To market to market to buy a fat pig. Hello retail! The General Retailers index was up 2.7% yesterday thanks to Shoprite being up 8% after better than expected results. The surge from Shoprite spurred the rest of the retailers on; Woolworths up 3.6%, Massmart up 4.4%, Pick 'n Pay up 3.5%, Truworths up 3.5%, Mr Price up 2.8% and TFG up 2.6%. My theory at the moment is that despite the recession, Shoprite managed to grow sales by more than inflation and they managed to expand margins just a touch, reminding investors of the defensive nature of grocery retailers. Let's see what happens to those stocks today and then tomorrow after the Woolies full-year numbers come out. Maybe they won't be as bad as expected.
The All Share ended up 1.05% yesterday, finishing off at 56 034 points. Will we have a strong finish to the year and have a very appealing '6' at the beginning of that number? I hope so! US markets had an equally good day out, with the Dow posting its best day since April. Here is the scorecard, the Dow was up 0.9%, the S&P 500 was up 1% and the Nasdaq was up 1.36%. Think about that for a minute, a 0.9% rise on the Dow is its best day in around 4 months, showing just how 'calm' markets have been this year.
Executive pay is always a touchy topic. If they do their jobs properly they can create massive amounts of value for shareholders and the economies their companies operate in, so paying them millions ends up being a small price to pay. On the other hand, they could be coasting thanks to the groundwork laid by their predecessors or their dominant market position, then the millions being paid for them to be on the golf course is rather expensive. There was a study done on the performance of fortune 500 companies and the number of times their CEOs teed it up. As I am sure you have already guessed, more golf equalled poorer corporate results on average.
Executive pay is a shareholder issue because at the end of the day it's shareholder money they are managing. The problem comes in how fragmented shareholdings are, making it very difficult for shareholders to make a coherent stance on what pay should be at a particular company. The result has been that shareholders don't say much and just let the board decide what the man sitting next to them should get paid. You can see the problem, if you work along side someone regularly (maybe family holidays together too) and it is your job to decide their salary, you are probably going to err on the side of overpaying than underpaying.
Let us compare football player salaries and top executives, remember that footballers are employees and their salaries are decided by the clubs and not a fellow board member. Which in my book makes their salary very 'fair' based on free market mechanisms. Now, do you think a footballer or a CEO contributes more value to society? If you said CEO that would mean you think they should earn more than footballers? How many CEOs earned more than Neymar, who will earn EUR 40 million before endorsements - PSG is about to make Neymar the highest-paid footballer in the world and Top 10 Highest Paid CEO's in The World.
On Monday Naspers executive pay was in the spotlight, Naspers investor Allan Gray to vote against executive pay policy. I agree with Allan Gray's argument that Naspers current management should have incentives separate to that of what Tencent does. If they had a significant say in how Tencent was run, then yes be rewarded for it but from the way I see things, it is Pony Ma and his team driving Tencent. It was Koos Becker's genius to buy into Tencent and he has been handsomely rewarded for it and rightfully so. Current management has inherited the crown jewel of Tencent, let's see what other jewels they can create. I'm glad to see shareholders are starting to ask the hard questions to boards globally.
Linkfest, lap it up
One thing, from Paul
Brazil is a country very similar to South Africa (great climate, lovely beaches, commodity oriented economy, corrupt politicians, etc). That country was winning yesterday, announcing that the Federal Government will relinquish board control of the national electricity utility Eletrobras, and sell down its 51% equity stake. In response the share price of the company rose by over 45% in one day!
Brazil's move to privatize Eletrobras sparks investor euphoria
The excitement spread to other parts of the market, as it signaled that the dead hand of government might be withdrawing from other parts of the economy. The Bovespa stock index cruised past 70,000 points for the first time in almost seven years.
Do you think that our leaders might see the light and pursue the same path here in South Africa? I'm not holding my breath, but imagine the enthusiasm that would be unleashed here if Eskom, SAA and the SABC were turned loose?
Byron's Beats
This article has a nice interactive map showing how expensive (or cheap) each country's stock market is at the moment - Mapped: the world's cheapest stock markets. Of course your country needs to have a stock market to feature. As you can see, the more stable your economy, the higher the valuation of your market. Makes sense.
Michael's Musings
Car companies and home builders were getting worried that demand would drop as millennials become the dominant generation. As with marriage, having children and a full time job, millennial's get there slower than previous generations - Millennial Americans Are Moving to the 'Burbs, Buying Big SUVs. I suppose that with longer life expectancies, doing things later in life makes sense.
Sticking with millennial spending habits - 'Psychologically scarred' millennials are killing countless industries from napkins to Applebee's - here are the businesses they like the least. I can relate with some of the trends, I think the only time I have had fabric softener in my house was the day I moved out of "home" and it was a departing gift from worried/caring parents.
After the eclipse on Monday, Google saw a spike in searches for 'eyes hurt', still not as bad as the spike of 'What is the EU' post the Brexit vote. More impressive though was people leaving their TV and computer screens to see the eclipse - The solar eclipse caused a 10% drop in Netflix viewing.
- ' "Hey, just wondering why 10% of you chose to watch a giant rock cover a giant ball of gas when I HAVE ALWAYS BEEN THERE FOR YOU," Netflix tweeted. The account added, "but really, there was a 10% drop in plays during the eclipse today. Well played, Moon." '
Bright's Banter
Everyone needs a spiritual leader in life and my friends say Nicholas Nassim Taleb is my spiritual leader (half true). Here's what he had to say about rationality in the real world. What stood out for me is his argument on being a contrarian. He says that being a contrarian doesn't mean disagreeing with everyone but to have independence of mind - How To Be Rational About Rationality
Home again, home again, jiggety-jog. Later today South African CPI numbers are released. The forecast is for inflation to be 4.6% so well with in the 3%-6% SARB target range. A good read probably means an interest rate drop at the MPC meeting in September, good for consumers and retail stocks. Green across the board in Asia and a green start for us, good times.
Sent to you by Team Vestact.
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