Q&A: Camissa bullish on MTN and PGM miners

Global financial markets have had a bumpy ride so far this year as a combination of rising inflation, a series of rate hikes and hawkish guidance from central banks across the world — despite the associated recessionary risks — weighed on assets.

Markets abhor uncertainty, and as long as fundamental factors don’t show solid improvement, the volatility will probably remain well into 2023.

Business Day caught up with Abdul Davids, head of research at Cape Town-based Camissa Asset Management to discuss what’s moving markets at present.

Global financial markets had a brutal month in September. The rand fell through R18/$ for the first time since May 2020 in the last week of the month, while the JSE all share dropped to a one-year low. Has the market priced in all the bad news at this point?

That is difficult to say, but higher inflation rates and rising interest rates have been the main drivers of weaker equity markets, so continued higher inflation coupled with more aggressive interest rate increases could result in further market weakness.

We’re starting a new quarter amid fear and uncertainty, and a battle brewing between the UK’s monetary and fiscal policies. Is this making things worse, and what’s your outlook for the year?

It is virtually impossible to predict what will happen in financial markets over the next three months, and therefore it is best to focus on the longer term outlook for the various asset classes.

Over the next few months, we are likely to see continued market volatility given the uncertainty around the trajectory of inflation and the extent of further interest rate increases. We are also looking at developments in China, with recent property market weakness in the country having an adverse effect on equity markets. The Chinese Communist Party congress later this month will have global consequences, so we are monitoring those events as well.

Market volatility could still be the main theme for the last quarter of the year, and well into next year. What investment/trading strategy can be followed?

We agree with that statement and hence would advocate for an investment strategy focusing on long-term wealth creation. Such a strategy would entail formulating a view on longer-term normalised inflation and interest rates, and looking at equity valuation in that context. 

Is the JSE an attractive place to invest? 

We think that selected equities listed on the JSE are now offering very compelling values based on their fundamentals.

Which sectors are or will be favourable and which ones not?

Based on our research, we think that selected diversified and PGM mining companies are offering attractive opportunities after sharp corrections this year.

Sharp corrections in the share prices of certain smaller companies (such as Curro, Libstar and Adcorp), as well as telecommunication companies have also created very attractive entry points for these sectors and companies.

Are there any other stocks to look out for that are gaining preference? Which aren’t? 

MTN would be a key investment preference as well as mining companies like Anglo American and Anglo American Platinum.

MTN has fallen sharply this year despite an improvement in the cashflow performance of the business that has resulted in a stronger balance sheet and reduced debt levels. Semi-conductor shortages have affected global automotive production and platinum group metal (PGM) prices, resulting in fairly weak PGM mining company share prices. We expect a recovery in global automotive production that should result in a rebound in demand for PGMs.

We remain cautious on certain domestic-focused companies like food and credit retailers given the effect higher inflation and interest rates will have on SA consumers’ wallets.

Anything else worth looking out for in the markets? 

We are likely to see news continue to flow around inflation and interest rates resulting in continued market volatility. Investors focusing on long-term wealth creation should embrace this volatility as a good opportunity to build their investment portfolios.

[email protected]