Exchange Square in Johannesburg where Deutsche Ban
Exchange Square in Johannesburg.
  • Despite the national lockdown, the JSE saw a massive 26% rally over the past three months. 
  • But many companies focused on the local economy - like retailers and hospitals - still continued to bleed.
  • For more articles, go to www.BusinessInsider.co.za.

The second quarter of 2020 was the best of times for the JSE, amid the worst of times for the local economy.

As the locked-down economy probably suffered its worst contraction in living memory, the JSE’s all share index rocketed by more than 26% over the three months to end-June – its strongest quarterly rally in 19 years, according to Sanlam Private Wealth’s Nick Kunze. The local market tracked other global bourses, with the S&P 500 index in the US seeing its best gain since 1998 over the past quarter.

But the local market is still almost 6% below where it was at the start of 2020 – with SA-focused retailers, banks and hospitals still bleeding.

Even Sasol, which rallied a massive 329% in three months thanks to a recovering oil price, is still 56% lower than six months ago as investors digest its plans to deal with its $10 billion (R173 billion) debt burden.

Gold miners were among the only shares which were up for the year - as the precious metal trades at its highest levels in eight years. Amid the pandemic, nervous investors are looking for a “safe haven” investment – and gold offers an alternative to the dollar and bonds. DRDGold has gained 256% since the start of the year.

Recovery signs in the Chinese economy also helped platinum shares, with Anglo Platinum up 73% over the quarter, but it's still down 4% this year.

Blue Label Telecoms – which owns the massively indebted Cell C – rose 64% over the quarter, and is up 8% since the start of the year. Rumours that the French giant Orange may be interested in Cell C, and a deep restructuring at the mobile company may have helped investor sentiment.

Here are the top performers on the JSE:

jse
Source: Nick Kunze, Sanlam Private Wealth

The UK mall owner Intu, which went into administration last week,  was the worst performer – losing 95% of its value.

Despite mass stockpiling of medicines in the run-up of lockdown, Dis-Chem lost around a third of its value this year. The share was trading at pricey valuations before the crisis, and a recent trading update disappointed, says Schalk Louw, portfolio manager and strategist at PSG Wealth Old Oak. The company is also buying Baby City, which will add to its debt burden.

Pick n Pay was among the worst performing of the large retailers, down almost 20% over the past quarter (and year), with investors unhappy about its decision to cut dividend payments, says Louw. Massmart – owner of Makro, Game and Builders Warehouse - has seen its share price more than halve so far this year.

Hospitals were also among the shares that fell the hardest over recent months. Mediclinic lost 25% since the start of the year, while Life and Netcare dropped a third of their value.

The market expects the lack of income from non-elective surgeries during the Covid-19 crisis to hit hospitals, says Louw.

Here are the JSE worst performers over recent months:

jse
Source: Nick Kunze, Sanlam Private Wealth

A repeat of the second-quarter performance is not expected on the JSE, as the fallout of the coronavirus crisis continues to drag on the local economy.

Investors need to be cautious, especially when buying South African-focused shares as it may take some time for the broader market to return to pre-Covid-19 levels, says Louw.

He believes the first shares among the SA-focused companies that should start to see a recovery are the retailers. Shoprite – usually much pricier than other SA Inc stocks - is currently trading at a PE of 17.2 times – slightly below the market average of 17.3, and far lower than its historic average of between 25 and 30.

Louw sees value in shares like Remgro, which is currently trading at a far more than 30% discount to the sum of its parts. He believes the hospital groups are also oversold.

Financials – knocked hard by the crisis, which triggered a spike in bad debts – will be among the last to recover. But at some point, their dividend payments will resume, which should attract investors again, Louw says.

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