The Looming Credit Downgrade - Two to buy and none to sell

by , 22 November 2017
The Looming Credit Downgrade - Two to buy and none to sell
Moody's and S&P ratings agencies will be announcing if they drop SA's credit ratings one more notch after the market closes on Friday.

Although Moody's signaled, it wouldn't be making any serious decisions before the 2018 budget, we had Minister Gigaba's mini-budget confirmed that South Africa's in crisis.

A strong focus is one of the core Pillar's Moody's considers when making a decision. The four pillars are, Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk.

As it stands, we are failing on almost all fronts. And the recent rand weakness reflects investors making sure they are positioned for the worst on Friday.

Friday could be remembered as Black Friday for a different reason than significant discounts ahead of the festive season shopping sprees.

It could be the day that SA falls from the World Global Bond Index, sparking a sell-off of South African bonds to the tune of R6 billion. Moody's is the only ratings agency that still has SA a notch above junk status.

If Moody's (and S&P) don't downgrade us, investors will most likely see this as just a postponement and a downgrade will remain priced in until December or even February 2018 after the budget speech.

Should a downgrade happen, we will see the rand weaken, long and short-term bond yields spike as investors that aren't correctly positioned rush for the exit at the same time.

Ensure you aren't too exposed to yield sensitive shares like local property and preference shares.

Investors should be using the recent bout of rand strength to evaluate their asset allocation and offshore exposure. We've been cautioning investors, to have an appropriate amount of their investable assets exposed to offshore investments. Depending on the size, it's ideal to use your discretionary allowance of R1 million before 31 December as it's the simplest way.

Prodigy can assist you through its Treasury Solutions offering, which makes it quick and easy for you to use your Investment allowance. Contact Prodigy for more.



Last week’s movers and shakers…
  • Best Performers: MPT 6.3%, DSY 6.2%, SAP 5.9%, HUL 5.1%, NPN 4.2% and SNV 4.3%
  • Worst Performers: TOR -14%, NTC -8.5%, SNH -8.4%, AMS -8.3%, SGL -8% and IMP -7.5%
Two to Buy
 
Richemont – Demand for Swiss Watches is Flourishing
 
Richemont’s competitor, Swatch CEO, Nick Hayek was recently quoted saying watch and jewelry sales in CHF grew well above 10%.
 
This was clearly seen in Richemont’s latest set of interim financial results.
 
The highlights:
  • Sales increased 10% at actual exchange rates
  • Operating profit grew by 46% and
  • Cash flows from operations increased 66%.
This is very positive for Richemont and with its share price rebounding from R120, adding below R122.50 will reward investors and increase the rand hedge exposure in a portfolio.
 
Buy Richemont below R122.50.
 
Prodigy’s Global Portfolio – Invest in Global Brands
 
The performance of our offshore investment portfolio for the year to date is pleasing with a return of 17,8% in USD (outperforming the MSCI world index by 6,4%).
 
Providing a simple solution with stable performance has been our goal and we are pleased it has delivered.
 
None to Sell
  
 
 
   
Shorter Term Ideas
  • First Rand: Trade closed at R54.25 for a 3.8% gain without gearing.
  • PSG: Position closed for a 9.09% gain at R255.
Long Term Ideas      
  • Sygnia: Buy dips below R11.00.
  • PPC: Buy dips below R7.00.
  • Santova: Buy below R3.30.
  • Implats: Position closed at R38.25 for a 19.23% gain.
  • Sibanye: Closed at R19 for a 20.63% gain. Hold
  • Merafe: Pulled back to support, buy at R1.55 or below.
  • Steinhoff: Awaiting positive news. Hold.
  • Jubilee: Bouncing from Support. Hold.
  • African Rainbow: Pulling back to support, up over 18%. Hold.      
  • MTN: Attempting to breakout. Hold
  • Glencore: Building a support level around R65. Hold
  • Wescoal: Long term buy. Add below R2.15
  • Naspers: Results due Next week, making a break for R4,000. Hold 
Have you used your 2017 Investment Allowance?
 
All your offshore investments allowances expire at the end of 2017. Prodigy can invest your funds securely offshore. Please contact me without delay before you miss out. gavin@prodigyam.co.za

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