If you are looking at the potential risk adjusted returns from shares over the short term, the answer is yes. There are number of growing factors that are worrying money managers and the most notable is the flattening of the US yield curve (when the 10-year rate stops rising and the gap between the two year reduces gradually). A precursor to a recession is when the 10-year interest rate is lower than the two-year interest rate. But this is unlikely as US inflation is still under control and US wage growth is still subdued, so investors should not worry.
If investors don’t have cash on hand, they should be selling non-performers now to raise capital to buy the next dip. There are also several shares that have run very hard the past few months and will see profit taking push them lower.
2017 was a good year to be in the market from the end of June. And if recent years are anything to go by, we should see around 8 weeks of weakness until end of June.
As we have mentioned, we expect the market to push back to its 2018 high before year end, but short-term weakness is on the cards now.
The week ahead:
- Local economic data releases: N/A
- Results Due: MAP (02/05); GAI, OAS (03/05); DCP. MNK. PFB (04/05)
- Ex-Dividend (02/05): BAWP, NFP, GLPROP, MND, MNP, CSP500
Last week’s movers and shakers…
Best Performers: HAR 8.3%; BTI 8%; AMS 7.9%; OML 6.8%; PAN 6.5%
Worst Performers: SNH -24.9%; MMG -10.1%; TON -8.4%; CML -7%; SBK -6.2%
Other Economic data releases of interest…
- Tuesday: RBA Rate Statement (AUS); Manufacturing PMI (UK); GDP, BOC Gov Poloz Speaks (CAN); Unemployment Rate (NZL)
- Wednesday: Trade Balance (AUS); Crude Oil Inventories, FOMC Statement, Federal Funds Rate (USA)
- Thursday: Trade Balance (CAN); SNB Chairman Jordan Speaks (CH); RBA Monetary Policy Statement (AUS)
- Friday: Unemployment Rate (USA)
One to Sell
Profit taking to pull Netcare lower
Netcare has rallied from R25 to almost R32 in less than a month, that’s almost 30% and has seen the share reach over bought territory. In fact, its standard deviation is sitting at 3.3, which signals a high probability of a pull back. The 200-day average price is R24.91, a pull back to near that level will be a very good entry for a long term turn around in Netcare.
The rally is on the back of Netcare management indicating it is working on an exit from the UK investments it made when the Rand was significantly weaker. An exit from the UK will take time and investors will take profit on this latest run higher. But it indicates, management will focus on SA, which has much better margins.
Sell above R32 for a move below R29 in the coming weeks.
Short term Ideas
- Mediclinic: Up over 12%, maintain stop loss at R111.95 and hold long positions.
- MTN: Raise target to R127.95, stop loss remains at R120.50 for 2.5% ungeared gain.
- Sibanye – Stillwater: Long at R11.50, target remains at R13.50
Long Term Ideas
- Shoprite: Finding support, buy below R257.50 with a target of R285.
- Anglo: Buy dips below R285
- Sasol: Place an offer at R457.50, leave stop loss at R420.00 for 5% gain.
- Aspen: Accumulate on weakness below R260.
- Sygnia: Add below R12.50.
- Santova: Buy below R3.00.
- Merafe: Accumulate below R1.55.
- Jubilee: Bottoming out. Hold.
- MTN: Buy Dips below R120.00.
- Glencore: Another dividend received. Hold
- Wescoal: Long term buy. Add below R1.80
- Naspers: Increase exposure below R3,000.
