Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. Another all time high in Jozi. Resource stocks rocked, BHP Billiton got a lift globally after their decent production report that was driven by mostly their petroleum division. Which is the key segment that separates them from their peers. US earnings season continued, we will get into a stock a little later that we had enough time to cover today. Anglo American ramped up nearly 4 percent. Helping us later in the afternoon and Mr. Risk on visiting our local stocks again saw the Rand gain against all the major currencies across the globe, meaning that some of the earlier gains were squashed a little. But still, we managed to gain a very healthy four fifths of a percent. Resources rose nearly two percent on the day. But the main story was elsewhere.
The Spanish index, the IBEX 35 rose nearly 2.4 percent. But still, year to date that market is down over 5 percent. BUT, off their lows, Spanish equities are up 37 percent from the lows reached on July 24 this year. You would have made an enormous gain if you had committed serious money back then. Over a year, in Dollar terms however (the ETF goes by the ticker EWP in New York, or the closest one to the Spanish market) the market is still down 16 percent, notwithstanding that heroic rally recently. Over five years that same ETF is down 52 percent. Over ten years the EFT is actually up 93 percent, if you have been holding them for a long time, ten years, you are OK. BUT, if you are a contrarian investor perhaps the worst is past. Remember that there is a strong financial institution bias in the Spanish index, no wonder they have been carried out the back door.
The problem with fishing that far down is that there are MANY unknowns. Often the unknowns are worse than the folks out there might think. And as we often say, perception is reality. If the perception is that the Spanish housing problem (disaster?) is starting to stabilize, then of course that might lead to a little more confidence. Tell that to the great unemployed masses in Spain though. In the mean time, as per this WSJ article: Europe Seeks a Spain Strategy. See, they are working on it. I had to have a giant giggle the other day, we shared the link in fact, that the web searches for Euro debt crisis was at a year to date low. The less people searching for that, that probably means that the pain in Spain won't come around again and again. Spain, one of the big drivers yesterday, thanks guys, pity about the match against France and those last moments.
Remember our piece yesterday, on BHP Billiton titled BHP Q3 production report, beat on petroleum, flat on iron ore, in which I said "This was as a result of a planned shutdown for inner harbour expansion". I was corrected by a friend of the newsletter, all the way from down under, he had these interesting points:
- "I think you are confused on the issue of the inner and outer harbours at Port Hedland: BHPB IO has canned the outer harbour development, which entailed a separate dredged channel, and new quay and berths. The focus is now on getting the inner harbour (the current operation) up to 240 Mt/a throughput. There is no "planned shutdown for inner harbour expansion". In fact, the PHPA has approved the construction of two additional BHPB IO inner harbour berths, but admittedly no additional guarantees of shipping capacity.......
I attended a very sobering presentation from Marius Kloppers yesterday to the Brisbane Mining Club. Basically, a downbeat view of new projects in Australia and the impacts of high costs, interest rates, taxes and low productivity. I can only agree with him - unfortunately the average Aussie doesn't - she'll be alright, mate! I see the speech and presentation are now posted on the BHPB website."
Those second observations are VERY interesting, because as I said to him: "I am glad we are on the same page, it seems labour almost everywhere globally feels that business somehow owes them a break!" Back home, here, the president has called for labour to go back to work. He has called for business to take freezes in pay too. That is a shareholder issue not so? Unless of course we see a lead by example!
The headline reads: Chinese economy grows 7.4% in Q3. As Byron pointed out earlier in the week, we would be covering this. China. The economic miracle of our time. I can't think of any other economic uplift through history on this sort of scale. When one in six people have seen their economy grow at this pace for three decades. In 1980 (measured in constant 2000 US Dollars) Chinese GDP per capita was 186.44 Dollars. In 2011 it is 2634.71 Dollars. That is a 14 fold increase in 31 years. On exactly the same measure, Sub Saharan Africa has gone from 586.17 US Dollars per capita in 1980 to 648.37 Dollars per capita in 2011. The point where the average per capita contribution to their respective economies reached a tipping point was in the middle of 1992. Since then, the Chinese have crushed us.
Yes, us, the folks that contribute to the economy of Sub Saharan Africa. That is mostly you and I. In 1980, the entire Chinese economic output was 189.4 billion Dollars. Smaller than the entire Sub Saharan Africa, which was collectively at 271.45 billion Dollars. Last year the economic output of China was nearly 6 times the size of Sub Saharan Africa. In 1980, Chinese economic output was 1.7 percent of the globes economy, in 2011 it was just less than 10.5 percent. All the data above via the World Bank.
And now, it is the world's second biggest economy. BUT, in terms of global demographics, China has 1.344 out of 7.046 billion people on the planet, or 4 out of every 21 people on the plant. Roughly. That is better than to say, 1 out of every 5.25 people. So, If China were to have their economy at the same size relative to their population, at a global level, their economy would have to be 82 percent higher than it was last year. Strange measure, but it is what it is!
This morning the Chinese have released their GDP number: China Shows Pickup Signs After Seven-Quarter Slowdown: Economy. So, there was a print article about a sign of a pickup. Retail sales were the bright spot (+14,2 percent relative to expectations of 13,2 percent) as was industrial output (9,2 percent versus 9,0 percent expected). So you mean that this is good news? ALSO, the question that people are starting to ask is simple. Does this mean that the new ruling party leaders will implement new stimulus measures.
A good friend sent me something via email the other day, it was mostly a promotion for a book that someone had emailed to him. The book was called the 10 trillion Dollar prize. No, we are not talking about a packet of lemon cream biscuits found on the OK Bazaars stores during the worst of the Zimbabwe currency crisis (10 trillion Zim Dollars), but rather about the Indian and Chinese retail prize. Here are some small excerpts from the email:
I wanted to flag this research, which was published in a book "$10 Trillion Prize" and found:
"We are at a turning point in history where relative wealth will shift from the West to China and India, but absolute wealth, including in the West, should increase," said Michael J. Silverstein, a coauthor of the book and a senior partner at BCG. "It is not a zero-sum game. But Western businesses and individuals wishing to gain their share need to act now. They must choose to be contenders, and remake their dreams for a new world in which China and India play a much larger role—but where the West can still prosper. That's the real lesson of The $10 Trillion Prize."
7.4 percent growth. Every developed and developing country in the world WANTS that growth rate. Call it slowing. My few observations on Chinese economic growth are as follows:
1) The base is huge compared to even five years ago and expecting that magic 8 percent number is perhaps an expectation too far.
2) The progress that the Chinese will continue to make in the coming half a decade will really determine whether or not they will challenge the US for the mantle of World's biggest economy by 2023. More or less.
3) Is the housing market just way too hot, or do you (like me) feel that the officials have a handle on the situation.
4) Lastly, with further liberalisation of the economy, the economic benefits for the country and its citizens would improve significantly, the only unspoken issues are a real democratic transition, how would that work?
- Byron's beats
They call it the bluest of blue chips. Johnson and Johnson, the $195bn producer of medical devices and diagnostics, pharmaceuticals and consumer health products released third quarter numbers on Tuesday. The company has been busy this year with an acquisition of medical device maker Synthes and a lot of research and development spend hence third quarter profits dropping 7.3% from this time last year.
Sales came in at $17.1bn which was an increase of 6.5%. Interestingly and again confirming the trend we saw yesterday with Coke, domestic sales (US) grew 13.4% while international sales only grew 1.4%. The medical device division (42% of sales) has been slow due to austerity measures in Europe. That makes sense, less government spend on hospitals. Consumer products have also been slow (22% of sales) but starting to pick up while pharma has grown nicely, up 11.3% (37% of sales).
Earnings per share came in at $1.05 which was above expectations. Analysts expect $5.09 for the year. The stock trades at $71 and a 2012 forward of 14. I would say this is fair for the kind of growth this company offers and the sector they operate in. Earnings for 2013, as per the analyst consensus, look to come in around $5.50.
The company is not without its risks and over the last few years it has been littered with product recalls, litigation costs and manufacturing issues. These seem to have stabilised over the quarter which the company has worked very hard to mitigate. There are also risks of patent expirations which need to be covered by new product releases from the company.
The company has some promising looking new products in the pharma market and a turn in Europe will surely help the lagging medical device division. The acquisition of Synthes I feel was well timed and gears them up for the turnaround we are expecting.
I like the theme. Healthcare is paramount in anyone's life and as the world gets wealthier JNJ products will grow in demand. Their consumer products are defensive in nature and won't blow the lights out but should show steady growth. I'm sure you all consume these products daily. Their medical devices division should turn with Europe while the US looks strong and should bring strong growth. The pharma division relies on their product pipeline which seems to be looking very positive. JNJ are the biggest in this field, have a fantastic history and operate in a sector that is bound to grow. We are using JNJ as our chosen entry into the global health care division.
Crows nest. After the huge showing for the bulls over the last few sessions, we are marginally lower at the get go this morning. Commodity prices are a little mixed, but I could almost hear a collective sigh when the Chinese GDP number was released. Still, you have a situation where folks are not believers of any Chinese data. Mr. Market clocked a 16 percent plus gain for the year yesterday, surprising even me.
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
011 022 5440
No comments:
Post a Comment