Episode Transcript
[00:00:00] Speaker A: The markets, we just can't get enough of them.
[00:00:03] Speaker B: Markets are the drivers of your wealth and investment strategy.
[00:00:07] Speaker A: Welcome to Magic Markets with your co hosts, the Finance Ghost and Mohammed Nalla.
[00:00:12] Speaker B: Together we have more than 25 years of combined experience in the markets.
[00:00:16] Speaker A: For those looking to take their market and business knowledge to the next level, we offer Magic Markets Premium. Our recent shows have included technology giants like Amazon and Microsoft as well as a smaller tech play like Intuit. Also covered content and streaming group Disney as well as retailer Walmart. To add to the retail insights, we recently covered Lululemon as well. And this is just a taste of what's available. Visit magic-markets.com today and go premium to get these insights. Welcome to episode 205 of Magic Markets. This is our last free show for 2024, so we are bringing the year to a close. It has been pretty manic. There's been a lot of elections, including in South Africa. There's just been a lot of stuff. Actually, I'm almost too tired to even think about how much of it there's really been. But on this show we're going to really run through some of the major stuff that happened this year. Some of the big macro points, some of the big moves year to date, and maybe one or two surprises and perhaps a couple that were expected. So maybe a slightly shorter show than normal, I think, given where we are in the year. But thank you for joining us this late in 2024. Hope December is going well for you so far. And Mo, it's always good to do this with you obviously as we bring the year to a close and look back on some of the gains that, you know, maybe were made and some of the ones that we wish were made.
[00:01:33] Speaker B: Indeed. Ghost, I mean, a slight change in venue for me. I'm actually doing this recording down in South Africa. I managed to come down for a nice long awaited summer holiday. So I'm enjoying the Hadidas up here in Johannesburg. The lack of water, thankfully there's a.
[00:01:46] Speaker A: Or moberg as I call it now.
[00:01:48] Speaker B: Moberg as you got to call it.
[00:01:49] Speaker A: And I refer to it as moberg while you're there.
[00:01:51] Speaker B: Moberg. Maybe the city should actually just work on storing water in the potholes in the road that might give them some additional reservoirs. I'm going to stop complaining. The weather's great.
[00:02:00] Speaker A: Sorry. Fun fact for the listeners about how Mo does his South African trip. So because he moved to Canada, he needs to validate his decision every year. So what he does is he Comes down, then he complains bitterly about the potholes, etc. He only visits Joburg where he has family. He doesn't go anywhere else. And then on top of that, he always makes sure he needs to go to Home affairs and he makes sure he goes on the off chance that he gets an appointment. So it's like playing South Africa on Hard mode so that by the time he leaves, he can go, man, it really makes sense that I moved to Canada and then he can feel better for the whole of the next year while he's shoveling snow. Does that sound like a fair summary MO of your approach?
[00:02:36] Speaker B: No, Ghost, that's unfair. But I like the analogy. Playing South Africa on Hard Mode.
[00:02:41] Speaker A: Unfair but reasonable. It's like a corporate action.
[00:02:44] Speaker B: I mean, at the end of the day, the family and friends down in Cape Town do ask me why I don't come down there and I should. It's just the wrong time of year. It's expensive to get down to Cape Town. Joburg's where most of the people I need to see actually based. So that. Hence the. The Joburg or Moberg visit. That said, you know, yeah, we know the challenges up here, but that I was saying before you interrupted me and called it Moberg and my South Africa.
[00:03:06] Speaker A: On Heart and Moan affairs as opposed to Home affairs because we had a long phone call the other day just about how terrible Home affairs was for you.
[00:03:13] Speaker B: And maybe that's detail for another day. I mean, if it continues being bad, I might just put out a Twitter or X blast and I'll just, you know, cc all the relevant people at Home affairs as you suggested. Ghost. Know you're quite good at that. Weather's fantastic. You know, it's hot. It's been very hot up here. Thankfully, we've had some classic Joburg thunderstorms, which my daughters just. They're not familiar with that. Living up in Canada, we don't get thunderstorms. I'm enjoying it. It's a great trip. I've been. My arm's been twisted twice to go and play some paddle. We know how active I really am. And so that's been quite entertaining for the people who've managed to actually get me out to go and play paddle. Slipped, fell, hurt myself, you know, the usual story. So it's been fun.
[00:03:49] Speaker A: I'm very sad to have missed all of this, I really am.
[00:03:52] Speaker B: It's been fun and it's not been as fun as markets though goes. That's what we're talking about on the show. It's not about my Joburg trip at the moment. You know, that's, that's for another time. What we're talking about here is I guess the wrap on the year because we've got like two weeks left to the year actually, you know, shuts down officially. But we know in South Africa everyone's really shutting down by next week. And this is a predominantly, it's a global show. Yes, but it's got a predominantly South African audience. And so we figured on the free podcast for the year, it would make sense to look at what's happened in markets. What's really surprised me, what surprised you, what have been some of the highlights, some of the lowlights. And so I'm going to jump right in and we're going to jump in with gold. And the reason I'm going to jump in with gold is because everyone who's known me for the longest time, Ghost, when we worked a long time ago at one of the South African banks, you probably knew back then I was a gold bug. And I was happy to keep accumulating gold as a diversify in the portfolio. Well, finally, guess what? Gold's time finally came. It really shone this year. It shot the lights out. And it's actually been one of the best performing asset classes. When we look at conventional asset classes, it's actually outperformed equities. It's beaten the S&P 500. That's had a very strong move on a year to date basis. Guess what? Gold's actually done pretty well on that count as well. It's beaten most regional indices as well. When I say regional, you've beaten China, you've beaten Europe, you've beaten the emerging markets complex. And so I just want to highlight that because that was a highlight for me. As someone who's had a reasonably sized gold position over the longest time, it's really been pretty good to see that come through. And why has that come through? It's come through partially because when you have inflation, gold tends to do okay. It's partially a hedge against all of the craziness that's going on in the world at any given point in time. Gold is my tinfoil hat hedge and effectively on that basis, the world's gone nuts. Well, thankfully my portfolio hasn't gone nuts. But before I stop speaking, because I want you to jump in here, Ghost, before I stop speaking on gold, I'll tell you what really shot the lights out. And here I'm partially disappointed because I don't have exposure to this particular Asset class at this moment in time. I have had it historically. I cut the positions and that is. Wait for it. Drumroll. Just last week we were talking blockchain. So now you can guess it is bitcoin. Crypto's gone bananas. And if I said gold gave you 30% as we're recording this on a year to date basis, Ghost, do you want to take a guess what's bitcoin up on a year to date basis at the time of this recording?
[00:06:15] Speaker A: No, I don't. It'll depress me. I don't want to. It's like going to home affairs, Mo. I don't actually choose pain the way you do.
[00:06:22] Speaker B: It will depress you. I mean, maybe in video is something that will have challenged bitcoin's rise. Bitcoin up almost 120% on a year to date basis. So unless you got your stock selection like 100% correct and you were choosing the one stock that shot the lights out, I'm actually pulling it up as we speak here and I think Nvidia is up like 130%.
[00:06:41] Speaker A: No, much more. Nvidia is 187. I also just checked. So 180. 187%.
[00:06:48] Speaker B: So Nvidia, unless you picked just Nvidia, Bitcoin's done pretty respectably. Ghost, with your view on Nvidia, I think I'm going to hand over to you. You know, what were the surprises for you this year? What were some of the highlights, some of the low lights? Because I haven't wrapped up yet. I've got China to talk about. I've got some of the low lights as well. But let's move across to you. I can stop talking and have a drink of water in the very, very hot Joburg weather right now.
[00:07:10] Speaker A: Look, I think my lens remains quite South African. So I think the positive surprise this year was just how well this year went for South Africans. I mean, the election, I kind of expected that it was going to signal genuine change. It just felt like that was in the air. I'm not sure that too many people expected to it to go the way it actually went. But I mean, be that as it may, the thing that I was very surprised about was the disappearance of load shedding. I don't think anyone had that on their bingo card for 2024. Especially not all of the solar installation businesses who were left absolutely high and dry. And a few listed companies along the way who had invested quite heavily in renewable energy load shedding type solutions. Suddenly there was no market for it left or at least a very small market. So that was a big surprise. And then linked to that would be the performance of a lot of the stocks on the jse because, you know, they really have seen a huge uptick in valuation this year. Now, admittedly it was off quite a depressed base and those who have been beating the South Africa drum for a long time will obviously point that out and say, well, it was about time it was due, you know, yes, all of that might be true, but the valuations really have moved up heavily, especially in stuff like the retail sector. They've moved in advance of major interest rate declines. They've assumed that these benefits from load shedding, et cetera, will really flow through into consumer spending. And I think that's going to be a big focus for us going into next year and we'll probably talk about that in January is just the expectations in the market and where all that stuff has gone. So that's really been a positive surprise for me. In terms of the performance of SA Inc. I think what went much the way I expected was the performance of the property sector. So that was one of my big rotations this year, was to go into the property sector just again based on decrease in interest rates. I was watching quite carefully as the property funds were releasing updates both locally and abroad and just how they were talking about what was going on with valuation, yields, et cetera, et cetera. Looking at stuff like vacancies, reversions, that's a very important metric. That's how the renewed lease has been priced relative to the expired lease. So if there's negative reversions, it means the rentals went down, that is the landlord got a bum deal. But if there's positive reversions, then it means there's good demand and the tenants had to pay up for a lease renewal. Now obviously the costs of owning a property go up every year, so you certainly want to see positive reversions as the landlord and those were starting to slowly come through. So that's been quite good. The property sector has been quite nice and rewarding this year. I actually had a look just before this show. The Satrix Property ETF is up 24% year to date and that obviously excludes the dividends. I buy these things in my tax free savings account so that I get that distribution from the REITs tax free. So it literally is just a pass through because the REITs basically pay no tax. So they collect the rent from the tenants, they pay their expenses, they get it into those funds and those Funds then pay it off to their shareholders. And if you do it in a tax free savings account, there's just no tax leakage along the way. So yeah, that's worked out quite well in terms of other major surprises, I guess just the way the US market has continued to run. I mean, where does this thing ever stop? Obviously where there are underlying earnings upticks, then that kind of makes sense. But there really are some multiples that have just gone to the moon and it feels like it might be the same stuff driving the bitcoin price. It's people seeking safe haven type assets. And in some ways I think people look at something like Walmart and Costco and they say, well, you know, maybe this is a better bet than the US Government. And maybe they're not wrong at the rate that things are going. So those valuations just seem to be going up and up and up. I mean, we covered Walmart very recently on Magic Markets Premium and yes, the business is doing extremely well. But you know, you go and draw a 10 year chart of the multiples and it's really just quite extraordinary. So it's been a good year for a bunch of asset classes. And I guess the lesson there is if you are sitting on the sidelines and you are just sitting in cash because you're too scared to own anything else, then you are going to get left behind over time on average. And in some years like this year, you will feel very sorry for yourself because you'll have been left behind by a big margin.
[00:11:15] Speaker B: I think that's such an important point. Right? Because like you say, if you're actually sitting on the sidelines, sitting on cash, that's actually very expensive. It's the opportunity cost, it's inflation that eats you as well. I mean, you've mentioned a couple of stocks there and I don't want to detract from what we will actually give to our premium subscribers in terms of some of the best stocks that we looked at and covered this year, maybe some of the worst as well, because not everything can be a winner. But talking about this just broadly on a sectoral basis and I like what you've done, Ghost, because we come at this so differently. I come at it from a macro perspective. So I started out with currencies, you know, cryptocurrencies and gold, you know, that's very similar flavor. Then we kind of go into the indices and we say, you know, what sectors of the economy has done well. Now I like your point on property because I've liked property for A long time simply because of the yield underpin that it gives you. So for the income part of the portfolio. For the income part of the portfolio, that's actually very valuable. I've liked property and I think property has done well not just in South Africa. If we look at how that's done, you know, listed real estate in the us it's done remarkably well also because, you know, they tend to act as these bond proxies. We actually had the US rate cycle kind of top out and then the market started pricing in. Hey, guess what, we're going to start seeing rate cuts. And as soon as the market anticipates that you saw the property sector really, you know, unleash some of that juice that was maybe left in the tank. So I like the property story as well on a sector basis. Whilst we're talking global stocks and I focus more on the global rather than South African because you get that dispersion of the various sectors. The thing that really worked out for me certainly in the latter half of this year was exposure to utilities. Utility type stocks. Ghost, we raised some of these in magic markets Premium. I know that you managed to actually buy some of them based off the research that we had done and that you've actually done quite well. And why that worked out so well for me is prior to the U.S. election, you know, you had this utility sector that was really doing relatively poorly compared to some of the other sectors, the consumer discretionary sectors. And so in the lead up to that election you actually saw an unlock of value. So utilities and defensive start to come through. Now post the election, it's been a somewhat different story. You've seen them give back some of those gains. They're not down yet, they're still doing well for the year, but everything's doing well for the year. So I think as we head into 2025, the world's really going to have to look at critically what is the hubris on the United States actually say versus the reality on the ground. And for me it's still quite unclear. I've probably got to still digest some of that once I'm done with the holiday. We can do a whole new show in the start of the new year in terms of what's the outlook for 2025. I actually want to do that goes because I will have digested a lot of the quarterly numbers for my clients in the macro space and that will make for a very powerful discussion. But before I move off that one last point just on regional exposures, I wanted to Bring in China.
Because I've been what I call a long suffering China bull. You know, I'm not outright bullish on China, but I, I did believe that valuations like on South Africa, where valuations were very cheap on South African equities, valuations on Chinese equities were similarly cheap. And then what we saw is we actually saw the Chinese start to deliver that stimulus around Q3, Q4 of this year. And that literally was the firecracker. We had China move from being the worst performing major global market to the best performing. It shot out the lights. It actually outperformed the S, P 500, it outperformed gold very briefly and then started to give some of that back. So when you look at China, you know, just as we're recording this today, it's another down day. I think the index down around 4% then thereabouts, which now moves it below the S&P 500 on a year to date basis. But guess what, for a very brief period, it was actually ahead of the S&P 500. And why is this important? Ghost is just looking at the longer term story. We know the US is big, strong economy there, some geopolitical pressures coming through there. China on the other hand, is the challenger to the throne. And again, be sensitive to the price you're paying for the underlying assets. US assets are in many sectors priced for perfection. China has a very large risk premium priced into it, either correctly or incorrectly. So and this is going to lead to very divergent parts over the longer term. Last point and then I'll hand back over to you to maybe wrap this up. Ghost is that I am concerned around US markets because of how stretched valuations have become in certain sectors. Quite often it's the buy, the rumor sell, the fact there's seasonality that comes into play. This is the Santa rally, right? They call it the Santa rally and picture Donald Trump dressed up as Santa. It's the Trump rally as well. We've had an election. November's and Decembers are generally good months from a seasonality perspective. And then as we head into the new year, you start to see an uptick. If you look at VIX or volatility, seasonality that starts to tick up in January. You start to see the markets start to struggle a little bit at the start of the year, specifically in election years as well. And so I'm going to be watching some of those seasonal aspects. I am concerned. I'm not deploying capital at a furious pace right now. I'm being a lot more selective in terms of what companies I buy, what valuations I buy them at, and last point here, Ghost, you and I differ a little bit on this. I've actually been trimming positions and I kick myself, yes, because some of the stuff I sell continues to go up. But I've been trimming positions as a means of managing my overall risk in my portfolio, simply because when a stock that you bought for just two or three quarters is up 45%, guess what? That for me is an outsized move. I'm going to take some of that money off the table, maybe look at redeploying to better ideas.
[00:16:42] Speaker A: Look, that's a high quality problem when you have returns like that, definitely. So that does make sense. I think one of the things I'll be watching going into the new year and what was definitely a feature this year, Mo, was Europe and just how bad it's really been. Like just the story on the ground, you know, if you read a lot of companies that have exposure to the European, not the markets, I mean the actual underlying markets. So anything that touches the automotive sector, for example, and that's really quite broad, you know, if you think about the strength of Europe historically in that sector, stuff like logistics in Germany, a lot of that has been built around the automotive sector. And if the automotive sector is gently falling over, or not so gently as the case may be, then the knock on effect is severe. I actually saw something online the other day. I hope it was real, although I kind of hope for the European market that maybe it wasn't real, but it was a BYD ship carrying BYD vehicles to Europe. And it was basically just this massive, massive ship that looks like it practically rolls out the factory like that, carrying all these vehicles to Europe. And it just summarizes exactly what the Europeans are dealing with. The monster that has been created that is the Chinese automotive sector. I mean, it's everywhere in South Africa. There's a new MG dealership in the Cape Town city center that I saw the other day. And believe me, that MG has nothing to do with the UK company anymore. That's long gone. The brand has been bought up by the Chinese. And I don't know much about it, I should probably research it. But in the window there was this very cool looking supercar with these like scissor doors. This is impressive stuff coming through. And the Europeans have been gently sleeping on this. And it's gonna get worse, I think, before it gets better. I still think there's a lot of denial in the market around this. We are finally Seeing a change in management at Stellantis. We are seeing all kinds of industrial action at Volkswagen because the workers unions just refuse to believe that this is the new reality and this is how bad it's going to actually get. It's, it's rough out there. Base German cars are 800, 900000 rand and I don't mean like little Polos but you know, you go buy relatively basic Audi for example or anything like that and those are the sort of prices you need to be paying. It's just ridiculous. And I can't really see how it survives in the, the current world and where things have gone. So watch out in 2025. I do think that the European story is going to get worse before it gets better. You've got to change years and years and years of this bureaucratic slow growth mindset. A region that is now dealing with inflation, which is not something they necessarily have a great understanding of. And it's again it's not every country in Europe. So if you go and read South African property funds and where they're investing, places like Portugal, Spain, Poland, still popular, you know those sort of high growth, the sun is shining. The less developed countries. Shame Italy never seems to really come up unfortunately. But you know those sort of places are actually quite popular at the moment. Whereas the very much the powerhouse places like France, those properties are struggling. Germany, we know what the story is there with the automotive side. So keep an eye on that I think as we head into 2025 because I think it caught a lot of people off guard this year. Yeah, Ghost.
[00:19:44] Speaker B: I mean Europe's probably a great place to end off on the show. My few thoughts on Europe is that it's actually surprised me like you to the, to the downside. I'm surprised at how bad it's been simply because you could see that it was bad. I mean if we had this conversation a year ago, it would have been the same story on Europe. And so surely policymakers, politicians, they can see the economic picture. You know, the writing's on the wall, they've got, there's got to be an intervention and Europe's just been really slow on those interventions and I don't think they've realized the economy of the future. I just spoke to someone 2 days ago who just returned from a very lengthy investor trip to China and the stories coming out of China will blow your mind. I live in North America so I can see the other side of that coin. You've got these two global hegemons, China, the US going at it. And you've got Europe sandwiched in the middle. You've got Canada arguably also sandwiched in the middle, because Canada is not the United States. These countries have not realized the competitive dynamic that is at play here. And that's reflected in asset prices. It's reflected in equity markets. My last parting point is usually there's a fairly strong correlation between, for example, the uk, you know, the footsie, the UK equity market and the jse. Pay attention to that. The UK hasn't been all doom and gloom. They were doom and gloom for a while. You know, I think they went through that massive political change around last year. This time, you know, three or four different prime ministers within the span of three or four weeks. You remember this. Now, I get the sense that the UK is arguably on a better footing than Europe in general. And that's specifically also because Europe has always had this mosaic approach. They've got this uniform policy, monetary policy, one currency, but the economies underlying that are so disparate in terms of their labor dynamics and growth dynamics. That has always been the European challenge since the advent of the euro and the euro, the region as a whole. Unfortunately, you know, that's where we got to leave it. I think that's been a decent wrap on the year. You know, we've got the US shooting the lights out. We've got gold shooting the lights out. Guess what? It's monetary debasement. And that's a topic for another day that, you know, that's something that we can maybe discuss as we look to the year ahead in 2025. But with that as the backdrop, I certainly hope that our listeners have had as fantastic a year as we've certainly had at Magic Markets. Again, for those of you that are not subscribers to the work that we do in Magic Markets Premium, go and check that out. It's only 99 rand a month for detailed on the ground research of global stocks. We cover a different stock every single week. It's a podcast, it's a report. Lots of detail in there. I promise you it's the best value you're going to find out there in terms of detailed investment knowledge. And we hope you've enjoyed your time with us. We hope to see you back with us back in 2025. Ghost. I'm going to wrap it there. We wish everyone a fantastic festive season. Stay safe over the holidays, and we'll see you in 2025. Cheers.
[00:22:30] Speaker A: Ciao. This podcast is for informational purposes only and is not financial or investments advice. Please speak to your personal financial advisor.
