Steven Hurwitz is the Co-Portfolio Manager of the PPS Managed Fund. Photo: Supplied
By Steven Hurwitz
This week has seen an interesting shift in how stock prices are reacting. Instead of broad market swings driven by political factors like the Government of National Unity (GNU), stocks are now moving based on company-specific earnings releases.
From July to August, there was little variation among stocks within sectors. However, with the recent flood of first-half results, we’re finally seeing divergence in how individual companies’ share prices respond to earnings reports.
This trend is likely to continue, with top-down economic events shaping the broader market direction.
Pharmaceuticals
Aspen was the JSE’s biggest loser this month, following the release of its disappointing earnings last week. The stock had performed well in recent months, benefiting from the overall positive sentiment in South Africa. However, the market had high expectations for the company’s new manufacturing capacity, and the lower-than-expected earnings left investors unimpressed.
Insurance
The insurance sector is a prime example of the emerging dispersion within sectors. After the initial surge that followed the GNU announcement, companies like OUTsurance, Sanlam and Momentum saw varied movements following their trading updates. Momentum dropped after missing expectations, while OUTsurance exceeded consensus earnings. This kind of sector dispersion presents a good opportunity for active asset managers to capitalise on bottom-up stock picking.
Retail
Optimism in the retail sector faded after Shoprite’s results came in slightly light. The sector has had an impressive run post the GNU announcement and there appears to be some profit taking by market participants.
A key factor for retailers going forward will be the Two-Pot Retirement System, which came into effect on September 1, along with the start of an interest rate cutting cycle. Both measures are likely to boost consumer disposable income, positioning retailers to be the primary beneficiaries. While recent trading updates for retailers were disappointing, they are also backward-looking. The outlook contains a more optimistic picture which is why retail share prices have stabilised.
Steven Hurwitz is the Co-Portfolio Manager of the PPS Managed Fund.
BUSINESS REPORT