Market punishes Massmart
There are very few things that you can be sure of when you invest in shares, but it is accepted that, in the f inal instance, earnings rule the roost when it comes to determining share prices. It is significant in this regard that Massmart, which recently announced a 26% decline in headline earnings per share for the six months to end June, has landed among the poorest performing shares on the JSE. The share, which caught the imagination of many investors when it was acquired by Walmart, has now tumbled by about 49% since reaching its historic high in May 2013.
There is a belief that Walmart’s input – such as groceries at Game – is not as successful as originally anticipated. For example, it is very diff icult to take on competitors such as Shoprite/Checkers, Pick n Pay and Woolworths in shopping centres.
That there has been an underlying weakening in the market has been borne out by the fact that the number of shares whose closing prices are 10% or more above their individual 200-day exponential moving average (EA) has dropped to 52% of the 100 biggest shares in terms of market cap. The feeling among most investment managers seems to be that the current weakness should rather be seen as a buying opportunity. Nevertheless, some admit that they are increasing their exposure to defensive shares.
At the same time, there are warning signs that, with the local economy currently so weak that we could end up in rececession, precautions should be taken. Even a favourite such as Mr Price is experiencing pressure as it has weakened by some 28% since April.
There is an uneasiness about what’s happening on the New York Stock Exchange, the world’s foremost bourse. For example, New York ’s general 12-month moving average, an indicator regarded by many market players as important, has headed south for the first time in four years. The trend is confirmed by the S&P 500, which recently experienced its biggest downturn since 2011 when it dropped by almost 22%. At the time, the JSE’s All Share Index declined by just over 15%, which did offer good buying opportunities.
Nevertheless, it should be borne in mind that the JSE, like most stock exchanges, tends to follow New York.
It is noteworthy that banks and insurance companies have made their appearance among the weakening shares. Even Sanlam, which has performed remarkably for its shareholders since 2009, has retracted to such an extent that its long-term moving average (200 days) has shown a downward reversal for the first time since 2009. MMI and Liberty Holdings have also reversed. Of the banks, shares like Standard Bank and Nedbank look weak. FirstRand is, as usual, the strongest among the heavies.
Of t he sha r es t hat a r e brea k i ng through their 200-day moving average, Truworths, Vukile, Shoprite and Aquarius look interesting. With regard to the lastmentioned, there are 10 consensus analysts who believe it’s a buy. And in the case of Royal Bafokeng, there are a somewhat unusual nine buy recommendations. WEAKEST STOCKS
KUMBA IRON ORE
% BELOW 200-DAY EA
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KAP STEINHOFF NASPERS-N
AVI FIRSTRAND TELKOM
PICK N PAY
RMB HOLDINGS BIDVEST OLD MUTUAL ASPEN
SA CORP *Based on the 100 largest market capitalisations BREAKING THROUGH
% ABOVE 200-DAY EA
64.6 61.3 46.5
30.7 29.8 29.3
26.1 26.03 24.6 23.4
% ABOVE 200-DAY EA