Episode Transcript
The Finance Ghost: Welcome to episode 267 of Magic Markets. We are in April by the time you listen to this, and that means the nice long weekend in South Africa is just around the corner. It also means that the first quarter is done and dusted already, if you can believe it.
It feels like it went past very quickly and was also filled with all kinds of ugly stuff that no one thought was going to happen when we came into this year. I don't think that was on anyone's bingo card.
Nevertheless, Moe, that's how it works in life. And the markets react accordingly. Not always in a way that we like.
Some people make a lot of money if they're on the right side of the stuff, others don't. And what we're going to do this week is just a quick quarterly review really of what's happened in the first three months of 2026.
Mohammed Nalla: Indeed, Ghost. We’re a little bit early. We still have two days - two trading days - left in the quarter at the time of us recording this. But we figured by the time the podcast goes live, it will just be past quarter end. And again, I know two days in a market like this can be a lifetime.
So, with that proviso out, some of the numbers that we do discuss here are subject to a slight change of two trading sessions. But I think it's just generally a good practice to look at what's happened over the course of the last quarter simply because it has been a very, very volatile quarter.
If I cast my mind back to last year, it was a very similar story. The first quarter was fine, and we had this build up into the Trump tariff tantrum. And then I remember it was April 7th last year, that was effectively the “tariff tantrum” day.
It cost me a lot of money. I've said that on the show a couple of times. I’ve still got some scars from that.
This first quarter, maybe it hasn't all been on a single day like last year at the start of April, but it's been a really tough quarter as it's progressed. And most of that's actually been concentrated in the month of March. We're going to unpack that.
I've had a global look at what's happened across multiple asset classes. Just a temperature check, what's happened over the course of the last quarter, what that profile looked like. Because again, if we were having this discussion in February, it's a very different discussion to the one we're having now at the end of March, because a lot of that action came through in March.
And I've done that not just across global geographies and regions, but also asset classes - because everyone knows I'm a gold bull. We had a phenomenal run in that gold price into the tail-end of last year, and even at the start of this year, and that's kind of melted away.
So it's really important. Let's do a temperature check.
Do you want me to jump in, or do you want to weigh in - in terms of your observations over the quarter and then we can get into some of the numbers?
The Finance Ghost: As punishment for this hysterical video you have on LinkedIn, of you unfurling a CFA Institute certificate, Moe, I'm going to make you go first. And also, I recommend to our listeners to go and look at this post because it is mildly entertaining, I’ve got to tell you.
Mohammed Nalla: Yeah, that's all in good spirits [laughs].
The Finance Ghost: I feel “hashtag blessed” for having seen it.
Mohammed Nalla: “Blessed, hashtag blessed” [laughs]. CFA society Toronto is celebrating 90 years. That's a long time. As part of that - it's just some good fun - I was tagged to go and unfurl my CFA certificate and show everyone that I am actually a CFA charterholder.
The Finance Ghost: I'm sure you were forced, forced to do this post. No doubt about it.
Mohammed Nalla: [Laughs] I have friends and family who like to laugh at me, so it's all in good fun. Interesting titbit there: I actually got my CFA charter in 2008, and it was literally a couple of weeks before the Global Financial Crisis. How's that for timing?
I don't know if that's framed some of my bearishness - that I generally look at things within the market with a lot of healthy scepticism. But yeah, go check out the video. Feel free to send me abuse on that post. It's all in good fun.
Ghost, looking at global markets, I'm not going to detract from the fact that the Top 40 has ended up negative (at this point in time). But the resources sector, as we're speaking, is the only sector (of the major sectors in the JSE) that's actually still positive on a year-to-date basis and only marginally so. But I know you're going to get into that.
What I want to look at is how global markets have done. Where has the action been? And again, no prizes here. The best performing asset class has been oil, and that doesn't matter if you're looking at US benchmark WTI or if you're looking at Brent Crude - a lot more action on the Brent price versus WTI.
That gap has certainly opened up quite a bit for traders who are a little more sophisticated, and they trade that spread between the two.
But oil's up close on 80%. It was actually up higher than that. But at this point in time, close on 80% - and who knows where it will be by the time this podcast goes live? So that's been the best macro-performing asset class.
So the next question should be, what's actually happened with gold? Gold was actually, at one stage, in February, up around 20% / 25%. It’s now up only around 5% on a year-to-date basis. So that's the last part of the quarter, effectively.
Part of the reason has been that what the market's done in the wake of this war, is priced in a much higher inflation profile. You've seen higher bond yields in the US, and so the trade-off in terms of holding a safe haven - gold versus a US Treasury, for example - has actually swung around a little bit. And so that's taken some of the shine off gold. That explains the gold price effectively, the gold performance.
And then if you're looking at global equity markets, and if you're looking at the S&P 500, if you're looking at the Top 40, you're looking at the EURO STOXX: they're all clustered in the negative mid-single digits, right? That's where they are in dollar terms.
When you look at the South African markets, you look at it in rand, but in dollar terms it's kind of clustered around -5 to -7% at this point in time.
One market that has actually outperformed, has been Japan. And this is one I'll go out and say I've been wrong on. I was right on Japan, bullish on Japan for most of last year; at the tail end of last year, I said, “You know what, I think a lot of that's priced in”. And again, Japan, similarly to gold, was up close on 20% earlier this year. But it’s now effectively flat, it's just a positive 1%.
The reason I'm mentioning Japan is that's the one global equity market that has actually outperformed some of their global peers, and I've been slightly wrong on that on the relative performance.
China: that's another one I've actually been a little bit wrong on, simply because it's down around 10% as we're speaking right now. Lots of pressure.
On China, I'm not too concerned over the longer term, simply because I think valuations there are not over-baked like we see in a lot of other geographies. Similar sentiments to the euro stocks.
And then platinum, that's been a commodity that was very hot, super-hot - and boy has that come off quite hard. That's down close on 12% on a year-to-date basis. Again, I think it's a product of lots of profit-taking coming through. Remember, platinum's not just a precious metal - there's a very large industrial component to that platinum price. So, platinum's come off quite a bit.
India has been the disappointing equity market, down around 16% on a year-to-date basis in dollar terms.
And then lastly for those crypto lovers out there: Bitcoin. It’s not been Bitcoin’s year. It’s down around 25%.
So that's a macro view of a multitude of asset classes.
I'm going to pause there because I'm going to look at currencies. What currencies have done in the wake of a dollar that has been stronger, in this episode of risk-off that we've had.
Then I'll wrap up with a broader commodities view because I want to look at soft commodities as well. I know we've touched on the metals, we've touched a little bit on oil, but I also want to look at soft commodities.
So that's just giving you line of sight of what I still want to discuss. But I'm going to pause there. I want you to give us a rundown on the South African market.
The Finance Ghost: Well, I'll tell you what I'll do, because I've got a lot of stuff I want to mention, so maybe I'll save it for the end.
But I will say this, because you mentioned oil: if you look at some of the top performers on the local market year-to-date: Sasol is up around 110%, so more than doubled. Sasol has been the trade you wanted to be in this year. It really has been. And that's been, obviously, a great story for those who got involved.
The other thing I'll just mention for now is the Resources 10 Index on the JSE, that's only down around 1% year-to-date. So even though there's been the big negative move in the gold price and the PGM prices, you've got some rand weakness there to help you a little bit. Plus, you've got stuff like Sasol coming through as one of the smaller constituents, really ramping up. So again, diversification can be your friend, of course.
It's always good to remember (as a South African) the impact of these things in rand - not just to look at the dollar price somewhere else in the world. But the currencies do make it complicated.
Mohammed Nalla: Yeah. And the reason I look at these things in dollar terms is, when you're comparing global markets, global commodities, dollars effectively have to be your base. It's the global default currency.
So again, bear in mind any numbers that I quote out there, when you're looking at it as a South African, but if you're comparing to the global, I would say just factor in that currency move as well.
With that, I can jump into the currency market, and we can have a look at what's happened on some of the majors there. Do you think that's a good place to go with the discussion?
The Finance Ghost: Do it, Moe, lead us. Otherwise, I'm going to have to go back on LinkedIn and find more photos of you while I listen to you, which is going to be more embarrassing.
Mohammed Nalla: I'm going to take the abuse. [Laughs].
But currencies, what's actually taken the abuse here? Because initially it was the dollar, the dollar was taking the abuse. The dollar was quite weak, and again here you could look at something like the dollar index because that's effectively the trade-weighted dollar.
And when you're looking at that, remember the Euro has a disproportionately large impact on the dollar index, because of Eurozone's exposure in terms of overall US trade.
But March has been a completely different story. This is where you've seen the dollar start to strengthen again. You've seen some sort of safe-haven demand for the US dollar, effectively helping that out.
From earlier on in the year and again in February, we had great performances. Those of you watching the rand, it was strong, as were many emerging market currencies. It was having a great time on the back of that weaker dollar.
And I would always say, when you look at the move on the rand, a rule of thumb over the longer term is, it's like a 60/40 split. 60% of the move can be explained by what's happening with the dollar in general. The other 40% is generally tied to idiosyncratic risks related to South Africa.
And I must say on that front, South Africa has been having a reasonably good run. Compression and risk premia up until March. And now, obviously, there's a generalised risk-off, but that idiosyncratic risk on South Africa specifically had dissipated. You had a reasonable budget, you've got the credit rating stuff a lot more upbeat than we've had over the course of the last few years.
But unfortunately, when the big macro move is in the dollar, that 60/40 split comes into play. So this dollar strength (over the course of the last month predominantly) has meant that the rand has now actually moved weaker on a year-to-date basis against the US dollar.
Now, how weak is that? It's still within a band of what you would expect given inflation or interest-rate differential. You're looking at around 3%, 4% thereabouts.
Again, there's a lot of beta that comes through in that. It's not just the rand here. If you look at other emerging market currencies, they've also come under pressure there. If you look at the Turkish lira, those currencies, they've been hard hit. The Indian rupee, that's also been hard hit, but it's not across the board.
And this is where it gets interesting because if you look at other crosses, if you look at, for example, the oil price running as hard as it is now, you've got to look at Norwegian krone, which has done quite well on the back of that. That's still stronger on a year-to-date basis versus the dollar.
Another one that's been interesting is the Australian dollar. You're getting a strong commodities flavour that comes through there. And that's a nice one to contrast against the rand, because the rand tends to benefit on a commodities rally, as does the Australian dollar.
But then what happens is, when you have a generalised risk-off, the rand gets sold off because it's an emerging markets currency, and it's a high-beta currency, whereas the Aussie dollar gets hit a lot less hard. So that's been an interesting dynamic to keep an eye on.
If you look at the other majors, recently they've just drifted slightly weaker against the US dollar on a year-to-date basis. So those currency moves have been quite savage, just for the month of March.
The question here is, what actually happens? How long does the war last? Do those long-term risks to the US go away?
Well, I don't think so, because they have a massive, massive funding cliff this year. They're going to have to issue so many Treasuries just to refinance the debt that's maturing. Those risks exist; the fiscal risks exist.
So, on the overarching longer-term fundamental thesis, that dollar, with the rally you've seen over the course of the last month, I would still put some question marks on that, if things normalise and if we start actually basing our decisions and market moves on fundamentals.
The Finance Ghost: I always laugh at the term idiosyncratic, because it makes me think of “idiot-syncratic”, which is a nice way to remember it. Because inevitably, it's because of someone being an idiot somewhere. The idiot varies for sure, but it's that one specific thing, company specific, whatever the case may be. It's just a fun way to remember it, I suppose.
Moe, shall I take us through some of the interesting moves year to date in South Africa on the JSE?
Mohammed Nalla: Yes please.
The Finance Ghost: So, when you have this risk-off sentiment, what does it do? Of course, it hurts equities. That's just the reality. And it really hurts the marginal names.
So, Mr Price is at new 52-week lows, thanks pretty much entirely to their desire to go off and spend a fortune on an offshore deal. My idiosyncratic joke refers. Moving on…
Oil prices - obviously that hits consumer spending, and that makes people worried, because South Africa does not export oil. All we do is pay more at the pumps and get hurt. And so obviously that hits FMCG stocks as well. That's coming through in some of the moves that we've seen year-to-date.
Here's probably the biggest and maybe the most important one (or certainly a big driver of what's going on): the South African 10-Year Government Bond yield. We came into this year on 8.3%. We are now at 9.3%. Nothing like a casual 100 basis points move on our bond yield.
Now, for anyone who has ever built a valuation model, you will know that that is a key input into the discount rate that you use on the future cash flows. When the discount rate goes up, the present value of those cash flows comes down. That means that the prices of these assets also comes down when our bond yield goes up.
What does this mean practically? Well, property index is a really good place to start. That actually gets priced pretty directly off the bond curve, because it's seen as this hybrid of fixed income and equity returns. The property index is down around 5% year to date.
You can look at different ETFs that track slightly different indices. For example, Satrix’s Property ETF (STXPRO) is down around 8% year to date. Not because there's anything wrong with that ETF at all, but because it's the index that it's tracking, obviously.
Gotta say, I'm itching to buy it in my tax-free savings account. There's a lot of caution needed there, obviously, there's the impact on consumer spending. As I mentioned, it's not just the yield curve.
But the property funds at the moment in South Africa are actually in quite good health, Moe. They are telling a much better story. Loan-to-values are looking good. Some pretty solid reversions coming through in the leases.
If you look at trading density stats and that kind of thing, retail properties are doing well. Office has got some better occupancies, and a lot of these REITs have offloaded the nonsense properties that they did own.
There's also much more focus in that sector. There's just this overall flight to quality which is a good thing.
If you look at financials, the financial sector is flat year-to-date. Quite a resilient performance actually, when you consider the bond yields. I think a lot of that is because of the exposure to Africa, and what that's doing for some of the really big banks, for example. So that's not just an SA story. Definitely not.
Speaking of “not just an SA story”, we get to Industrials, the polony of the market, as I always joke. It’s down 9.5% year-to-date. Mainly because the biggest names in that sector, Naspers, Prosus - Naspers is down 23%, Prosus is down 27%.
The really big sell-off is of course in tech and AI. And again, that somehow lands in the Industrials index on the JSE, because we do not in fact have a large technology index. Very sad.
Incidentally, Prosus is actually sitting on quite an important support level from late 2024. So that shows you the extent of the sell-off here.
If we just go up to the All-Share Index, that's sitting at -3.5% year to date. By the time this goes out in a couple of days it will already be different. So, it's just to show you (our listeners) directionally where this thing is at.
Pretty interesting. It could have been a lot worse. It's been shielded by some of what's going on out there. A weakening rand is not necessarily a bad thing for local equities, because there are so many large companies that have big offshore exposure. And interestingly, some of the themes coming through so far in company updates this year, are a lot of complaints around the strong rand, actually.
They’re saying, “Listen, our businesses are not built for this. Our exports are not doing so well and suddenly imports are cheaper and we're still manufacturing in South Africa, which is an expensive, inefficient place to be”. So, a strong rand actually hurts a lot of those names.
I'll just highlight one or two other things Moe, and then I'll hand it back to you. I've already mentioned that Sasol is a very strong performer. A couple of other things that caught my eye: Rainbow Chicken and Quantum Foods are up 37% and 28% respectively. So, the chicken business is doing pretty well right now, which is cool.
AECI is a turnaround story that's up almost 30% year to date. Kudos to them. Nice to see that coming through.
Let me deal with some of the worst names now. There's obviously the real rubbish at the top of the list that just gets caned in a situation like this. Leaving that aside and looking at the stuff you might actually be invested in, unfortunately Spar is one of the names there; SAPPI is another one - down around 31% year-to-date. So that's very ugly.
Gemfields is also down pretty sharply year-to-date, almost 30% down. So that's just a tough situation there for the rubies and emeralds market and all the risks they face in Africa.
As you can see, very much a mixed bag overall, as usual on the market, but more bearish than bullish. It hasn't been a nice start to the year, unless you owned Sasol, in which case you've doubled your money. It's very much “Covid vibes” - like everything's on fire, but Sasol, if you time it right, you can do extremely well.
That seems to be the way to play Sasol - just make a lot of money on it every six or so years and then ignore it the rest of the time!
Mohammed Nalla: [Laughs]. I'm chuckling because you're saying everything's on fire. And that explains why Sasol's going to do well - because you throw fuel on the fire, right?!
You've touched on a number of things. I'm going to leverage off what you've said. You're right, 100 basis points on the South African 10-year - how does that compare to global moves?
And if you look at European - let's look at German yields as a proxy - or you look at US yields. Those have both moved up from where they were at the start of the year. They've moved up around 10 basis points, and not a massive move coming through there.
But I think if you look at the troughs in terms of where they had gotten, in the US, you got down to around the upper 380s. So, it's been a big move in the US from the trough to where we are now, roughly around 40, maybe even 50 basis points there.
And that's a product of this new inflation expectation wave that's come through on the back of energy prices, and you're seeing the same thing in Europe.
Lastly, on bond yields: Japan has moved from around 2% - 2.5% on the Japanese 10-year. And that's important because Japan is one of the most indebted nations out there globally, as a percentage of GDP and so forth. Lots of political change there as well. So I would say there are some concerns around that sharp move in Japan. If it accelerates a lot, remember there's the risk there to the global carry trade.
You mentioned the chicken business. Food inflation is an important component, longer term, that you need to look at. That's why if you look at soft commodities just on a year-to-date basis, this last quarter, corn prices in US dollars are up around 6%, wheat was up around 18% and soybeans were up around 12%.
I know it's just a quarter, but if effectively if those soft commodities start going up, and a lot of those feeds into the value chain (feedstock and so forth), that could present some sort of upside pressure on the food component.
So if you hit food and fuel, you're going to see headline inflation move a lot higher. And so you need to start looking at core inflation, which then strips out food and fuel to determine if there’s an actual underlying inflation pressure coming through on any global economy that you're looking at.
Ghost, because you've done that very nice report back in terms of what's happened on the South African markets, I'm going to look at some certain stock-specific performances on a year-to-date basis in the US, and what stood out for me.
It's just been so remarkable. You're mentioning some of these double-digit moves on South African stocks. But if we look at some of the blue-chip names in the US, they've had a terrible year so far.
I'm going to highlight one that stands out for me specifically, because I know it's one that you like. It's one that I like as well. I didn't have any. I actually accumulated some on the downdraft, but it's still lower, and I don't know if you're going to guess what that is.
Just for some fun, what do you think I'm going to highlight there?
The Finance Ghost: Meta? I don't know. I'm really guessing. Is it Meta - just because of the court cases?
Mohammed Nalla: It's not Meta because of the court cases. That's a good one, right? Meta is down almost 20% on the back of the court cases. A lot of people are saying, is big tech going to have its “big tobacco” moment? When you sign into Instagram: “This is bad for your health”? Maybe they should.
It's actually Microsoft. Microsoft is down 25% on a year-to-date basis, which is just remarkable. I would say Microsoft is a high-quality company, but they've been hit by quite a few headwinds. We've covered it in Magic Markets Premium - you can go and have a look at that report if you are a premium subscriber.
Microsoft is standing out for me. Oracle, that's another one - down around 28%. And remember, these are among the biggest names in tech.
But it's not just been in the headline tech names there. We know in semiconductors you've got the whole memory-shortage thing. You've got Micron up around 18% on a year-to-date basis. Intel up around 12%.
But where's Nvidia? You know, the world's largest stock? Nvidia's down almost 11% on a year-to-date basis. So it's actually been a very tough quarter. Tesla, one I know you love to hate, is down around 20%.
So what's actually done well, and if you look at a heat map on the US markets on the S&P 500, you can now clearly see that whole defensive element come through. I've been defensive for the largest part of the last two quarters, and finally that's come through.
In energy, you've got some big names there. Exxon Mobil up 45%, Chevron up 40%. Those are big moves for some of the world's largest energy companies. In energy, it’s self-explanatory.
But then if you look at utilities, I know you're an investor in NextEra Energy, I'm an investor in that as well. That's up around 15% on a year-to-date basis. So that's been phenomenal. That whole utility sector has really come through after disappointing for some time.
And then consumer defensives. Stocks like Walmart are 12% up, Costco is up 17% on a year-to-date basis. Even if you look at Big Tobacco, Big Tobacco's done pretty decently. They're up. Look at Philip Morris, Altria; those stocks are up - some in the double digits, some in the single digits. But that defensive element has come through.
I would say healthcare is the one space where it's mixed, because you've had some decent performances. Johnson & Johnson is up decently. But then you've also had disappointments. You've had Eli Lilly down, you've had Novo Nordisk - they keep going through a really rough time.
And then lastly, Ghost, financials have been interesting because in South Africa you mentioned financials have been a relatively bright spot. I would say if you're looking at Microsoft down 25%, I could say the same thing about financials being a relative bright spot in the US.
But some of the biggest names there - like JPMorgan - are down around 11% on a year-to-date basis. So even those financial big banks that you could have argued are reasonably defensive, they're getting hit with some of that cyclicality that comes through.
Also lots of scares around private credit. And does that filter through to the wider market and the wider financial system? Financials in the US haven’t actually been as much of a relative bright spot versus what you've seen in South Africa.
The Finance Ghost: Yeah, it's fascinating. And that, of course, is the importance of choosing the right dips to buy. So, lots of stuff for us to talk about in weeks to come, right?
Mohammed Nalla: I want to jump in again just before I let you run away, with this last one. I've got to mention, it doesn't pop up as super green, but in the context of things down in the double digits, Netflix (one that you recently liked) is now up at around $94. But when we covered it in Magic Markets Premium, I think it was down in the $70s, so that's had a strong rally from the bottom. It was down in the double digits and now it's effectively flat.
I know that's one of your favourites. I actually acquired some Netflix as well, in that dip. And so that's one of the bright spots on my portfolio right now.
Also important to note, is that we're looking at this on a quarter basis. It's the start of the quarter to where we are now. But realise that the profile within that quarter is so important.
So if you're watching some good stocks out there, and they get to levels that you think are attractive, remember you're not executing at the start of the quarter and then closing the position at the end of the quarter.
You get to watch those stocks. And when they get to levels that you think represent fair value, don't be shy to consider either taking profit - if it gets to it on the upside - or initiating a position if it gets to your target price on the downside, where you think it looks cheap.
The Finance Ghost: Absolutely, Moe. I think we'll have to leave it there. And to those who are traveling over this long weekend in the holiday period, enjoy, be safe, have fun. I am one of them, so hopefully I don't get caught somewhere interesting without a flight home. Let's see. Touch wood.
Jokes aside, just be safe out there. And we look forward to being back with you next week.
Mohammed Nalla: Indeed. We hope you've enjoyed the show. Let us know what you thought of it.
Hit us up on social media. It’s @MagicMarketsPod, @FinanceGhost and @MohammedNalla, all on X. Or go find us on LinkedIn.
Pop me some abuse on that video as well. And we'll see you next week, same time, same place. Thanks, and cheers.
The Finance Ghost: Ciao.
