Taking Stock - Markets fall as recent vaccine rally cools off.

In today's taking stock we look at the changes in the markets relating to downturn in the vaccine rally.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

The stock market, which had been advancing with minor hiccups since November, lost steam as investors took profit. The JSE All Share index closed down 0.37% (now at 57,053 index points) while the JSE Top 40 companies index lost 0.5%. The profit booking largely occurred across the large cap companies except banks and real estate, both of which ended in the green. Bonds were weaker. The yield on the government benchmark 2030 government paper rose 2 basis points to 8.85%.

EUROPEAN MARKET COMMENTARY

European stocks closed lower on Tuesday despite a backdrop of more positive coronavirus vaccine news from Moderna. The pan-European Stoxx 600 closed down by around 0.2%, with travel stocks shedding 1.1% to lead the losses as the majority of sectors and major bourses slid into negative territory. In Europe, focus is on the outlook for the EU’s near-term economic recovery after Hungary and Poland blocked the adoption of the 2021-2027 budget and recovery fund on Monday. This was due to the budget law including a clause making access to money conditional on respecting the rule of law.

US MARKET COMMENTARY

US stocks fell on Tuesday as the market’s recent rally cooled off amid a sharp decline in drug store shares and disappointing economic data. Shares of pharmacy owner CVS Health and Dow-member Walgreens Boots Alliance dropped after Amazon launched a pharmacy business, which allows free delivery of medications for Prime members. Sentiment also took a hit after data showed retail sales increased less than expected in October. Retail sales rose 0.3% last month, versus a 0.5% gain expected by economists polled.

ASIAN MARKET COMMENTARY

Asia markets were mixed in early trade today. Investors remained cautious despite vaccine hopes, even as coronavirus cases continued to surge. Chinese stocks didn’t budge much in early trading. The Shanghai composite edged up 0.26%, while Hong Kong’s Hang Seng index slipped 0.14%. Japanese exports in October did much better than expected, falling 0.2%, according to the Ministry of Finance. That’s compared to a 4.5% decline forecast by economists in a Reuters poll. It followed a 4.9% drop in September. Exports were helped by a rise in demand for Japanese cars by China and the US, which drove up shipments.

CURRENCY MARKET COMMENTARY

The rand weakened on Tuesday, with investors opting to take profits on the currency's recent rally ahead of a lending rates decision later in the week. The small chance of a rate cut, which would chip away at the returns investors earn on local assets, has prompted investors to pocket profits on the rand's 5% rally since the beginning of November. The South African Reserve Bank (SARB) is likely to leave the repo rate at a record low at its Nov. 19 meeting and over the coming year too, a Reuters poll of economists found. At the close, the rand was trading around R15.40 to the dollar, 0.47% weaker.

COMMODITIES MARKET COMMENTARY

Gold prices edged higher on Wednesday as investors weighed the economic impact from the resurgence of COVID-19 globally against optimism over a potential vaccine. US Federal Reserve Chair Jerome Powell said on Tuesday it was not time to shut down emergency programs aimed at battling the economic fallout from the pandemic and the economy is left with “a long way to go” to recover. Oil prices fell this morning after a bigger-than-expected build in US crude stockpiles stoked fears for weak fuel demand and a potential supply glut, but hopes that OPEC and its allies will postpone a planned January increase to oil output braked losses.

INTERNATIONAL COMPANIES

Home Depot (HD) -2.5%

The home improvement retailer reported strong Q3 results before the opening bell on Wall Street, with sales jumping 24% compared to a year ago, as customers continued to spend on home improvement during the global pandemic. The group posted $3.18 earnings per share, ahead of the $3.06 per share expected, while revenue came in at $33.54Bn, well ahead of the $32.04Bn expectations. The retailer did not provide 2021 guidance, due to the macroeconomic uncertainty of the pandemic, as the US is suffering from a second wave of infections.

Walmart (WMT) -2.0%

The discount retailing giant posted expectation beating earnings on Tuesday, as customers continued to engage its digital channels, leading to a 79% surge in e-commerce sales. CEO Doug McMillon: “We’re convinced that most of the behaviour change will persist beyond the pandemic and that our combination of strong stores and emerging digital capabilities will be a winning formula”. The retailer said third quarter profit soared 56% to $5.1Bn, or $1.34 per share on an adjusted basis, topping the $1.18 per share analysts expected. The group generated 5.2% higher revenue to $134.7Bn versus the $132.2Bn consensus mark, while same-store sales increased 6.4%.

LOCAL COMPANIES

Ninety One (N91) +3.0%

The Independent standalone asset manager, recently spun-off from Investec, reported its first net outflow since 2017 as investors remain “risk-off” and following the loss of a few large institutional mandates, relating to past performance. The group’s net outflows came to £332 million (R6.7Bn) in the interim period, however assets under management (AUM) increased 15% to £119Bn from the £103Bn reported in March, but still below the £120Bn recorded in September 2019. CEO Hendrik du Toit: “We believe in the considerable long-term opportunity for Ninety One to grow organically. Our strategy is clear and our focus remains on execution”. The group’s revenue and adjusted operating revenue were steady at £297 million and £289 million, while profit before tax ticked up 3% to £94.8 million.

Stor-Age (SSS) +6.1%

The largest self-storage property landlord in South Africa delivered a strong interim performance, despite the COVID-19 pandemic and subsequent lockdowns. The property group was not spared the impact of the virus, as it lowered its dividend by 5%, the first cut since the group listed in November 2015. “Our specialist sector skills and experience, continued innovation in our digital platform, and unrelenting focus on servicing our customers especially in a time of crisis, enabled Stor-Age to recover from the initial setback of the lockdowns and curtailment of economic activity”, the group said. The landlord’s like-for-like revenue increased by 6.1% and 2.8% in SA and the UK respectively, with the group collecting 96% and 98% of rentals due in each.

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Research team

Market Analysts, Sasfin Wealth

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