JSE's Labour Day rally and South African market insights

On 702 Money Show this week Peter Brooke discussed the influence of ongoing stimulus measures in China, the ripple effect on mining sectors, and the South African market's unique challenges, including the impact of load-shedding on food manufacturing companies. Additionally, Peter touched on the South African rand's fluctuation and its connection to local economic factors, such as debt, profit, and global commodity prices. 

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Chapters

• 0:03 Unpacking positive territory on the JSE today
• 1:24 Results from AVI and RCL Foods, and pressures in the current operating environment
• 2:44 The Rand reaching the R19 point again, and the South African specific issues coming through

Transcript

Motheo Khoaripe  00:03

Nothing much to read from the US because they've closed of course the New York Stock Exchange to mark Labor Day in the US, but the JSE was online trading today, ending the day in positive territory by more than a half a percent, pushed up by industrials and mining shares. Financials not doing so badly as well, up more than half a percent. The likes of Kumba leaded gains today, up more than three and a half percent. Pick n Pay was amongst the winners, up more than 3%, with Implats and Northern down 3 and 4% respectively.  We're now joined by Peter Brooke, a Portfolio Manager at Old Mutual Investment Group, your reading of the JSE today as we start the week up, Peter.

Peter Brooke  00:43

Ja, I think it was a reasonably good day. And that really followed through from China, where there's been continued little stimulus over the last couple of weeks. And I think that's gaining a little bit of momentum, and that is why we've got a slightly stronger mining sector, if you think of something like Kumba Iron Ore, which links into the iron ore prices, links into China property, it's sort of clear what's happening. But as you say, with the US shut,  some of that direction faded out in the afternoon, as European markets turned down from their highs.

Motheo Khoaripe  01:24

And then we... a big earnings week also in the JSE, AVI releasing results, RCL Foods releasing results, of course these are consumer product makers, and you would start to see the effects of the economy and also the pressure on the South African consumers come through in those results.

Peter Brooke  01:40

That's right. So, I mean, you've got - obviously Bidvest has produced stunning results, little bit helped by some of their acquisitions and buy offshore, but broadly, good growth as a proxy for the South African economy. But when you come down into RCL and AVI, they're both food manufacturing, so you've got input price pressures, you've got operating costs, a little bit more of an impact from loadshedding. So, if you look at AVI, they had a cost of about six, just under 60 million rand. But RCL estimated that the cost in Rainbow for them was nearly 160 million rand in terms of the impact of loadshedding. So, tough environment. So, you - further, I'll give you an example: I&J. So, you've got the fishing business, you've got higher diesel costs, or you've got higher input costs on your chicken side. These are very hard to recover when you're pushing it out into a tougher consumer environment.

Motheo Khoaripe  02:44

Ja, no, a lot to deal with. Well, we're actually speaking to Paul Cruickshank later, the CEO of RCL Foods, on those results and I'm sure he'll share some of his sentiments on the current operating environment. Looking at the rand touching that R19 point again. Is this after the US jobs numbers, maybe people thinking the Federal Reserve is likely to keep rates elevated?

Peter Brooke  03:08

I'm not sure about that. I think the South African rand - well, just if you look at today, as an example, the Brazilian real was stronger, and the rand was weaker. So, it's not necessarily following the world pattern so much. It looks like it's a little bit South African idiosyncratic. And I think if you look at... we're issuing a lot more debt at the moment, our profits are down, you look at some of our big drivers in terms of, I mean, you mentioned earlier, the platinum shares were down, but you look at the price of rhodium is well down, the price of palladium is down, at the same time the price of oil is up. So, our terms of trade are deteriorating. Our tax revenues are dropping. Our debt is coming under pressure. So, I think there's a little bit of South African specific issues coming through on the rand.

Motheo Khoaripe  04:05

Alright. And then if we look at the Tuesday number, that second quarter GDP number coming through from Stats SA. I'm not particularly nervous, but it's definitely a number we'll all be looking for to see how much growth the country is actually recording.

Peter Brooke  04:21

Ja. So, Johan Els is our economist. And he is actually pretty relaxed about the numbers coming up. So, ja, I think he's saying it'll be an ok number.

Motheo Khoaripe  04:34

Well, as long as we're not going into recessionary territory, I think we'll be quite fine. Hopefully it is a positive number. Peter Brooke, the Portfolio Manager at Old Mutual Investment Group, covering the markets today, saying the rand really affected by local factors that have pulled it down as at 19.01 against the dollar at this hour.