Put some money into commodities and telecoms
Sasol may rise on the back of the oil price while commodities players could see an upward trend in the coming year. MTN is also on the path to recovery.
themost memorable aspects of 2016 was the global wave of populist political outcomes, including Brexit, Donald Trump’s victory in the US election, and the outcome of December’s Italian referendum.
Slower growth in China, falling oil prices, the speculation on when the US Federal Reserve will continue its rate-hiking cycle, geopolitical instability and the threat of bankruptcies in junk bonds are other factors similar to those credited for causing the extreme volatility that we saw from August 2015.
The disciplined investor who was willing to endure the volatility was rewarded. But the one who attempted to divine precisely when the times of volatility will begin and end, suffered harshly. Whether motivated by fear or pride, most investors have struggled to maintain substantial gains this year from the steep swings up and down.
Global political uncertainty remains a key worry, and further questions remain regarding Trump’s intentions with US trade and economic policy, which could affect government debt levels, interest rates, commodity prices and economic growth rates, particularly in emerging markets.
But in an ideal world, the Fed will go ahead and increase interest rates gradually in an attempt to prevent any crashes from happening. It will only increase key rates to a level that does not have any negative impact on financial markets. A strong recovery in the US economy would be boosted by an improved job market, higher wages, and growing spending power. The European Central Bank (ECB) will stick to its driving style in 2017 with steering manoeuvres consisting of bond purchases and negative deposit rates.
Taking an upbeat view of 2017, my stock picks are based on shares that have been out of favour this year, and seem ready to be regaining upside. (For the potential downside on these stocks, please see the article on page 11 of the flip side of this magazine.)
MTN has been under significant pressure since the telecoms group was slapped with a $5.2bn fine in Nigeria in October 2015, after it failed to comply with regulations to scrap unregistered SIM cards. MTN plunged from highs at 26 300c/share to a current low at 10 400c/share. The fine, which has since been drastically reduced, has led to a shake-up and restructuring of MTN’s upper echelons, with new CEO Rob Shuter, a top Vodafone executive, set to join in March 2017.
Currently retaining support at 10 400c/ share, upside through 12 200c/ share would trigger a neutral buy, with potential gains to 15 650c/share. An aggressive long is recommended above that level as impetus will most likely continue to 21 500c/share.
Brent crude plummeted below the $30-barrier early in 2016, but a deal among Organization of the Petroleum Exporting Countries (Opec) members in November to cut output helped rally prices. At the time of writing on 13 December, Brent crude was trading above $55 a barrel, its highest levels in nearly 18 months.
Sasol, whose fortunes are closely correlated to the oil price and the rand/ dollar exchange rate, has been rangebound between 50 000c/share and 35 400c/share since January 2015. A recovery above 41 915c/share will most likely trigger further gains towards 47 300c/share at first and then 50 000c/share. Go aggressively long above that level as a 100% retracement to 65 300c/share could then ensue.
After reaching lows last tested in 2009, Merafe seems set to redeem itself. A move above 150c/share should see the share price appreciate to 200c/share, before testing a 2007 prior high of 245c/share. Merafe generates income primarily from the Glencore-Merafe Chrome Venture. With the company expecting global stainless steel production to grow by 2.6% in 2016 and by 3.1% in 2017, there will be a higher demand for ferrochrome.
Mark Beveridge, who is responsible for market intelligence group CRU’s ferrochrome market outlook, says a combination of stimulus-linked demand for ferrochrome in China and a relative absence of chrome inventory led to a scramble for South African ore. It seems the recovery in chrome prices coincides with what the research group believes to be significant moves to consolidate the South African industry.
A Trump victory is seen by many as positive for gold in the long term because of the prospects of a higher budget deficit to finance all his proposed infrastructure spending plans and tax cuts. Under this scenario, gold would then be a safe haven, especially if markets remain volatile amid widespread uncertainty over Trump’s international policies. Above 3 000c/ share Sibanye Gold will end its shortterm bearish streak, and a 100% recovery towards 8 000c/share should follow.