeans just to build up the inventory at their terminals, which is clearly a much different situation to where they were last year at this time.
Bruce Whitfield 04:38
And then what about the other big one on the day, of course, and that was also in that resources sector, of course, resources very much front of mind with the Mining Indaba all going on at the moment, and that, of course, is the view that's coming through from Sibanye that it's not keen on doing any merger and acquisition in the gold space. Now, Sibanye started life as the gold assets in South Africa, that Gold Fields no longer wanted, subsequently Neal Froneman, the Chief Executive, has said that he is giving his mine's notice effectively, he won't be mining gold in South Africa and then in the next decade, possibly less, and they're focusing on all sorts of far more exciting things, lithium and platinum group metals and all sorts of party metals, as opposed to good old fashioned gold.
Neelash Hansjee 05:27
That's exactly it, Bruce. I mean, what we love is Mr. Froneman's... you know, he's very clear on his strategy and his intentions. I mean, he's come out saying, yes, he's still not keen on gold, after he's also said that he's washed down those rumors in August last year, and he's since gone on and been clear around his kind of battery metals expansion, and he's executed on that. And I think what's a clear kind of signal of that is, you know, today, his project in Finland, which is the lithium mines, has received its environmental approval or environmental permits, which means that, you know, they could start spending money to start construction in that in literally, within months. But I think what we like about him is he's clear on his M&A, he's clear on his strategy, and he delivers against that.
Bruce Whitfield 06:18
He most certainly does and investors who've backed him have been very well rewarded for their trouble, Neelash. Thank you, Neelash Hansjee is the Portfolio Manager at the Old Mutual Investment Group.
Bruce Whitfield 06:28
I don't know if you saw the assessment today of Gwede Mantashe, the Mineral Resources Minister, saying that loadshedding is costing South Africa's economy a billion rand a day. You know, what else costs a billion rand a day? And that is servicing our growing debt burden. So, we've got a big week this week, State of the Nation Address on Thursday, that's all blah, blah, promises, promises, promises, fib fib, fib, you know, extrapolate, extrapolate, find some good news to tell, look for a positive headline stuff. The budget is going to be where the takkie hits the road. And the fact that these things are costing so much and driving up inflation, driving up the cost of living, driving up absolutely everything in South Africa except joy, happiness, and expansionary mindsets, if loadshedding is costing us a billion rand a day and repaying our national debt is costing us another billion rand a day, this is just money that goes flushed down the toilet, it's money that is wasteful, it really is exceptionally wasteful. It could do so much more good in the right hands. You could sponsor a football team or two!