Market Analysis - September 2017



September was marked by a flurry of bad local news, but there were a few highlights in the gloom. Revelations about Eskom, KPMG, and the Public Investment Corporation did nothing for market confidence, yet the good side of the story is that a general mood of shareholder activism and a renewed focus on corporate governance has taken root. It is as if the previously silent majority has rediscovered a sense of social responsibility. Add to that some heartening statistics on GDP growth (following two consecutive quarters of contraction, economic activity expanded at a modest pace) plus an unchanged repo rate and there seems to be a small sniff of hope in the air.



As discussed in the August market report, the key level for the JSE Top 40 remains around the 49 000 level. During September, the index slipped a marginal 1.24%, basically flirting with this long-term support line. The biggest damage to the overall market was inflicted by mid-caps, down about 6%. Contrary to the year-to-date declines experienced by the mid (-6.65%) and small (-3.09%) cap indices, the Top 40 index is now up over 12%.  On the other hand, several other sectors and individual shares provided a bit of buoyancy. We’ll address some of those below.

Of interest to fans of precious metals, gold stocks have been hammered over the past three months -- and shares like Sibanye, Harmony and Anglogold are down over 60% since August 2016. The sector is incredibly volatile, but at current levels certain stocks could definitely be looked at. Sibanye might have found a bottom around R16 and could be getting to the stage where it would be worth adding a small holding.

Among JSE sectors, consumer goods was the only sector in the green, up about 2.5%. The standout performers were the giants: Anheuser-Busch Inbev and British American Tobacco. Creeping onto the radar is Aspen, which has of late had a nice rebound.

The worst sectors were telecoms and technology. Vodacom plunged 11%, and EOH declined over 14%. Also on the downside was Shoprite, perhaps due a pullback after recent strength.

Basic materials, as always, were influenced by Chinese demand. Going by the likes of BHPBilliton, Anglo, Kumba, and Glencore, the sector is proving resilient.




Looking overseas, the US was slightly up across the board -- the S&P500, Dow, and Nasdaq all registered gains. But the biggest driver of global equity performance remains Europe. While London’s FTSE and Hong Kong’s Hang Seng were down, the likes of the German DAX and the French CAC showed pretty good strength. As a result, Europe-focused ETFs performed brilliantly, boosting the returns of the Emperor funds that hold these index trackers. Despite falling 1.4% in September, emerging markets have gained 25% in 2017, which has helped to keep the JSE up. Global investors continue to seek higher yield opportunities.




Down 1.3% for the month, the fund remained at a fairly conservative net gearing level. It benefitted from exposure to foreign ETFs but was hurt by its holding in SA Corp Real Estate (although fellow property stock Resilient did well).


The fund was down 0.9%, also affected by SA Corp and helped by foreign ETF exposure. Standout stocks were Richemont and Clicks -- the latter of which has had an excellent 2017. With the JSE Top 40 slipping, our short position on the index was nicely positive.


On the upside were Sappi, Clicks, and offshore ETFs. The short position in Impala (which fell 22%) helped the fund remain stable with a marginal loss of 0.3%. Our long positions in Shoprite and Raubex were the main drag on performance.


The fund also fell slightly by 0.5%, mainly because of Raubex, Capitec, and Vodacom. On the upside, it was good to see positive contributions by Astral Foods (up 11%), CMH, Clicks, Resilient, and of course the foreign ETFs.


Some very good news across all the bundles, even those positioned more aggressively. All of them were up in September, which is perhaps a reminder to Emperor clients to consider incorporating selected bundles into their portfolios for their long-term benefits -- a stable, balanced foundation upon which to build more aggressive positions. The conservative bundles benefitted from a solid showing by both vanilla government bonds and inflation-linked bonds, and a healthy exposure to cash. Bundles with a heavier loading in equities rose on the back of the phenomenal Naspers, global (mainly European) indexes and offshore property.



Technical Review


In terms of valuation, the overall market has fallen a tad but remains relatively stable. Our “rule of 18” tells us that stocks in general remain expensive (Price-to-earnings adjusted for inflation). We need our valuation level to fall to 20 or below before we start getting excited. Long-term market sentiment remains low around 50%, and hasn’t really risen above 55% this year. Although we don’t believe there to be any current dangers of a big market correction, we do not feel it is time to increase our exposure just yet. 


Happy Investing

TC van der Walt

Fund Manager


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