Taking Stock - Emerging Markets Strengthen.

In todays taking stock, we look at how emerging markets strengthen amid a Global Rally on US stimulus.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Local stocks strengthened along with other emerging markets amid a global rally on US stimulus hopes and positive COVID-19 vaccine updates. The benchmark all-share index rose 0.22%, just off its year high reached earlier this week (closed at 59,292 index points). The Top-40 index closed 0.16% higher. Curbing further gains gold stocks weakened 4.79% after the rand strengthened and the gold price fell. Bonds were a touch weaker, with the yield on the benchmark 10-year government bond up 7 basis point to 8.93%.

 

 

EUROPEAN MARKET COMMENTARY

European stocks traded higher on Wednesday as market focus in the region remains firmly on the progress of post-Brexit trade deal talks between the EU and UK. Coronavirus vaccine optimism is also buoying market sentiment. The UK administered the first Covid-19 vaccines to the public on Tuesday. The pan-European Stoxx 600 index made gains of 0.7% higher with all sectors, bar technology, in positive territory.

 

 

US MARKET COMMENTARY

US stocks fell on Wednesday, retreating from the record highs set earlier in the day, as tech shares struggled and traders weighed the prospects of new fiscal stimulus. Apple was among the worst-performing Dow components, falling more than 2%. Salesforce dropped 3.2%. The S&P 500 tech sector fell 1.9% to lead the index lower. Facebook declined 1.9% after the Federal Trade Commission, along with several states, filed lawsuits that could force the social media giant to divest Instagram and WhatsApp.

 

 

ASIAN MARKET COMMENTARY

Asian markets mostly declined this morning as investors kept an eye on Brexit trade talks as well as ongoing negotiations in the US for a coronavirus relief package. In Australia, the benchmark ASX 200 fell 0.6%, with most sectors in the red. The energy subindex retraced some of its losses but still traded down 0.72% as oil stocks struggled for gains. Hong Kong’s Hang Seng index declined, while Chinese mainland markets also struggled for gains.

 

 

CURRENCY MARKET COMMENTARY

The rand clung to its recent gains on Wednesday, inching firmer as global risk demand and better-than-expected local economic data lifted demand for the unit. At the close, the rand traded at R14.97 versus the dollar, 0.11% firmer. The rand has gained more than 7% against the US currency since the start of November, supported by an uptick in global risk appetite that has largely outweighed investors' worries about South Africa's dire economic situation. However, October retail sales data published on Wednesday showed a decline, down 1.8% year on year, tempering some of the enthusiasm for the currency.

 

 

COMMODITIES MARKET COMMENTARY

Gold prices eased this morning as the US dollar held firm against other major currencies in the absence of signs of any additional US fiscal stimulus to ease the economic blow from the COVID-19 pandemic. The US House of Representatives on Wednesday approved a one-week extension of federal government funding, giving lawmakers more time to agree on a broader coronavirus relief package. Oil prices rose in early trade on Thursday, boosted by a COVID-19 vaccine rollout in Britain and the imminent approval of a vaccine in the United States, which could spur a rebound in fuel demand, despite a large build in US crude stocks last week.

LOCAL COMPANIES

British American Tobacco (BTI) +0.9%

The tobacco giant, with brands like Dunhill, Kent and Lucky Strike, raised its full-year revenue outlook, as demand remained resilient during the global pandemic even as duty-free sales at airports impacted the group. However, a nationwide ban on tobacco sales in SA were lifted earlier-than-expected, boosting sales in the country. CEO Jack Bowles. “'We are transforming our business in order to build a better tomorrow...through providing a range of enjoyable and less risky products is the greatest contribution we can make to society”. The group expected sales to contract by 3%, but announced only a 2.5% contraction for the second half of the financial year.

 

Schroder European (SCD) +2.7%

The JSE-listed property REIT, which gives local investors exposure to Western Europe, announced the value of its property portfolio grew to €268.6 million compared to €242.7 million previous, as net asset value (NAV) per share increased to €1.509 versus €1.362. Chairman Julian Berney: "Faced with a global pandemic such as COVID-19 and ongoing political risk such as Brexit, it is impossible to accurately forecast with any degree of confidence how European economies and real estate markets will perform next year”. Annualised rental income ticked up slightly to €17.2 million versus €17.1 million, as rental collections maintained an 85% level during the crisis.

INTERNATIONAL COMPANIES

Dollarama (DOL) +3.0%

The Canadian discount chain managed to beat sales estimates on Wednesday, as customers largely staying at home amid the COVID-19 pandemic, and spent more on affordable Halloween decorations and household essentials. CEO Neil Rossy: “The popularity of seasonal festive items in the third quarter is a positive trend as we enter the seasonally important fourth quarter”. Group sales rose 12.3% to $1.06Bn from $947.6 million in the prior year, as shoppers reduced the frequency of store visits, but bought more when they did visit the stores. The retailer earned $161.9 million or 52 cents per diluted share during the period, up from $138.6 million or 44 cents per diluted share in the same quarter last year.

 

Campbell Soup (CPB) -2.0%

The American processed food and snacks group simply known as Campbell’s managed to top Wall Street expectation for Q1, despite offering soft guidance for Q2, as the group expects 5% YoY growth with analysts pencilling in 6.5% growth. CEO Mark Clouse: “We're continuing to watch demand, and as we project these numbers, it is difficult to anticipate what demand is going to look like as it goes forward”. The group posted a 7.3% jump in sales to $2.34Bn, as more customers stocked up during the second wave of the virus. Excluding one off items, the group reported adjusted earnings of $311 million or $1.02 per share for the period, topping the 91 cents consensus mark.

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