We are experiencing a dichotomy between one of the longest-lasting bull markets in US history and the financial indicators. Over the past week we have seen the US Yield Curve inverting – where you earn more interest on short-term debt than on longer-term debt – which is a leading indicator for a recession and thus falling share prices, but at the same time the equity markets are going up. We have seen the Federal Reserve in the US change their stance towards hiking interest rates due to the slowing jobs report, which on the one hand creates a bullish sentiment towards shares but also signals a slowing economy which should be bad for shares.
In the rest of the world we are still caught in a slow-growth, low-interest environment with Brexit becoming a never-ending story.
At time of writing we are waiting for Moody’s to decide on the investment rating for South Africa. As you read this we are either still investable or junk, with the resulting impact on the rand. It seems that South Africa is becoming less and less significant as an investment destination with small- and mid-cap companies not making any progress.
Recently Microsoft has terminated its business relationship with EOH; most of our construction companies are bankrupt or close to it; and our retailers as well as the property shares are fighting to stay relevant. Even our top 40 shares are changing shape. MTN is still hammered by their investment in Nigeria and Naspers has decided to list all of its international internet assets in Amsterdam.
China is slowly but surely taking over Africa, starting with the Zambian national power utility after they defaulted on their loan. The Eskom price hikes will cost SA 90 000 mining jobs and instead of taking responsibility as the governing party for the last 25 years, the ANC is still blaming the pre-1994 government.
What we have to realize as investors is that all this confusion and negativity is not new. The rise of social media means news spreads faster and more widely, with the resulting emotional backlash, but the intrinsic value of a company is hardly ever linked to media gossip.
What is really changing in the investment universe is the impact the 4th industrial revolution is having on companies. Change is a law of nature. If you cannot adapt you will not survive.
