Perhaps you shouldn’t bet on commodities and telecoms
Sasol may not be able to capitalise on a rising oil price while a possible hike in US interest rates will hurt gold. MTN’s troubles are also not over yet.
should expect more market volatility in the year ahead as uncertainty remains about US president-elect Donald Trump’s policy moves, and the implications for global markets.
Other market-moving events will be the upcoming elections in France and Germany, the UK’s exit from the EU, as well as developments in Italy following the December referendum on constitutional reform, which is seen as a setback for the EU.
In the near term, global economic growth is likely to improve, driven by fiscal stimulus as political leaders worldwide are expected to start moving away from austerity measures. However, in the longer term, the prospect of increased protectionist trade measures could mean slower growth and higher inflation.
In addition to these risks, there are company-specific risks that hold downside potential to the following stocks (for the potential upside, please see page 11 in the optimist’s guide to 2017):
MTN has had a tough few years in its key markets of Nigeria, Iran and South Africa. In Nigeria, the group settled a fine from regulators for its failure to deregister SIM cards, a fine that led to the departure of former CEO Sifiso Dabengwa and other senior executives. However, its troubles are not yet over, as it faces an investigation into allegations that it illegally repatriated R190bn from Nigeria, a claim it denies.
Despite a shake-up at top management level, it also remains to be seen whether it can fix its South African business, where it has lost market share to rivals in recent years. Its network also requires substantial investment to improve quality.
Meanwhile it has finally been able to start repatriating the $1bn it had stuck in Iran due to international sanctions. Bloomberg reported that the full amount is likely to be repatriated by the end of the first quarter of 2017. However, political risk remain a factor in Iran, with Trump threatening to cancel the Iran deal, which led to some sanctions relief.
Technically, downside through 10 475c/ share could see MTN lose more of its share price value towards 5 300c/share.
Brent crude prices have rallied since the Organization of the Petroleum Exporting Countries (Opec) agreed to its first production cut in eight years on 30 November. This was followed by a decision by non-Opec producers to also cut production. The International Energy Agency (IEA) said on 13 December that oil demand should outstrip supply in the next six months if the agreed-upon cuts are implemented, which should further support the oil price.
A rallying oil price – it was trading above $55 a barrel at the time of writing on 13 December, a long way from the sub-$30 levels seen early in 2016 – should be good news for Sasol. However, the petrochemical giant has hedged about 16.8m barrels at $47.06 a barrel for the March and June quarters of 2017, thereby limiting the potential upside from the oil price rally.
The market also remains sceptical about Sasol’s expansion plans in the US, where it is building an $11bn chemical plant, which is already significantly over budget and behind schedule.
Pivotal support is at 35 400c/share, and if breached, the price could fall to its downside target at 20 800c/share. In this case go aggressively short below 35 400c/share.
Ferrochrome producer Merafe Resources has had a strong performance in 2016, with its share price gaining 178% since the start of the year to trade at 142c/share at the time of writing. Merafe would prolong the consolidation phase of a huge bottomingup pattern, if it were to encounter major resistance at 150c/share. A short within the sideways trend would be triggered at any level below 140c/share. Downside through 115c/ share towards 100c/share could then follow.
A rise in interest rates in the US to counter rising inflation, driven by Trump’s proposed spending plans, would hurt gold. This would have a negative effect on gold prices, and therefore gold mining shares.
In addition, Sibanye is betting the farm on Stillwater Mining, a US platinum and palladium miner, which it plans to acquire for $2.2bn (R30bn at the time of writing, compared with Sibanye’s market capitalisation of R22.3bn). The deal will be financed with a dollar-denominated loan as well as a new rights issue, Sibanye said, sending its share price down nearly 20% on 9 December, when the deal was announced.
If Sibanye fails to trade above 3 000c/ share, go short as it could extend current downside towards 1 600c/share.