MAY DAY MAY DAY - Tories loose majority and tech stocks stumble - Three to buy with updates

by , 21 September 2017
MAY DAY MAY DAY - Tories loose majority and tech stocks stumble - Three to buy with updates
Global Markets are busy digesting the UK election results, which indicated the Tories have lost their small majority. The UK now sits with a Hung Parliament, which will see the UK enter the Brexit negotiations set to start next week on the back foot. It will be interesting to see if the EU takes a harder line with them than previously expected. The weaker pound should buoy the FTSE. The ECB left interest rates unchanged.

A sector rotation seems to be on the cards as tech stocks listed on the Nasdaq fell more than 2.6%, while financials and industrials rose on Friday.

Higher US rates are on the cards as traders see a 95.8% probability of an interest rate hike after the Fed conclude a two-day policy meeting on 14 June.

On a local front, SA was spared a downgrade to junk by Moody as they dropped local and foreign currency ratings to one level above junk status with a negative outlook. Around 90% of SA's debt is Rand denominated, so a fall to junk in the local currency could spur a sell off of Rand denominated debt and cause a much weaker Rand.

All the negativity has seen our market continue a sell off, with today, marking the ninth red day in a row. We anticipated this dip as we near futures closeout and are still expecting a rally into the close out auction at 12h00 on Thursday 15 June.

Last week, our JSE All share Index was softer by 1,3%, Financials fell 2,4% on growth concerns and the Moody's downgrades. Resources bucked the trend, appreciating 1,2%.

Last week's movers and shakers…

• Best Performers: Datatec, Sibanye, Assore, Adcorp and AngloGold.

• Worst Performers: Brait, Transhex, MMI, Steinhoff and Torre.

Datatec responded well to announcements of the sale of its subsidiary Westcon; while Brait continues to be downgraded based on the performance of UK assets.
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Three to Buy
 
PSG – Ripe for a Rally
 
We called a sell on PSG when it was above R268, it has retreated over R40 and bouncing from the 200-day moving average. This is near a strong support level coming through around R225. Buy below R235, with a target of R260 for over 10% gain.
 
Tongaat – A TON of upside, Go Long
 
TON put out a good set of results at the end of May, operating profit up 39.8%, operating cashflow up 70.5% and full year dividend up 30.4% to R3. Buy below R125 with a target price at R170, just below its all-time high.
 
Sasol – Buy the Dip
 
Speculative Short-Term Buy, SOL is trading back around its support levels, the area between R260 and R270 has been a buying area for the past 30 months with it rallying to above R400 after a bounce. Buy Below R270 with a target of R410.
  
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Update
          
ALSI 40 Future: Increase exposure into Futures close-out on 15 June, allow contracts to expire for cash settlement.
 
Sibanye Gold: Sibanye has rallied post the rights issue, buy at R15.75
 
MediClinic: Still in buying territory, add at current levels
 
Lifehealth Care: Our sell call has played out nicely, falling 7%.
 
Coronation: Stop loss triggered, to lock in a 10% gain in two weeks.
 
Mondi: Remain short at R 335. 
 
Nedbank: Stop loss triggered at R216, to get out with enough to cover costs.
        
Richemont: Maintain position - Long at R108,00
 
MTN:  Position closed for a small loss.
 
Massmart: Add at current levels
 
Tiger Brands: Finding support at R370.00. Hold 
 
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(This article is an extract from Prodigy’s weekly Investor Digest. For more information contact Gavin McCarter on gavin@prodigyam.co.za.
 

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