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For investors on the JSE looking on in despair, you aren’t alone. These are extraordinary times globally. Ingham Analytics gives international context to what we are witnessing. They observe that the All Share Index rout isn’t out of line with many other markets whilst relative to peers the rand has held up quite well – a statement that may seem counterintuitive to South Africans forking out R18 for a US dollar. Ingham Analytics also point to recent sober credit analysis from Moody’s, the ratings agency, that lends some refreshing calm to the debate. Is there bounce back potential? What about global GDP? What about credit markets and the impact on equity markets?
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Ingham Analytics issues a note on the role of liquidity in the efficient function of markets. It is entitled “The Market’s Twin Towers.” Top trader Andrew Kinsey explains why liquidity is crucial to the efficient function of markets at this time of turmoil in world stock exchanges, currencies and bonds. For local investors this is a key thing to understand. There has been a liquidity disconnect. Crowded market risk trade collapses as everyone simultaneously heads for the far narrower exit than existed when the trade was put on. Poor liquidity though is worse than high volatility, a factor that will be analysed in a forthcoming paper. Andrew also addressed the South African Banking sector, which dovetails nicely with what Mark Ingham wrote about last week (see “COVID-19 coup de grâce for banks.”).
Ingham Analytics has warned in several notes that the poor fiscal situation has repercussions for the big four banks in South Africa. They advised that as an asset category they were not in favour of banks and could see more potential for share price weakness than appreciation. Now, if the fiscal situation and beaten down economy wasn’t bad enough for banks, COVID-19 adds insult to injury they say. A lower interest rate of 100 bp, effective 20 March, if passed through in full, will also change the earnings picture. Share price falls are almost unprecedented. Can dividends be maintained?
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What do fixed income and equities have in common? A lot says Ingham Analytics. In another timely Macro Insight at a time of turmoil in markets is titled ““Fixed income leads the way for equities” offers valuable pointers – and lessons. Top trader and strategist Andrew Kinsey say that the intensity and speed with which the equities meltdown has unfolded has shocked even the most bearish of traders and investors in financial markets. His analysis examines the interplay between fixed income and equities. Is there light at the end of this dark tunnel?
Sasol is under considerable pressure, with massive loss of value for shareholders. Ingham Analytics issues a timely Macro Insight on the oil market. The note is titled “OPEC – minus 1”. This follows on from “In the darkness of tumult a possible chink of light” published 17 March and “What a gas” dated 5 March and we suggest that all three notes be read for a holistic picture at this roiling time in markets.
Ingham Analytics say that such is the immediacy and savagery of the international equities sell-off that even if you wanted to liquidate to cash in an orderly manner at sensible prices you couldn’t. Extreme volatility can make for flash crashes—and flash rallies—where prices make short but very extreme moves. Ingham Analytics has written a compelling analysis of events roiling equity and credit markets. At a time of carnage, sparked by COVID-19, this is a must read for shellshocked investors.
“What a gas” has a cryptic meaning at a time when the Sasol share price is at fifteen-year lows with seemingly no recovery in sight. Fears as to what the economic impacts of coronavirus could be globally have further beaten the share. But Ingham Analytics reveal a rare bit of good news for future Sasol earnings that they say will assist with cash flows and it has to do with the Lake Charles Chemicals project - in the news for all the wrong reasons.
If you liked Ingham Analytics note date 6 January 2020 on South African banks entitled “Saxo’s electrifying message” – and many did judging by a record number of downloads - then this analysis, timed to take stock of the implications of the 2020 government budget, is a must-read too. Ingham Analytics see this budget as negative for capital markets and bank shares and succinctly explain why.
Ingham Analytics say 2019 was a year of elevated pricing for 64% Fe iron-content fines, the grade relevant to Kumba. The rand was also weaker. Ingham Analytics do point out that this is a tale of two halves – and they are dramatically different. Earnings are up 68% but is this as good as it gets or is there more to follow? Ingham Analytics gives you the answer.
Ingham Analytics say Sasol has an additional headache to add to Lake Charles disappointments, and that is an oil price continually heading south. They say Brent oil has fallen by 20% since the first week of January and if this persisted for a full financial year it would significantly knock earnings. Ingham Analytics quantify the effects. For anyone with an interest in Sasol this is important analysis. The interim results are due 24 February.