GIULIETTA TALEVI: Of the JSE, Tesla and cognitive dissonance
There are puzzling contradictions in the share markets, but at least SA’s pensioners can benefit
The market cannot hear your screams.
Which is a good thing right now, as it’s still bounding ahead, blissfully detached from our present hideous reality of power cuts, rampant and mounting joblessness and a government in hock to powerful fiefdoms like the taxi industry – rather than, say, the tobacco or liquor lobby, more’s the pity.
The market’s rollicking run means the rand is close to pandemic-level highs, at about R16.60, boosted by the return of the risk-on trade. Much of that has to do with news that a coronavirus vaccine made by American biotechnology company Moderna provoked a “promising” immune response against the virus and appeared safe in the first 45 people who received it, as stated in this report in the The New England Journal of Medicine, released on Tuesday.
Moderna’s larger phase 3 tests, involving 30,000 people, will now begin on July 27.
At the same time, AstraZeneca has agreed to sell its vaccine on a not-for-profit basis during the crisis “if it proves effective”. It “has lined up deals with multiple manufacturers to produce more than 2bn doses.” You can read the full article here.
Still, as Bloomberg columnist John Authers wrote yesterday, “this has been one of those annoying times when far too many things happen at once”. And that, he says, means “people will have plenty of excuses to make whatever investments they want: buy, sell or hold. Judging by past performance, the Moderna news has a decent chance to swamp everything else, but don’t bet everything on that.”
(You can read yesterday’s newsletter here, or better yet, subscribe to his daily reports.)
How far can Tesla run?
A lot depends on what kind of numbers American companies produce in this earnings season. Earnings, however, are no short-term determinant of what happens to a share price, as we’ve seen this year.
No stock better encapsulated that than Tesla, the California-based electric car and clean energy company, which is headed by SA’s most successful export, Elon Musk.
Remarkably, even though Tesla has yet to turn a profit, and last year made an $862m bottom-line loss, its share price has still soared 250% this year.
Even Musk appears dazzled. “Wow,” he said in a one-word tweet this week in response to a market upgrade by analysts at US investment bank Piper Sandler, who reckon the stock is worth $2,332 a share (their previous estimate put Tesla’s value at $939 a share). That suggests that despite Tesla’s wild run this year, there’s a more than 50% upside from its current price of $1,510 a share.
The Financial Times (FT) has a great piece on this year’s “most eye-catching oddity”, and you can read that here.
In the same vein of cognitive dissonance in the market, there’s a curious mismatch in the excellent stock performance in recent times both for SA’s gold and its iron ore miners.
What’s curious is that a soaring iron ore price normally indicates robust economic demand (since iron ore is a key ingredient in steel) and a surging gold price usually points to nervousness about the trajectory of global economies and stock markets.
And yet the two are rising in tandem. In fact, iron ore pips gold for the title of best-performing commodity this year, having risen about 20%.
The FT tries to explain this. Its answer is that China’s recovery is the secret sauce powering the soaring iron ore price.
And yet gold’s rise indicates the schizophrenia about the trajectory of the global economy.
Still, this is at least great news for companies like Anglo American and Kumba Iron Ore, which are staple ingredients of most pension funds in SA. And at this point, what with Eskom, Covid-19 and a sobriety-obsessed governing party, pensioners need all the help they can get.
*Talevi is the FM's Money & Investing editor.
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