Taking Stock - Local stocks ended higher fuelled.

Local stocks ended higher fuelled by a rally in global shares and the arrival of the first COVID-19 vaccine doses in South Africa.

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MARKET COMMENTARY

SOUTH AFRICA

Local stocks ended higher on Monday as platinum and diversified mining companies reinforced a positive sentiment fuelled by a rally in global shares and the arrival of the first COVID-19 vaccine doses in South Africa. The benchmark all-share index closed up 0.52%, while the blue-chip index ended up 0.62%. The diversified mining index surged 1.66% and the platinum mining index was up 2.92% as price of some commodities and precious metals gained. Bonds firmed alongside the rand, with the yield on the benchmark 2030 government issue down 8 basis points to 8.66%.

 

 

EUROPE

European stocks closed higher on Monday, echoing positive market sentiment elsewhere. The pan-European Stoxx 600 climbed 1.2% by the market close, with tech shares adding 2.4% to lead gains as all sectors bar oil and gas entered positive territory. European markets started the trading week on a positive note along with their global counterparts, despite turbulent trading last week after retail investors prompted what Goldman Sachs has called the biggest short squeeze in 25 years. On the data front, euro zone unemployment held steady at 8.3% in December, the EU’s statistics office confirmed on Monday. Meanwhile British manufacturing grew at its slowest pace for three months in January as Brexit and Covid-19 weighed on orders.

 

 

US

US stocks jumped on Monday, the first session of February, as Wall Street appeared to shake off concerns about a speculative retail trading mania that largely drove the market’s worst weekly sell-off since October. GameStop, the brick-and-mortar video game retailer that has been the centre of attention on Wall Street, fell 30.8%. Last week, the popular stock among retailer investors on Reddit forum WallStreetBets soared 400% amid extreme trading volume and volatility. Meanwhile, a group of 10 Republican senators sent President Joe Biden a letter on Sunday, urging him to consider a smaller, scaled-down Covid-19 relief proposal.

 

 

ASIA

Stocks in Asia rose in early trade today following an overnight jump on Wall Street. The Japanese government is set to extend the state of emergency covering Tokyo and other regions till March 7 in order to contain the coronavirus, local media reported. The Reserve Bank of Australia (RBA) announced its decision to maintain its cash rate at 0.1% as well as purchase an additional 100 billion Australian dollars of bonds (approx. $76.32 billion).

 

 

CURRENCIES

The rand firmed on Monday, adding to gains at the end of last week as yield-seeking investors made tentative bets on the volatile currency, while stocks moved up. At the close, the rand was 0.74% firmer at 15.0450 against the US dollar. With interest rates set to remain steady in South Africa, even as monetary and fiscal policy in the United States and Europe remains expansionary, the rand is an attractive "carry trade" - offering healthy returns against near-zero rates in the developed economies.

 

 

COMMODITIES

Silver prices fell more than 2% this morning as investors booked profits following a rally of as much as 11.2% to a near eight-year peak in the previous session. Silver prices rocketed as retail investors, egged on by messages on Reddit, pile into the market in an attempt to push up prices. The retail investment frenzy in silver has left dealers from the United States to Singapore scrambling for bars and coins to meet demand. Oil prices rose around 1% today after major producers showed they were cutting crude output in line with their commitments on restraint, supporting a market thrown out of kilter by weak demand during the coronavirus pandemic.

LOCAL COMPANIES

Adapt IT (ADI) -1.8%

Telecommunications company Huge Group has secured the backing of more than three-quarters of its shareholders for its R795-million pursuit of JSE-listed software services group Adapt IT, it said on Monday. Huge Group, which is also a listed entity announced its pursuit of Adapt IT last Wednesday, counts large institutional investors such as Stanlib Asset Management, Sentio Capital Management and Praesidium Capital Management among its shareholders. It said shareholders representing 79.57% of Huge shares have provided irrevocable undertakings to support the Adapt IT offer. “The Huge board expects that further information will be contained in the ‘firm intention announcement’, which should be released as soon as reasonably possible after the date of this announcement,” Huge Group said. Speaking to TechCentral on Monday, Huge Group CEO James Herbst said the company engaged with the Takeover Regulation Panel on Friday morning. “They were incredibly helpful. We were asked to demonstrate Huge Group shareholder support. We rallied and within 24 hours we provided the Takeover Regulation Panel with irrevocable undertakings from 79.57% of our shareholders. I think this demonstrates the speed at which we are prepared to work and can work.” The all-share bid, at an offer price of R5.52/share, does not enjoy the explicit support of Adapt IT’s board. Though it wants to buy 100% of the company, Huge Group has said it is also prepared to accept a lesser stake – and even a minority stake. However, if all Adapt IT shareholders accept the offer, Huge Group will have to issue about 130 million new shares.

 

 

DRD Gold (DRD) - -0.2%

Revenue increased by R866.0 million, or 41%, to R2,977.4 million (2019: R2,111.4 million). The impact of the increase in revenue on earnings and headline earnings was moderated by an increase in cash operating costs of R141.5 million, or 10%, to R1,518.8 million (2019: R1,377.3 million). EPS and HEPS increased notwithstanding the impact on the Current Reporting Period of the issuance of 168,158,944 shares to Sibanye Stillwater Limited at an aggregate subscription price of R1,085,590,116, on 22 January 2020. The weighted average number of ordinary shares for the Current Reporting Period increased by 24% to 855,113,791 from 686,954,847 in the previous corresponding period. As at 31 December 2020, DRDGOLD’s cash and cash equivalents was R2,169.4 million (30 June 2020: R1,715.1 million), with a revolving credit facility with ABSA Bank Limited of R200 million, available if needed. The Group remains free of any bank debt as at 31 December 2020 (30 June 2020: Rnil). Liquidity is further enhanced by current high Rand gold price levels.

 

INTERNATIONAL COMPANIES

RYANAIR (RY4C) +1.2%

Ryanair expects this fiscal year to be “the most challenging” in its 35 year-history, the company said on Monday, as governments step up travel restrictions in an effort to contain new variants of Covid-19. The budget airline is on track for a net loss of between 850 million euros ($1.03 billion) and 950 million euros for its 2021 fiscal year, ending in March. It reported a net loss of 306 million euros for the three months ending in December. “Covid-19 continues to wreak havoc across the industry,” Ryanair said in a statement. It added that Christmas and New Year traffic “was severely impacted” by travel bans imposed on UK travellers in late December. A number of European governments decided to impose restrictions on flights leaving the UK before Christmas after news that a new variant of Covid-19 identified in the county was spreading quickly. This contributed to a 83% drop in traffic in the month of December for Ryanair.

 

ALIBABA (BABA) +4.3%

Alibaba is coming off what was likely a big quarter for its e-commerce business. But China's most famous tech firm is still poised to face nervous investors on Tuesday as a regulatory crackdown in China continues to cast a shadow over its future. The company is expected to report a 33% jump in revenue for the quarter ended December compared to a year earlier, according to analysts polled by Refinitiv. Alibaba (BABA)'s core e-commerce operations have benefited during the coronavirus pandemic as people turned to online shopping to buy things without leaving their homes. And the most recent quarter included the company's big Singles Day sales blitz, which brought in tens of billions of dollars last year. But strong revenue might not be enough to soothe concerns from investors, who have been rattled by worries over how hard Chinese authorities might come down on Jack Ma's tech empire.

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