Taking Stock – Market commentary

Daily insights and analysis on stocks.

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Market commentary

SOUTH AFRICAN MARKET COMMENTARY

Local stocks rose yesterday, led by banking shares which tend to benefit from a stronger rand. The exchange’s banking index ended the day 4.82% higher, with the only losers on the blue-chip index being e-commerce giant Naspers and its subsidiary Prosus, whose main listing is in Amsterdam. Both fell over 4% after China suspended Ant Group’s $37 billion stock market listing. The news knocked Prosus because it holds an around 30% stake in Chinese tech giant Tencent. The Johannesburg Stock Exchange’s blue-chip Top 40 Index closed 0.95% higher, while the broader All Share Index was up 1.08% and closed at 53,188 index points.

 

EUROPEAN MARKET COMMENTARY

European stocks closed higher on Tuesday ahead of the US presidential election between incumbent President Donald Trump and former Vice President Joe Biden. The pan-European Stoxx 600 ended up around 2.3%, with banks jumping 4.5% to lead gains as all sectors and major bourses closed in positive territory. European stocks followed a trend of positive sentiment seen globally yesterday. Corporate earnings remain a key driver of individual share price action. France’s BNP Paribas on Tuesday beat third-quarter profit expectations, sending shares of the country’s largest lender 6.7% higher.

 

US MARKET COMMENTARY

US stocks jumped on Tuesday as investors hoped a clear winner would emerge from the US presidential election and a delayed, or contested, result would be avoided. About 60 million voters sent their ballots in the mail due to the coronavirus pandemic, according to the US Elections Project. This influx of mail-in voting has raised concern over the potential for a delayed election result. Investors are also eyeing the key Senate elections which will determine if the so-called blue wave will take over Congress. Major policy shifts, including further fiscal stimulus, depend on which party has majority control.

 

ASIAN MARKET COMMENTARY

Hong Kong-listed shares of Alibaba tanked this morning after the anticipated initial public offering of affiliate Ant Group was suspended amid regulatory concerns. Shares of Alibaba in Hong Kong plummeted 6.94%. Alibaba owns a roughly 33% stake in Ant Group. On Monday, the Chinese central bank and regulators issued new draft rules for online micro-lending, which could affect Ant Group. Ant Group was looking to raise just under $34.5 billion in what would have been the world’s biggest IPO. Meanwhile, stocks in other major Asian markets were higher in early trade today.

 

 

 

CURRENCY MARKET COMMENTARY

The rand ended mostly flat on Tuesday in turbulent trade as investors awaited the results from the United States presidential election, with Joe Biden’s consistent lead in opinion polls dragging the dollar to the benefit of risk assets. At the close, the rand was 0.99% firmer at R16.04, having rallied to reach a session best of R16.00, its strongest since early March before the COVID-19 pandemic struck locally. The currency has brushed off last week’s dismal budget speech where the treasury forecast a larger budget deficit, slower consolidation of debt and a weaker economic growth.

 

COMMODITIES MARKET COMMENTARY

 

Gold fell around 0.65% this morning as the dollar strengthened after early voting results showed a close contest between President Donald Trump and Democratic rival Joe Biden in the US presidential election, with the former leading in Florida. Oil rose more than 2% today after industry data showed crude inventories in the United States dropped sharply, but analysts said uncertainty had crept into the market amid growing suspense over the result of the US presidential election. Oil prices dropped more than 10% last week with rising coronavirus cases around the world and more restrictions on movement hitting demand prospects. US oil has nearly recouped those losses in three days of gains this week in the run-up to the election.

Local companies

Telkom (TKG) +17.5%

The South African fixed-line telco operator’s share prices soared on Tuesday after the group informed shareholder that HEPS for the interim period will jump between 15% and 25%, as its aggressive cost-cutting helped offset a flat top line growth. “Group revenue showed resilience in the face of this pandemic, remaining broadly flat compared to the prior period. The mobile business continued its growth trajectory, placing Telkom Mobile solidly as the third-largest mobile operator in SA,” the company said. The group said EBITDA increased more than 5% to R5.6Bn.

 

Capitec (CPI) +3.9%

The banking group that is mostly associated with unsecured lending, announced it has partnered with SA Home Loans to launch its first full home loan offering, as the lender aims to accommodate more of its middle- and upper-income clients. The bank said the offering will allow its customers to initiate an application in under 5 minutes, alongside competitive linked interest rates from 6%, one percentage point below prime. “We’ve continually received requests from both clients and the public asking us to challenge the norms of home loans as we have done with banking,” said Francois Viviers, marketing and communications executive at Capitec. “There is also a further benefit for government employees who, if they apply for a new home loan or switch their existing bonds, could qualify for a discounted interest rate,” the bank added.

International companies

Humana Inc (HUM) +3.6%

The US insurance group with over 20 million members, managed to beat third quarter profit estimates on Tuesday, on the back of lower medical costs as demand for optional procedures remained below pre-pandemic levels. Excluding one-off items, the group earned $3.08 per share in the quarter, beating estimates of $2.81 per share. Overall revenue jumped to $20.08Bn, from $16.24Bn beating expectations of $18.62Bn. The group’s adjusted consolidated benefit expense ratio, the percentage of premiums spent on claims, stood at 85.3% for the period.

 

Bayer (BAYN) +0.4%

The pharmaceutical and chemical giant, posted another significant quarterly loss as continue to struggle with the legal fallout surrounding its Roundup weedkiller settlement. The group made a net loss of €2.7Bn ($3.19Bn), compared to the €1.05Bn in the previous period, missing analysts’ mark of €798 million profit. The group warned of a higher Roundup settlement bill adding it “took an additional provision in the third quarter to cover the increased cost of a revised class plan, as it is far enough along in the negotiations to know that the new plan will come in at approximately $2bn, an increase over the original cost of $1.25bn”. The pharma major reported a 5.1% decline in sales to €8.5Bn ($10Bn), mostly due to seasonal and currency effects negatively impacting its operations.

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