Taking Stock - “Likelihood of a Biden victory pushes markets higher”

Daily insights and analysis on stocks.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Local shares continued their advance yesterday for a fourth consecutive day as global markets benefitted from improved sentiment and the likelihood of a Biden victory in the US elections. The All Share index closed up 2.92% (now at 55,225 index points), while the Top 40 index ended 2.97% higher. Industrials led the charge as the Industrial 25 index jumped 3.90%, followed closely by resources and financials which added 2.34% and 1.23% respectively. Bonds were much firmer, with the yield on the benchmark 2030 paper down 28 basis points to 8.99%.

 

EUROPEAN MARKET COMMENTARY

European stocks closed higher on Thursday as investors closely monitored vote-counting in key battleground US states that will decide the election. The pan-European Stoxx 600 ended up around 1%, with media stocks adding 2.7% to lead gains while oil and gas stocks bucked the trend, down 0.2%.  The UK’s central bank on Thursday held interest rates steady as England enters a fresh period of national lockdown measures expected to hit the country’s economic recovery. Along with maintaining its main lending rate at 0.1%, the Bank of England’s (BOE) Monetary Policy Committee (MPC) also voted to expand its target stock of asset purchases to £895 billion.

 

US MARKET COMMENTARY

US stocks jumped on Thursday on hopes the winner of the US presidential and congressional elections would soon be determined, with shares of major tech-related companies leading the gains. Facebook and Amazon both gained more than 2%. Netflix, Apple and Microsoft each closed more than 3% higher. Investors in this high growth sector cheered a potential divided government as it likely means taxes won’t go up, antitrust scrutiny could stay in check and the China trade war doesn’t get any worse. Finally, the Federal Reserve said on Thursday it kept interest rates unchanged near zero, noting the economy remained well below pre-pandemic levels.

 

ASIAN MARKET COMMENTARY

Stocks in Asia traded mixed this morning as investors continue to wait for a result from the US election. Mainland Chinese stocks were lower in early trade, with the Shanghai composite down 0.37%, while Hong Kong’s Hang Seng index dipped 0.17%. Stocks in Australia advanced, with the S&P/ASX 200 up 0.83%. Investor focus on Friday likely remained on the US election with the spotlight on a few battleground states such as Arizona and Pennsylvania.

 

CURRENCY MARKET COMMENTARY

The rand gained on Thursday as it remained below the key technical level of R16.00 to the dollar after a rally in the previous session driven by increasing indications of a Joe Biden victory in the US presidential election. The close, the rand was 1.07% firmer at R15.69 per dollar. It marched to an 8-month best of R15.68 in a broad emerging market rally that only lost steam overnight as traders looked ahead to the US Federal Reserve policy decision yesterday. Traders expect volatility over the next few days as vote counting continues and Trump pursues a multi-pronged attack on the vote system.

 

COMMODITIES MARKET COMMENTARY

Gold prices eased this morning on an uptick in the dollar, with investors eyeing US presidential election results which suggest Democrat contender Joe Biden is inching closer to victory, though the prospect of a contested result remained. US oil fell nearly 1% today as new lockdowns went into effect in Europe raising questions over the outlook for demand for crude, while ballots were still being counted in the US election with its outcome undecided, keeping markets on edge. OPEC+ is expected to delay bringing back 2 million barrels per day of supply in January, given the decline in demand from new COVID-19 lockdowns.

LOCAL COMPANIES

Dis-Chem (DCP) +3.1%

The South African pharmacy group opted to scrap its interim dividend as the group is investigating an acquisition of a “community-based pharmacy group” that will expand its footprint. “We are in the advanced stages of concluding the acquisition of a strategic interest in a healthcare asset, with specialisation in the design, administration, risk management and delivery of primary healthcare insurance, as well as gap cover and psychological wellbeing”, the group said as it aims to diversify its operations. Overall revenue increased 8.1% in the period to R12.8Bn and grew headline earnings by 16.1% to R309.6 million, despite a challenging trading and economic environment.

 

Sappi (SAP) +3.0%

The paper and pulp producer says it is cautiously optimistic about a market recovery and expects earnings to normalize in mid-2021, as the COVID-19 pandemic shaved $300 million (R4.7Bn) from its operating profit for the full-year. The world’s largest manufacturer of dissolving wood pulp (DWP), has seen volumes tumble 29% in Q4, as the pandemic related lockdowns impacted its operations in most regions. The group swung into a $135 million loss for the full-year end-September, from a $211 million profit in the prior year. “Clothing retailers and manufacturers had let their inventories run down, but they are now filling supply chains”, CEO Steve Binnie said and added the group expects global textile sales to grow by 3% per annum, pushing DWP volumes to 5% per year.

INTERNATIONAL COMPANIES

General Motors (GM) +5.4%

Shares in the automaker jumped on Thursday as the group reported Q3 earnings ahead of Wall Street expectations, with its highly profitable trucks and SUVs in North America boosting the bottom-line. The group posted a profit of $2.83 per share, blowing away estimates by $1.40, while generating $35.48Bn in revenue, flat compared to the previous year and slightly below estimates of $35.51Bn. CEO Mary Barra: “There are a lot of moving pieces right but we’re hopeful that we’ll continue to have a strong recovery that we’ve seen in the United States and in China”. The carmaker gained market share in the large pickup segment, now accounting for 37.5% of total sales, while China sales grew 12%, as the country recovers.

 

Alibaba (BABA) -2.7%

The US-listed Chinese e-commerce giant’s revenue grew at the slowest pace on record in the third quarter, spooking investors and sending the share price lower. This follow the 8% drop on Tuesday after Chinese regulators suspended the blockbuster $37Bn IPO of Ant Group, with the tech group owning a 32% stake. The group posted adjusted income of $2.65 per share, topping the consensus call of $2.12 on revenue that grew 30% to $22.8Bn, but missed the mark of $23.2Bn Wall Street expected. "Our domestic core commerce business continued to grow steadily during the post-COVID-19 environment in China through higher purchase frequency and consumer spending," CFO Maggie Wu said in a statement.

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Media, Sasfin Wealth

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