ARTICLES

The Corona Correction

One of the enduring characteristics of markets is that they over-react. The size of their over-reaction depends on exactly where they are in the cycle and whether sentiment at the time is generally negative or positive. The S&P made a new all-time record high on the day before Martin Luther King Jr Day (20th January 2020) – after a consistent run which has lasted since the beginning of October 2019 – almost four months. Clearly, the market is now looking for a reason to correct. And since Donald Trump has been preoccupied with his Impeachment trial, he has been leaving the Chinese and the rest of the world in peace.

The coronavirus is becoming the very excuse that markets need to correct. With growing numbers of people infected, a rising death-toll and the spread to countries outside China, the virus has caused some panic on world markets. The S&P500 index fell 2,6% from its highest point (3329.63 reached on 17-1-20). Technically at record levels and after a 4-month run, the S&P was surely due for some sort of correction. In the absence of any negative tweets from Donald Trump, the spread of the coronavirus is providing the necessary scare. But can a disease which has so far only caused deaths in China – really damage the world economy that badly. The restrictions on movement inside China, imposed by the authorities will certainly impede the economy. China also is the world’s largest importer of commodities which could hurt South Africa – but at this stage we feel that the 2,6% fall in the S&P is probably over-done. That does not mean that it cannot fall further. Consider the chart:

If this is the start of a correction, then you can expect either the virus or some other reason to take the S&P down at least 10%. In our view, authorities are moving quickly to contain and control the spread of the virus which has less than one third of the mortality rate (2,8%) of the SARS virus (9,6%) – but appears to spread more quickly. Scientists are urgently engaged in finding a vaccine and an effective treatment. Of course, the rate of infection could become far worse, but we believe that it will not spread significantly beyond China and that the situation will be brought under control fairly soon. In our view,  this correction has the potential to become a buying opportunity – especially for shares like Prosus, which have taken a sharp fall. Look at the chart of Prosus:

Prosus (PRX) October 2019 to January 2020 - Chart by ShareFriend Pro

You can see here that Prosus made an “island” at the start of December 2019 and has been moving up from that point. The island created support at around R1020 and the share may fall further to reach that level. Technically, it seems unlikely that the R1020 level will be broken. You should watch Prosus and the S&P closely to find the best buying opportunities.

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PDSNET ARTICLES - JANUARY 2020

The Corona Correction

One of the enduring characteristics of markets is that they over-react. The size of their over-reaction depends on exactly where they are in the cycle and whether sentiment at the time is generally negative or positive. The S&P made a new all-time record high on the day before Martin Luther King Jr Day (20th January 2020) – after a consistent run which has lasted since the beginning of October 2019 – almost four

Kumba

Kumba Iron Ore (KIO) is a separately listed 70% subsidiary of Anglo American. It is by far the largest producer of iron ore in South Africa and it exports 94% of the ore which it produces. This makes it substantially a rand-hedge share which is hardly impacted by developments in the South African economy. The main drivers for this share are the international price of iron and the rand. What makes this share interesting is the

Is Old Mutual Cheap?

Old Mutual (OMU), the remaining piece of a much larger company which split apart recently to release shareholder value, must be seen as a high-quality blue-chip share. In its most recent results for the six months to 30^th June 2019, the company reported adjusted headline earnings per share (HEPS) up 10%. It is a well-diversified, well established company in the financial services industry with a high-quality management

The Discount to Tencent

It is commonplace for investment holding companies to trade at a discount to the value of their underlying assets. This discount is usually around 20% to 30% depending on the assets held. Efforts are often made to “unlock” this value into the hands of shareholders by “unbundling” the assets directly into the hands of those shareholders. Private investors can sometimes score a windfall by buying into an

2020 Prediction

Predicting what will happen on the JSE in 2020 is immensely difficult. There are many variables, each of which is complex in its own right. However, some things appear reasonably clear to us. They are:

• The dominant prediction for 2020 is that Wall Street will continue on its upward journey with the S&P500 breaking a series of new highs during

2020 Prediction

Predicting what will happen on the JSE in 2020 is immensely difficult. There are many variables, each of which is complex in its own right. However, some things appear reasonably clear to us. They are:

• 1. The dominant prediction for 2020 is that Wall Street will continue on its upward journey with the S&P500 breaking a series of new highs during the year. In this process it will go through at least one major correction