Gold gains in lustre as resilient banks find themselves sailing in choppy waters

IT IS GOING to be a long winter with the Covid-19 virus wreaking a health and economic blitzkrieg among us all.

On Friday, the Department of Health said there were a staggering 13 674 new cases on Thursday.

This was the highest level of new infections, and was also sharply up from the previous day’s record of 10 134 new cases.

Doctors have warned that hospital beds for Covid-19 patients were already in short supply, whether in a private or public hospital.

The economic impact of lockdown has been devastating, and while most big businesses have reopened, it will be some time before struggling consumers are able and willing to spend more than the basics. A decline in the number of new infections will be necessary before there is an improvement in consumer confidence, and that is before we consider the difficult political process of structural economic change.

While the health system is doing all it can to fight the pandemic, what seems clear to me is that what didn’t work economically before the crisis surely has less of a chance post-Covid-19. People are dying, and its looking to get worse. We are at a turning point.

The world’s biggest economy

also reported its highest level of new cases on Thursday, more than 60 500, and with 32.9 million Americans collecting unemployment benefits in the third week of June, expectations are that the labour market there will also take years to recover.

However, unlike South Africa, the US economy worked before the pandemic – US unemployment in January 2020 was 3.6 percent, while South Africa’s was 30.1 percent in the first three months.

So it was no surprise that in recent weeks global markets had started recovering, buoyed by reopening economies and signs in many countries that new infections were falling.

For instance, in China shares fell on Friday, but this was the first decline since June 29 this year and shares had surged to their highest level since 2015 on Thursday.

And this was in spite of another ratchet up in US/China tensions after the US imposed sanctions on the highest-ranking Chinese official yet over alleged human rights abuses against the Uighur Muslim minority.

But market sentiment soured a bit globally on Friday, as new infections keep climbing. By Friday, for instance, China, which seemed to have have the virus at bay, reported record daily infection numbers on three of six days.

Stock market returns are likely to be under stress, locally and globally, and to my mind, an actively and professionally managed portfolio has a better chance of getting those returns than hanging onto a passive index investment waiting for the world to get better.

On the JSE, the gold mining index was up 1.22 percent. The dollar gold price per ounce shows a strong upward trend over a year in spite of the sharp fall in March along the price of just about every other listed asset.

Harmony Gold, the

third

biggest gold mining company, was up 4.05 percent to R98.18 Friday morning. But consider that its price has risen 94.3 percent from R50.53 on June 5.

AngloGold Ashanti, one of the world’s biggest miners, saw its share price rise 0.99 percent to R536.28 on Friday. Its share has increased 38.8 percent since June 5.

DRDGold was trading 0.04 percent lower at R27.65 on Friday morning. Its share price has gained 84 percent from the R15.02 that it traded at on June 5.

Is it possible there are some bears going into hibernation?

FirstRand shares were up 2.1 percent to R40.75 on Friday morning, but compared with many counters on the JSE, its share price has barely changed from the sharp decline in global share prices mid-March.

This is understandable given its South Africa focus and the weak outlook for the economy. This is also in spite of the financial service group recently voted as having the best digital banking service, and its shareholders benefiting from the RMB Holdings unbundling.

Africa’s biggest bank Standard Bank’s share price rose 0.37 percent to R110.87 on Friday, yet its share price is also relatively unchanged from the lows it traded at in March, when compared with other stocks that have gained strongly since then.

Local banks, which have been growing in other African countries to offset weaker business conditions in South Africa, are being impacted by weaker currencies, lower interest in South Africa and higher credit impairments.

An analyst once told me that South African banks were like oil tankers: they are so big that they take a long time to change direction. While they are clearly sailing in choppy waters, they remain well capitalised, and their share prices have proven to be resilient in the past.