The Week Ahead

23 May 2014

Our regular look at the news making the headlines, using our market insight information and analysis tools.

By Shaun Murison,  IG Market Analyst

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Company announcements

Dividends

Economic catalysts

Market overview

Local Data

Our local bourse has once again rallied to new all-time highs as emerging markets gather favour once more, outperforming their frontier market peers.

The Monetary Policy Committee (MPC) was the prevalent economic data point this week. The decision to keep interest rates on hold was not unexpected. However, the annualised Consumer Price Index (CPI) figure coming in at 6.1% on Wednesday, which is outside the reserve banks targeted band, had investors ready for the possibility of a 50bps rate hike.

The decision to keep interest rates unchanged by the South African Reserve Bank (SARB) showed a majority of five members were in favour thereof, while two members would have preferred interest rates to have increased. Reserve bank governor Gill Marcus also continued to manage expectations by reaffirming that we are at the beginning of an increasing interest rate cycle and we could expect further increases moving forward.

The delayed effect of a depreciated rand is said to have influenced the current inflation reading, and headline CPI figure for the current year is anticipated to be 6.2%. With no clear end in sight for the current platinum sector strike, as well as a slowdown in the manufacturing sector, the reserve bank’s outlook for economic (GDP) growth in 2014 has softened by 0.5% from 2.6% to 2.1%. 

International Data

China managed to post its best HSBC Flash Manufacturing PMI print in the last five or so months, with an index reading of 49.7 ahead of consensus albeit still alluding to minor industry contraction.

In the US Flash Manufacturing PMI data was perhaps the highlight of the week, showing industry expansion as well as a marginal beat on expectation. However the rest of economic data points were rather lacklustre, as 14 000 more people than were expected claimed unemployment benefits last week and existing home sales fell short of consensus estimates.

In the UK the annualised inflation (CPI) was reported at 1.8%. The Bank of England voted unanimously to maintain the current level of the asset purchasing program, while keeping benchmark lending rates unchanged.

Source: IG Insight, as of  23/05/2014

Top movers

Source: IG Insight, as of 23/05/2014

This week witnesses local miners dependent on iron ore as the core of their respective operations coming under significant pressure. In recent weeks it has been reported that China (the largest consumer of iron ore) has an oversupply of the commodity, pressuring the dollar denominated value of the core ingredient used to make steel. Investors looking for mining exposure are finding preference in counters which offer a greater diversity in their resource offering at present.

Vodacom is trading marginally into negative territory after reporting lacklustre growth in its full year results. Headline earnings per share growth reported at 2.8% impacted by a staff component, non-cash charge relating to the company’s Broad-based black economic empowerment scheme. The company has declared a healthy final dividend of 430c per share, bringing the full year dividend offering to 825c. The company also announced the acquisition of Neotel would cost R7bn. The acquisition is aimed at fast tracking Vodacom’s fibre optic offering to the home via Neotel’s already established infrastructure.

Industrial counters are leading the gainers list this week, although financial counters have also been particularly strong post the SARB’s decision to keep benchmark lending rates unchanged.

After a brief pause in its trading statement induced rally, Mediclinic has pleased investors with its full year results which show normalised headline earnings per share to have increased 45%. The company has highlighted strong growth in patient numbers, a positive impact from currency conversions and declared a final dividend of 68c per share.

Naspers’ price surge has been initiated by a strong beat on analysts’ expectations of earnings from its Chinese counterpart Tencent holdings last week. Investors have been encouraged by Tencent as it increases the monetization of its mobile and gaming aspect of their business. 

Broker consensus

Brokers view on the markets.

Click to view this week's broker consensus

 

 

Spotlight on equities

An analysis of upcoming company announcements, using our market insight information and analysis tools:

Mr Price Group Ltd

MMI Holdings Ltd

 

 

 

 

 

 

 

Educorner

The concept of a trend

One of the clearest definitions of trend comes from Dow Jones Industrial Average founder Charles Dow. In his Dow theory, he described how prices did not rise or fall in a straight line, but rather moved in a series of zigzags.

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Broker consensus

Source: I-Net Bridge, as of 22/05/2014

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