By: Lyndon Sauls
Covid-19 dominated the newswires for the month; markets have been racing to catch up to the rapidly changing environment. Volatility and uncertainty ran rampant in a time when people needed to be reassured as the illness put most economies on lockdown.
Southern Africa was no exception as Namibia declared a State of Emergency on 17 March 2020 for a period of 6 months and subsequently placed the country on Lockdown for a period of 21 days. This was in conjunction with the rest of the SADC region as most of the countries followed a similar path.
Local markets had a corresponding knee jerk reaction as a violent selloff ensued as the virus spread its ugly tentacles in developed markets, this was the chance that many punters were waiting for. Stimulus packages and Corona support initiatives calmed some of the noise but dripping demand for crude placed the WTI Crude prices under pressure as storage constraints saw the futures price drop to -US$40 for the first time ever. The price of Crude followed but rebound to end the week up 4.51% at Friday’s close (US$19.69). Safe-haven commodities took most of the headache away as gold climbed to US$1,710 by the close with Silver at US$14.96, platinum at US$765.84 and Palladium closing at US$1,932.
April offered traders the opportunity to pick up good companies at bargain basement prices. The JSE had a spectacular rebound in the month of April 2020 as the benchmark index gained 13%, the most gained since May 2003.
Naspers (+17.32% MoM) took the lead the charge as it climbed on the back of an uptick of its 31% stake in Tencent (+6.33% YTD) recording the biggest value traded for the month. Gold counters supported the upside as AngloGold added +66.32 and Harmony Gold gained 83.52% month on month. Sasol took a beating in the last quarter as it dropping from R235/shares on the 3rd of February to a low of R21.88 on the 23rd March, but making a valiant comeback as we ended the month of April at R87.26 per share. On a month on month basis the stock as advanced 158.62% from R33.74 to R87.26.
Clothing retailers EDCON and The Foschini Group (-5.51% MoM) put a damper on the festivities as EDCON applied for business rescue following the announcement that the lockdown had cost the company R2 billion in sales forcing the company to default on some of its obligation.
The Namibia Stock Exchange (NSX) Overall Index traded 9.72% higher MoM from 900.32 to 987.79 points. However if we look at the index pre-Corona the Index declined from 1,146.91 as at the end of Feb 2020 to 987.79 at the end of April 2020, a decline of 13.87%. In contrast the JSE All Share only declined 1.37% for the corresponding period and gained 13.14% MoM. The NSX Local Index continued its drop from the previous month shedding 2.02% MoM and 8.49% over the 2-month period.
The drop in the local index saw a selloff in most primary listed counters as Namibia Breweries fell 2.53%, Capricorn Investment Group fell 1.9%, FirstRand Namibia dropped 0.09%, SBN Holdings declined 0.24% and Oryx Property dropped a massive 5.36%. The only counter that appreciated was Letshego Holdings which added 0.84%.
The bond market ended the month strong after the South African Reserve Bank and the Bank of Namibia cut their repo rates by 1% to 4.25% on 15 April. Se the table below for the full detail.
The GC20 matured on 15 April 2020. The bond tender on 14th April was well bid on the GC23, GC30 and GC50 where the full amount offered was allocated. On the rest, GC32, GC35, GC37, GC40, GC43 and GC45, the interest was poor with only partial bids and allotments.
On the ILB auction there were no bids in the GI29 and GI36, with one bid in the GI33, which the Bank of Namibia rejected.
For the month ahead, we expect that bonds will continue to strengthen on the back of a stronger SA bond market. As far as auctions are concerned, we expect that ILB’s will continue to be out of favour with investors due to the low CPI rate with little or no interest expected on the auction this month. On the fixed rate government bond auction, we expect interest in the shorter end – GC23 to GC30, and the long end, namely the GC50, with subdued interest in the rest of the curve.As the market contemplates the fallout of the Covid-19 pandemic the question becomes more apparent “will there be permanent damage to world economies and to what extent will this be the new norm”. A recovery to the days of old will take some time to come to fruition but it’s clear that markets are resilient if not stubborn, and that it will have to be a world wide recovery for humanity to get to the new norm.