Bulls n Bears Daily Market Commentary : 22 July 2019

Tue Jul 23 01:19:01 CAT 2019

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Bulls n Bears Daily Market Commentary : 22 July 2019

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Zimbabwe Stock Exchange Update

Market Turnover ZWL$ 10,431,613.83 with foreign buys at ZWL$ 9,188,524.00
and foreign sales were ZWL$49,800.00 Total trades were 84.

The All Share index closed the day on a lower note losing 0.08 points  to
close at 191.39 points. SEEDCO LIMITED lost $0.0434 to settle at $1.5041,
CASSAVA SMARTECH LIMITED eased $0.0385 to $1.6449 and INNSCOR traded $0.0195
weaker at $2.2500.Other counters to lose ground include SIMBISA BRANDS which
decreased by $0.0137 to end at $1.0600 and OK ZIMBABWE  which dropped by
$0.0099 to close at $0.4400. 

Trading in the positive: OLD MUTUAL LIMTED advanced by $0.2809 to settle at
$16.0309 ,MEIKLES LIMITED was $0.1411 stronger at $1.2411.TSL gained $0.1000
to close at $0.6000.Other counters to advance were ZB FINANCIAL HOLDINGS
which rose by $0.0500 to end at $0.6000 and FIRST MUTUAL LIMITED  which
added 0.0290 ending at $0.2500.

 <mailto:info at bulls.co.zw> 

  Global Currencies & Equity Markets

South Africa 

South African rand firmer as carry trade trumps political wrangling

(Reuters) - South Africa’s rand rallied on Monday, brushing aside local
political ructions as investors increased bets on further monetary easing by
the European and U.S. central banks.

At 1500 GMT the rand was 0.75% firmer at 13.8500 per dollar after closing at
13.9500 on Friday. Most of those gains came in the latter part of the
session, with offshore investors in particular lured by the rand’s healthy
carry return. The European Central Bank is expected to lower its key deposit
rate on Thursday while the U.S. Federal Reserve is expected to cut rates on
July 31, prompting investors to look to high-yielding emerging markets
assets.

South Africa’s central bank (SARB) cut its own key rate last Thursday, but
looks unlikely to ease further this year, and with inflation trending lower,
the rand and local bonds have continued to draw buyers despite a political
storm brewing around President Cyril Ramaphosa.

On Friday the head of the government’s anti-graft ombudsman said Ramaphosa
had violated the executive ethics code over a donation to his 2017 campaign
for the leadership of the African National Congress (ANC) party.

On Sunday Ramaphosa said he would go to court to overturn the finding.

Bonds were weaker, with the yield on the benchmark 2026 government paper up
1 basis point to 8.03%.

On the stock market, shares fell alongside emerging market equities, with
companies earning in foreign currencies hit by the rand’s rally, while the
introduction in China of a Nasdaq-styled index hurt existing indices.

The benchmark JSE Top 40 Index closed 0.4% down at 51,891 points while the
broader All-Share Index also fell 0.4% to 58,015 points.

Tobacco producers British American Tobacco (BATS) and Remgro were at the
bottom of the blue-chip index, with BATS down 2.3% and Remgro slipping 1.7%.

Uganda

Ugandan shilling little-changed amid limited importer demand

(Reuters) - The Ugandan shilling        was little-changed on Monday amid
limited demand for dollars from fuel companies and other importers.  

At 0948 GMT commercial banks quoted the shilling at 3,690/3,700, compared to
Friday's close of 3,686/3,696.

       <mailto:info at bulls.co.zw> 

America

Tech leads U.S. stocks higher; oil gains

(Reuters) - U.S. stocks gained ground on Monday at the onset of a heavy
earnings week, while European shares inched higher as investors took heart
from potential progress in U.S.-China trade talks and increasing
geopolitical tensions sent oil prices climbing.

Tech pushed Wall Street into positive territory as investors girded
themselves for a week of second-quarter results from major industrial and
technology companies and eyed the U.S. Federal Reserve’s expected interest
rate cut at the end of the month.

The South China Morning Post reported U.S. trade negotiators will likely
visit China next week for their first face-to-face talk with Chinese
officials since U.S. President Donald Trump postponed a new round of tariffs
on Chinese imports after a meeting with his Chinese counterpart in Japan on
June 29.

The Dow Jones Industrial Average rose 17.7 points, or 0.07%, to 27,171.9,
the S&P 500 gained 8.42 points, or 0.28%, to 2,985.03 and the Nasdaq
Composite added 57.65 points, or 0.71%, to 8,204.14.

Growing tensions in the Middle East, coupled with worries about Britain
leaving the European Union (Brexit) without a deal held world stocks flat.

The pan-European STOXX 600 index rose 0.13% and MSCI’s gauge of stocks
across the globe gained 0.05%.

Brent crude prices moved higher on worries that Iran’s seizure of a British
tanker last week could lead to supply disruptions.

U.S. crude settled at $56.22 per barrel, up 1.06%, while Brent settled at
$63.26, gaining 1.26% on the day.

The dollar and euro were little changed as traders looked to policy
decisions from the U.S. Federal Reserve and the European Central Bank
regarding the pace at which they will cut interest rates, beginning with the
ECB on Thursday.

The dollar index rose 0.14%, with the euro down 0.12% to $1.1207.

U.S. Treasury yields fell and the yield curve flattened as dovish Fed bank
policy supported demand for government debt.

Benchmark 10-year notes last rose 1/32 in price to yield 2.0482%, from 2.05%
late on Friday.

The 30-year bond last rose 4/32 in price to yield 2.5734%, from 2.578% late
on Friday.

Gold held steady, on the heels of a sharp drop in the previous session on
lowered rate cut expectations, but the safe-haven metal still found support
in the form of global geopolitical uncertainties.

Spot gold UP 0.08% at $1,425.24 an ounce.

Shipping prices rose on strong vessel demand, with the Baltic Dry Index
jumping to a 5-year high. 

 <mailto:info at bulls.co.zw> 

Commodities Markets

Gold holds steady as investors await Fed rate cut decision

(Reuters) - Gold prices steadied on Monday, after a sharp fall in the
previous session, as investors waited for the U.S. Federal Reserve’s
decision on interest rates at its month-end meeting next week.

Spot gold was up 0.1% at $1,426.44 per ounce as of 1:44 p.m. EDT (1744 GMT).
The metal touched its highest since May 2013 at $1,452.60 on Friday, but
closed about 1.5% lower.

U.S. gold futures settled mostly unchanged at $1,426.90.

Lower interest rates reduce the opportunity cost of holding non-yielding
bullion and weigh on the dollar.

The Fed is expected to announce its decision at its July 30-31 meeting.
Markets also expect a dovish policy stance from the European Central Bank
when it meets on Thursday.

The likelihood of a 50-basis-point cut soared last week after dovish
comments by Fed policymakers. Those expectations later dwindled after an
official clarified that the remarks did not refer to potential policy
actions.

U.S. rates futures implied traders positioned for a 72% chance the Fed may
lower its rate by a quarter point at its July policy meeting, according to
CME Group’s FedWatch tool.

Political tensions in the Middle East were also offering underlying support
for bullion, a safe-haven asset, analysts said.

Britain was weighing its next moves in a Gulf tanker crisis on Sunday, with
few good options apparent as a recording emerged showing that the Iranian
military defied a British warship when it boarded and seized a ship three
days ago.

Reflective of sentiment in gold, holdings of SPDR Gold Trust , the world’s
largest gold-backed exchange-traded fund, rose 0.7 percent to 820.49 tonnes
on Friday.

Speculators raised their bullish stance in gold and silver in the week to
July 16.

Silver rose 1.1% to $16.39 an ounce, after touching its highest level in
more than a year in the previous session.

Platinum rose 0.7% to $849.28 and palladium rose 1.4% to $1,526.50. 

Rio Tinto's Mongolia copper problems highlight frontier country risks:
Russell

(Reuters) - Looking for a long-term bullish signal for copper? Then look no
further than Rio Tinto’s struggles with the Oyu Tolgoi mine and expansion
project in Mongolia.

The latest news about the giant copper-gold project is that the production
from the underground expansion will be delayed by more than a year to
between May 2022 and June 2023, and that costs have ballooned by another
$1.9 billion.

The capital cost of the project is now estimated at $6.5 billion to $7.2
billion, up from an original estimate of $5.3 billion.

Rio Tinto, through its Turquoise Hill Resources subsidiary, owns 66% of the
Oyu Tolgoi mine, which could become the world’s third-largest copper mine by
production in 2025 under the current development plan.

What’s becoming more of an issue for the mine is that the Mongolian
government owns the other 34%, and it appears that there is mounting
disquiet in Ulaanbaatar that the landlocked country between Russia and China
is getting a dud deal.

Mongolia’s parliament is set to approve measures that would terminate the
2015 agreement on the Oyu Tolgoi underground expansion, seeking to bring
forward the time when it will receive dividend payments from the project,
demand more transparency on copper prices and push for Rio Tinto to build a
power plant.

Currently, Mongolia will only start to receive dividends around 2041, when
its share of the debt for the project is repaid.

The sentiment expressed in the above quote goes to the heart of Rio Tinto’s
Mongolia problem, and indeed to any mining company considering a major
investment in a developing, or frontier market.

BALANCING RISKS

The Oyu Tolgoi project is a country-changer for Mongolia, with its capital
budget making it the biggest ever undertaken in the country, but it’s also
more than half of the annual gross domestic product (GDP) of $13 billion.

By comparison, the $200 billion of spending on eight liquefied natural gas
(LNG) projects in Australia over the past decade, the biggest investment in
a single industry in the country’s history, represented about 17% of annual
GDP.

A country such as Mongolia cannot afford the upfront cost for its stake in a
project the size of Oyu Tolgoi, so it pays for its share by deferring
dividends.

While this sounds like a good solution in theory, it also means that the
government, and the populace, see the mine being built and start operations,
but they don’t necessarily see the benefits flowing to them.

Rio Tinto makes the point on its website that from 2010 to the third quarter
of 2018 it has spent “$8.3 billion in-country in the form of salaries,
payments to Mongolian suppliers, taxes, and other payments to the
government.”

The question is whether this is enough, and the answer the Mongolian
authorities appear to be giving is no.

The obvious risk for Rio Tinto is that it spends billions of dollars on an
investment that takes a longer period to deliver returns, or even in the
worst case the asset is seized by the state.

This situation is increasingly being confronted by resource companies around
the globe.

Mozambique and Tanzania are both keen to see international oil and gas
companies spend billions of dollars developing an LNG industry in the east
African neighbours.

But will the authorities remain satisfied with the terms that were initially
struck when it becomes clear that the benefits to the government coffers
will take some time to flow?

Increasingly, valuable deposits of commodities are in jurisdictions with
higher country risk, but it doesn’t appear that project developers factor in
the likelihood of having to renegotiate terms once vast amounts have already
been spent.

It’s always going to be a fine balance between a company assessing how much
of the value of the project it can afford to surrender to the host country,
and the government of that country working out how hard they can squeeze
before the company walks away and your investment reputation is severely
damaged.

For the market, the risk is that much of the new supply of several key
resources is likely to come from countries such as Mongolia, and the
question is how likely is it that this resource is actually developed and
delivers to plan.

INVESTORS DIARY 2019

Company

Event

Venue

Date & Time

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of
Faith Capital (Pvt) Ltd for general information purposes only and does not
constitute an offer to sell or the solicitation of an offer to buy or
subscribe for any securities. The information contained in this report has
been compiled from sources believed to be reliable, but no representation or
warranty is made or guarantee given as to its accuracy or completeness. All
opinions expressed and recommendations made are subject to change without
notice. Securities or financial instruments mentioned herein may not be
suitable for all investors. Securities of emerging and mid-size growth
companies typically involve a higher degree of risk and more volatility than
the securities of more established companies. Neither Faith Capital nor any
other member of Bulls ‘n Bears nor any other person, accepts any liability
whatsoever for any loss howsoever arising from any use of this report or its
contents or otherwise arising in connection therewith. Recipients of this
report shall be solely responsible for making their own independent
investigation into the business, financial condition and future prospects of
any companies referred to in this report. Other  Indices quoted herein are
for guideline purposes only and sourced from third parties.

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