Wednesday, August 12, 2009

Stock Market Watch: The Good, the Bad & the Ugly

Published: August 11, 2009
The Good – In Zimbabwe Bloomberg reported that there has been a surge in interest on ZSE. The stock market has surged into the top 5 in Africa passing Nairobi Stock Exchange. Another good from Zimbabwe has been the proposed liberalization of grain buying. One of the tragedies we had to deal within Zimbabwe was the absence of competitive pricing for the produce from farmers.
Another big good in Zimbabwe is that the government shelves stupid law. The government has taken the right tone in assuring investors that the age of jambanja is over. This is a good move and should help resurrect Zimbabwe mining. In my line of work I come across very interesting new mining technologies which if applied to Zimbabwe will unlock thousands of ounces if not millions. At present Zimbabwe gold mining is probably using technology from 20 years ago. The modernization of Zimbabwe mining to world standards will have explosive potential. Watch out for a company called New Dawn Mining listed in Toronto.In the US After a reporting seasons that saw most analysts forecast’ beaten Wall Street rallied to medium –term records. The driving factor was the renewed optimism that the recession was coming to an end. Unemployment figures have improved and house prices seem to be improving. In my introspection the true test for the economy will be a change in inflation. A pick up in inflation data will be a sign that the monetary transmission mechanism is functioning and that the US has moved away from the liquidity trap it has been after the banking crisis. Interest rates will start to pick up and we will move from stagflation to inflation. Production output and employment will also follow that will be my sign for the end of the recession. In the meantime get really scared when you hear the term “double bottom” its one word every investor will get familiar with in the next few months.Virgin sells subscriber in the US which is hot on the heels of the sale of Virgin Mobile Canada to Bell for C$142m (£79.7m) in early July this comes as Sir Richard secured a $280m investment from Sheikh Mansour bin Zayed al-Nahyan into Virgin Galactic. The Abu Dhabi sheikh’s purchase of a 32% stake in the billionaire entrepreneur’s space travel business values it at $900m, and paves the way for a future stock market flotation. The two deals demonstrate Sir Richard’s strategy of launching and funding growth businesses and then exiting when the time is right to reinvest the money earned elsewhere an idea that has made him the billionaire he is today. Virgin invested an initial $200m in VMU in October 2001, and withdrew that money in 2005 in a refinancing. As a result, the $250m from the Sprint sale which consists of the value of Virgin’s remaining equity, loans and its trade mark licence is pure profit….like I like to say money in the bank. A Virgin Group spokesman said the sale follows their group strategy of selling our more mature mobile businesses, and allows us to invest in growth areas like Virgin Mobile India.Yahoo & Google have agreed a deal to share search engine revenue. This deal in my view is somewhat smells anti-competitive. It seems the US competition authorities are behind the technology curve. All the same hats off to Yahoo on this one I personally don’t remember when I last used the yahoo search engine. Randgold resources the African exploration company listed on the LSE have been announced as the preferred bidder for Moto Resources. I am a big fan of exploration and Moto has a couple of million ounces in the DRC. If investors can consider the DRC as a investment destination that can only be good for the rest of Africa…Zimbabwe includedIn Johannesburg the Rand continues to trade around R8/$ a rate that has little to do with economic fundamentals. The good here is that CPI and PPI have all gone down quite significantly and there is renewed talk of another interest rate cut. Rumors at the JSE are that the rand has held up in anticipation of the MTN-Bharti deal which is said to be worth some US$30bn. Another good in SA has been the appointment of Gill Marcus as Reserve Bank governor in my view Tito has done his bit and hats off for passing the button unlike some reserve bank governors I know. The Bad
On the JSE platinum producers realised bad figures in the wake of depressed global demand for platinum metals. Currently 80% of the world’s platinum is produced by SA and Zimbabwe. Demand for platinum is 80% from auto manufactures. The two leading producers Angloplats and Implats have shelved expansion plans and will in all likelihood cut jobs. Vehicle sales globally have continued to slide and only a structural shift in the global economy will stimulate demand for automobiles. In this regard my free investment advice is stay clear of automotive linked industries the worst in my view is yet to come.Johannesburg service delivery strikes have ended and now the next wave of strikes will be from Eskom the power utility company. So after weeks of no garbage collection the next strike will switch off your geyser. Although I sympathise with the workers one gets a feeling the country is being held hostage and something has to be done.On a lighter note…..the beautiful
Italian premier Silvo Berlusconi has sent media stocks in Italy rocking as Italians went about buying tabloids and other publications to get the juicy details of his affair with long-legged Patrizia D’Addario, 42. This was a masterstroke if ever there was a lesson to be leant on investor relations. Berlusconi who is also Italy’s richest man made his wealth as a media tycoon. So from an investor’s point of view I think Mr. Berlusconi is acting in shareholders interest even when in bed fino alla volta prossima…ciao! Percy Takunda is an Equity Analyst based in Johannesburg

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