A healthy correction underway! Get ready to buy the dip…
The past two weeks have seen investors being spooked by a global selloff in stocks and bonds. This will be short lived and allows investors with fresh capital an opportunity to invest at lower levels.
The global market needs a healthy correction (around 15%) after volatility was at its lowest level in years and investor confidence in the market rising day after day was at record highs.
The major driver behind this recent sell off is the rising bond yields and US interest rate expectations. Importantly, the drivers behind higher yields are; increasing global growth, increasing earnings, inflation within targeted ranges, US tax cuts and increased infrastructure spend. These are all positive for the global economy.
As mentioned in previous newsletters, this is a great environment for commodities, SA focused shares and small and mid-cap stocks. The fact that global asset managers are still underweight South African equities indicates this sell off will be short lived.
Stocks to look at are BAW, AGL, TBS, SPG, RCL, REM and APN.
Don't panic, the market is just back to where it was a few months ago. And strong support is building here. Cautious investors should wait for a confirmed bounce before buying.
Take this opportunity to slowly accumulate stocks you didn't get to buy last year before the latest rally!
Last week's movers and shakers…
Two to Buy
Sasol: Back in buying territory
Sasol released a positive trading statement at the end of Jan indicating headline earnings will increase between 12% and 17%.
Sasol’s diversification into Chemicals (Lake Chares Plant) has been progressing well and will make it a more attractive investment. Tax reform in the US is a positive and increasing global growth will support demand for their products. Results due 26 February will provide more clarity on the impact of once off adjustments, but below R400 investors should accumulate shares.
Offshore Property Stocks: Bottoming out ahead of a rebound
Stocks in the Resilient stable (Fortress, Greenbay and NepiRock) have been under significant pressure due to short sellers taking big positions in the stocks ahead of internal research being leaked and distributed to the public. Resilient has refuted claims that management are acting improperly to keep the shares trading at a premium and are busy compiling a detailed response to each issue highlighted.
This has put pressure on its sector peers in addition to rising yields globally.
We believe Nepi and Sirius offer the best value for investors looking at investing in this sector.
Losers to Sell
With the tax year end approaching fast, investors should consider netting off any losers against winners to reduce their capital gains.
This will allow you to re-base your purchase prices higher on the stocks you still want to hold on to going forward. You will effectively reduce the tax payable.
Long Term Ideas
Aspen: Buy below R260.
Sygnia: Still up over 8% after pull back. Hold
PPC: Positive operational update. Hold
Santova: Buy below R3.00.
Merafe: Accumulate below R1.55.
Jubilee: Zambian mining rights at risk. Hold.
MTN: Buy Dips below R122.50
Glencore: Strong support at R60. Hold
Wescoal: Long term buy. Add below R1.80
Naspers: We suggested trimming overweight positions at R3,600. Buy below R3,000.
Maximise your Retirement Savings before 28 February 2018
Time is running out to take maximum advantage of the tax benefits of boosting your retirement savings. Every year you should be looking to enhance your retirement savings as much as possible. Contact Gavin McCarter to find out about low cost retirement saving options available. firstname.lastname@example.org