Sign up for our free daily newsletter


Get the latest news and some fun stuff
in your inbox every day

May Will Stay

Market Scorecard



It has been a tumultuous two days for the UK and their road to Brexit. As expected the current version of the Brexit deal was defeated in the House of Commons. What was surprising was how big the defeat was. Then last night Theresa May's government survived a no-confidence vote. Given that the vote needed a 2/3 majority to pass, it was unlikely to succeed. What is important from the vote though is that the vote didn't even get a simple majority, showing that the Tory government will be around for the foreseeable future.

I am reading and hearing an increasing number of stories about investors selling UK assets and moving them to more stable countries. That is the problem with the current uncertainty. How 'hard' will Brexit be? Will there even be a Brexit? What will happen to the UK economy when trade barriers go up? What happens when cheaper labour from Eastern Europe can no longer reach the UK? For many investors, they would rather sit safely on the sidelines and wait to see the answers to those questions before recommitting capital. We have a similar problem in South Africa around the land issue.

Tencent is up 1.8% in Hong Kong this morning on the news that they are launching a test version of a game based on Game of Thrones - Game of Thrones Is Coming to Phones in China, Thanks to Tencent.

Yesterday the JSE All-share closed up 0.47%, the S&P 500 closed up 0.22%, and the Nasdaq closed up 0.15%.




Company Corner


Michael's Musings

On Tuesday before the US market opened, JP Morgan released their Q4 and Full-Year (FY) results. Due to lower trading volumes in this quarter, the company missed analyst expectations for both revenue and net income. Going into the results knowing that the company had 'disappointed', I was expecting to read weak numbers. What I found was the total opposite.

For the FY the company had revenues of $111 billion, up 7%, and net income of $32 billion, both figures record highs for JP Morgan. For me it was a good reminder to not focus on what analysts expect. As Paul said in the office on Tuesday, it is not the company missing expectations, it is the analysts giving the wrong forecast.

In Q4 JP Morgan's trading revenue was down 18%. The trading division helps connect buyers and sellers, in particular for bonds, but also in commodities, currencies and equities. For connecting the buyers and sellers, the JP Morgan trading desk takes a small fee. Generally when there is market volatility trading volumes increase, which is what analysts were expecting. But in the most recent market slide, things were too volatile and resulted in investors doing less instead of more. Trading is a volatile but high margin revenue stream, so an 18% drop in revenues is nothing to be concerned about. Next quarter we could see a complete 180, and revenues soar higher.



Wall Street and the banks, are painted as these greed driven, money-making machines. With all the scandals to hit Wall Street, their reputation is understandable. That is not always the case though. While going through the Q4 numbers I was pleasantly surprised to see that JP Morgan gave $200 million to the JPMorgan Chase Foundation, where the focus is on reducing inequality through the focus on Jobs & Skills, Small Business Expansion, Financial Health, and Neighbourhood Revitalisation. You can read more about what the money is used for here - Global Philanthropy

All in all, JP Morgan is still on track to continue growing with the US economy and to pay out a generous dividend.






Byron's Beats

This morning Woolies released their 26 week (six month) sales update for the period ending 23 December. As expected, the numbers were not great. High-end food can be resistant during a tough economic period but even high earners shop down when it comes to clothing.

Overall group sales increased by 1.9%. In South Africa, non-food sales declined by 2% whilst food increased by 6.3%. What was quite encouraging was that food inflation was only up 1.2%.

David Jones in Australia increased sales by 1% with a lot still happening with regards to store refurbishments. Online sales grew by 46%, now contributing 7.7%, which is encouraging.

Country Road sales increased by 2.3%. Online sales for that brand now compromise 17.7% after a 20% increase for the period. Country Road is a well established brand, if you know your size, it is easy to shop online.

Retailers naturally go through cycles. And I am not just talking about economic cycles, sometimes they fall out of favour and have to earn back their clients. As an investor, it would be an expensive mistake to jump from one retailer to the next, trying to follow the trends (rather do that when you buy your clothes). It is best to stick with a quality brand like Woolworths and remain patient. The share price is currently reflecting this slump, when management turn things around, there should be good upside.

There was also an earnings update in the release which included the David Jones write downs. We will cover those numbers in more detail when the results are released.




Our 10c Worth


One thing, from Paul

Medical device innovation is an exciting investment arena. As you have heard many, many times from team Vestact over the years, we believe that rising incomes, widespread medical insurance and longer lifespans, means more spending on healthcare.

We own Stryker for clients in New York, as they have more involvement in hips, knees and spinal "spare parts", but another very credible company in the same industry is Abbott Laboratories.

This week Abbott received approval from the US Federal Drug Administration (FDA) for a tiny device called the Amplatzer Piccolo Occluder, which is used to seal small holes in the hearts of premature babies. The picture below shows how small it is, against a coin.



I was not aware of this, but everyone is born with a small hole in their heart. In the womb, the hole allows a fetus's blood to bypass the lungs and get oxygenated blood directly from the mother. Usually, the hole closes a few days after delivery. In some premature newborns, however, it never does, making breathing difficult and leading to a host of potential complications. The device can also be used in babies weighing less than one kilogram. It is threaded into the heart using a catheter that runs through the femoral vein in the thigh, avoiding taxing surgery. Well done!






Bright's Banter

Goldman Sachs released their numbers for the fourth quarter. The bank announced revenues of $8 billion which in turn generated profits of $2.54 billion.

The elephant in the room and I guess an issue that is going to haunt Goldman Sachs, is their involvement in the 1MDB Malaysia fund.

Like all corporates that do not want to assume liability and incriminate themselves, the company has put blame on rogue employees, including former partner Tim Leissner, who pled guilty on US bribery charges. From the 1MDB deal the bank allegedly netted a sweet $600 million in fee income, after underwriting $6 billion in Malaysian bonds.

Goldman Sachs CEO, David Solomon aka DJ DSol, didn't mention anything about paying back the money to Malaysia in his apology. However, according to Reuters, the bank has set aside provisions of up to $1 billion relating to potential fines stemming from the scandal. The bank can afford it I guess.






Linkfest, Lap it Up


Even with a growing population, resource prices have dropped thanks to innovation and production increases - Introducing the Simon Abundance Index



Our neighbour Zimbabwe is currently going through a currency crisis. This infographic shows how their past woes were not as bad as Hungary.

Infographic: Iran Might Slash Four Zeros from Currency | Statista You will find more infographics at Statista




Vestact Out and About


Michael was on Classic FM and Moneyweb Radio, talking about the current Brexit developments - British MPs reject Brexit deal







Signing off


The JSE All-share is lower this morning. The main focus for today will be what the MPC decides to do with South African interest rates. I'm confident it will stay where it is. Then this evening after the market closes, Netflix releases their latest results. What will their subscriber numbers be? How much are they planning on spending on content? What is their cash position? Always an exciting read!

Sent to you by Team Vestact.


Other recommended stocks     Other stories about