Old Mutual Investment Group

Ray White of The Money Show talks to Portfolio Manager, Siboniso Nxumalo, on what happened in the markets today and why.

April 26, 2022 Old Mutual Investment Group
Old Mutual Investment Group
Ray White of The Money Show talks to Portfolio Manager, Siboniso Nxumalo, on what happened in the markets today and why.
Show Notes Transcript Chapter Markers

Siboniso Nxumalo discusses upheaval in the markets this week, driven by the resources sector and the news that Beijing is going into lockdown over fears of a renewed Covid outbreak in China.

Bruce Whitfield  00:06

Right, let's move to the markets now. What a day it was, markets under pressure, big, big, big losses on the JSE. On the line is Portfolio Manager at the Old Mutual Investment Group, Siboniso Nxumalo. Siboniso, hi, good evening. Welcome to the Money Show.

Siboniso Nxumalo  00:21

Good evening, Ray. And good evening to your listeners.

Bruce Whitfield  00:24

What happened today? What on earth happened today?

Siboniso Nxumalo  00:27

Ja. A difficult day in the market, with the Top 40 Index down almost 4%, largely driven by resources. And that's where the story is, Ray. If we look at the resources sector, what drove it down? After, actually, recent few weeks, resources have been very strong. So, what drove resources down, was the news out of China. So, China, biggest commodity consumer in the world by a long way and has been for almost more than a decade. China, Shanghai, one of the biggest cities in China, with a population of around 26 million, has been locked down - I think now for the fourth week. 26 million - lot of people. So, Shanghai locked down because China says we have a zero Covid policy. We don't want any Covid. Now today, came out and said Beijing is going to go on lockdown for about a week or so. Beijing - 28 million people. So, if you think about those two cities, that's quite close to the population of South Africa. 

So, they're going on lockdown, so the world is worried. And that sent our resources sector down 6.2%, which was driven by iron ore at 1.4%, oil was down 5.6%. And the only green we saw in our resources sector was Thungela, the coal producer, that was unbundled from Anglo American. But everything else - Anglo's down 7.5, Sibanye down 6.5, Anglo American Platinum down 6%. Ja, it was a rough day. But on the other side, though, Ray, if we look at the financials and the industrials, the banks were down. Investec was down 3.6, First Rand down about 2.5, Nedbank down 2.5. So, that wasn't too bad. And then the industrials, we saw Prosus down almost 3% and Naspers just down about 30 basis points. So, that's the lay of the land. A tough day. We call days like this "risk-off". The market looks at it and says, oh, I'm a bit worried about what's going on in China.

Bruce Whitfield  02:24

But things could change. I mean, China has been around since, I think about four weeks ago, when Shanghai first started. It is Beijing. Things could bounce back, I'm thinking. The war in Ukraine, people going to safe haven gold, or is that yesterday's story?

Siboniso Nxumalo  02:40

No, Ray, I mean, these are markets. And in markets, the daily news flow is not what you should be judging the markets by. At the end of the day, in our world, we look at the world and we take a very long-term perspective. And we say, actually, what is going on in the world? And how are we going to grow our clients' money over the long term? The daily gyrations every now and then offer us opportunities to be buying assets at attractive valuations. So, I wouldn't say the market must pay too much attention to what's going on today. 

For example, if we look at South Africa, one of the results that came out. I'm just going to mention two of them. We had a trading statement from the Foschini Group, a company that we - I suppose that the Old Mutual Investment Group has owned for quite a while - saw a positive trading update. They say, well, earnings are going to recover by more than 100%. Markets like that, they're liking Foschini Group, they're liking what management has been doing in terms of acquiring manufacturing capacity in South Africa. That management team has been very forward thinking and taking advantage of building supply chains in South Africa, manufacturing in South Africa. And so, that's been a positive story. And that share price has actually returned shareholders a very healthy return over the last 18 months. And that's a good story. 

Another good story is the PSG Group came out with a statement that they are gonna be unbundling some of their - so, the PSG Group is a holding company, they used to hold Capitec, they unbundled that last year and returned it to shareholders. And today, they said, hey, this idea of being a holding company, nah, that doesn't quite work for us, because holding companies require a lot of favor. So, they say, well, we are gonna unbundle the listed entities - PSG Konsult, Curro, Kaap Agri, et cetera. And they say, well, we're going to give that back to shareholders, and then we are going to go private.

Bruce Whitfield  04:33

I liked it. I liked it a lot. In fact, I'll be - oh, we've lost him, we'll have to get Siboniso back on the line, not quite sure what happened there. Let's get him back on the line. We do have one or two more minutes with our market commentator. In fact, I'll be chatting to the CEO of PSG a little bit later on, Piet Mouton, about this, because they've done very well. Curro, up about 8% in growth, so you can see what's been happening with them. Right, looks like we've got him back on the line here. Sorry about that, Siboniso, it just looks like the gremlins got into the cell phones. I was saying that I'll be chatting to CEO Piet Mouton about this a little bit later on. But you're quite right. The PSG Group doing really well. I mean, even Curro up 8%?

Siboniso Nxumalo  05:11

Yes. No, the PSG Group has done a staggering job. And I can understand from their perspective as a holding company, saying, you know what, the market is not rewarding us for what we actually deliver to shareholders. And in his presentation, he went quite far in explaining what has gone on. Because he's talked about how the PSG Group, if you look at returns since current management took place, which is Piet Mouton's management, the return, total return, has been 28% per annum. That's a staggering return since 201 onwards. Since inception, this is when Jannie Mouton took over, it's been 38%. The market is not rewarding them for the underlying value. 

So, I completely understand when the underlying businesses have delivered, that he's saying, hey, you know, this doesn't work for us, being a listed entity. The shareholders, we will give them these companies, we will pay the necessary tax. And off we go again. We will conduct our business privately and out of the limelight. And that'll work for us and enable us to get our right value. 

Bruce Whitfield  06:13

Ja, and that's exactly what they've done. Just some final comments on the Rand. Now, the Rand has lost massive value over the past few weeks. Is it a Ukraine/Covid pressure? Or is this something else there?

Siboniso Nxumalo  06:25

No, Ray. I mean, I wouldn't say massive. I think if you look at it, the Rand, again, is price relative. So, we talk about the Rand versus the dollar. So, it's lost probably about a Rand or so over the last week or so. And I think if you look at what the Rand - the Rand has been very strong. Why has it been very strong? Because, well, South Africa, relative to other economies globally, has been doing okay. We are a commodity producing nation. And so therefore, as commodity prices stay high - you saw that in our tax numbers, actually we collect good taxes, and our budget is actually looking good. And actually, our inflation is lower than other people's inflation, um, globally, which is a rare thing. 

And so therefore, the Rand has been quite strong. It's been rewarding South Africa for what South Africa has actually delivered, which is, on a relative basis, not a bad outcome. So, I don't think that this is too bad a depreciation. The one thing though about the Rand, it's reflecting the risk-off environment. There's a lot more worry out there in the world, the world is slowing down. Your previous speakers talked about stagflation, which is high inflation, low growth. The world is worried about that. And generally when that happens in economies like ours, the money goes away. And then that's what causes the Rand.

Bruce Whitfield  07:39

Sjoe, worrying stuff. Siboniso Nxumalo, thank you so much for coming on to The Money Show, Portfolio Manager at the Old Mutual Investment Group, some sound advice there as well. Sometimes, don't just because it's been a bad day, you've lost three percent overall of the JSE with the All Share. Don't doom it, I promise you tomorrow we will be back with better figures. One thing I've noticed for the miners as of late, they are up and they are down and perhaps when they're down, it's time to buy some stock. It's just gone 18:51.

Discussing the markets on the day and what drove resources down
Should you judge markets by the daily news flow? No – Siboniso explains why
Trading update from the Foschini Group and the unbundling notice from the PSG Group
Discussing the performance from the PSG Group in more detail
Has the Rand lost massive value over the past few weeks? Not quite – Siboniso explains why