The year that was …

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JIMMY MOYAHA: We’re reflecting on 2023, the year that was, and trying to figure out some of the movements that happened, some of the announcements from companies, and just what to make of it all. I thought who better to discuss this with than Sasfin’s David Shapiro, who’s seen most – if not every conceivable – market movements we can think of. 

Good evening, David. Thanks, as always, for the time. Let’s start with the standout movers throughout the year for you, both good and bad.

DAVID SHAPIRO: We have to look at the Nasdaq, we have to look at the US – a remarkable performance. And Jimmy, you have to understand why it was so remarkable because I think when we entered 2023, and we had forecasters making these calls that interest rates were going to go up at elevated levels – which they did – we still had the ongoing tensions between Russia and Ukraine. 

And we still had a lot of things to digest, still issues arising out of Covid. So the outlook when we entered 2023 was for the market, if anything, to go backwards again. Remember 2022 was a very difficult year and, if anything, the complete opposite. 

The background to that, of course, is just over a year ago, on 30 November, ChatGPT was released – and it took on a whole new life. As we got to know what it meant, so the market started to discount what the benefits would be down the line. I still think those benefits are there. So it completely turned the market upside down.

Even though, Jimmy, we did get those interest-rate hikes, along the way we weren’t sure when it was going to end.

So despite that – despite the calls that we were going into a recession, that interest rates would go higher – the market somehow brushed it aside and continued to go. I’ll just qualify that for certain parts of the market, which were mainly the big tech, those companies that were exposed to the benefits of AI. 

So I think trying to put it in a nutshell, that was how we summed up 2023. Look, I’m really impressed by the way markets have held up – our market the JSE, the UK markets. It was confined to the US and it was confined to big tech because, if you look at the performance of other markets, they certainly didn’t match that. So if the JSE went kind of sideways or only slightly up, we weren’t alone.

JIMMY MOYAHA: You mentioned the big tech and obviously there’s been talk of the Magnificent Seven and so forth. How do you rate the Magnificent Seven against, say, Chinese tech because that’s also going to be somewhat the closest competitor, I suppose, to the Magnificent Seven?

DAVID SHAPIRO: You can’t write off China. The only problem is one still hasn’t got on top of the authoritarian outlook there, or the authoritarian stamp on those…

JIMMY MOYAHA: But regulatory meddling?

DAVID SHAPIRO: Yes, meddling – in other words controlling it. I think that’s made investors very sceptical. What we saw in Alibaba, what we saw in Baidu and Tencent, you had a tech business there that was going to erupt. This was huge, these were huge investments. But suddenly, I think it was in 2022 or thereabouts, or even bit earlier when we had the clamp down, somehow it just took the steam out or the fuel out of the gains that those companies were making. 

Now, people are not quite sure. They’ve been tamed; they were getting too big. [Alibaba founder] Jack Ma [Yun] was getting too big for his boots, and the authorities came in and really clamped down on their [companies’] sizes, concerned that they could get too big and might even challenge the hegemony of the government, of the Communist Party or the ruling party. 

So I’m still concerned about that. I don’t think that they haven’t got the technical knowledge. They might be a little backward, slightly behind the US, because one of the strengths of the US is that they allow these things to develop. They’re very innovative, very entrepreneurial, the capital’s there, the universities are there. But I wouldn’t take anything away from the Chinese. 

For the meantime, I still think that the US companies are going to get bigger and will dominate, with the Chinese trying to play catch-up.

JIMMY MOYAHA: Uncle David, I want to look into your crystal ball, the years of experience that you have – what took you by surprise throughout the year?

DAVID SHAPIRO: Nothing really. [Chuckling] When I say ‘by surprise’ – okay, what I think did take me by surprise was the commodity markets, the weakness in commodity markets. And I’m still struggling with it. At a time where inflation was still strong and we had the war – the Ukraine war, the Russians – for commodity prices to come down as much as they have concerned me. I say it against a backdrop of not much new development. 

So something is still missing that I can’t put together. Why I raise this, Jimmy, is it time to buy commodities or are we going into a kind of environment where there’s not enough strength to support [them]?

So I’m still ambivalent on commodities but keeping a very watchful eye. 

The one thing that did take me by surprise was the huge fall that we saw in the palladium price and the platinum price. Even copper is only starting to pick up now. Oil was the mystery because if you look at the forecast against tightness of supply, lack of new development, one would’ve thought that oil would be around $125 or $150/barrel, whatever the forecasts were. And it’s below $80/barrel; I’m talking about Brent at the moment. Even WTI [West Texas Intermediate], which is the American oil gauge, is down. 

So I think that was the surprise because my view was that commodities would hold up. We had a weaker rand, you know, that would do well for our market. Not so. It was really the one area that we – I don’t want to say – called wrong, but it surprised me.

JIMMY MOYAHA: Speaking of surprises in the commodity space, gold approaching $2 200/oz, we had already speculated that it would take a lot to break the $2 050/oz level as we approached year-end, and this month alone, it shattered that in a matter of hours.

DAVID SHAPIRO: I know. It is a surprise. Where’s it coming from? It could be Chinese; it could be central banks picking up a lot of gold. It surprised me because, if anything, gold has always been a disappointment in my life. I was brought up in the gold markets, but we were brought up in the gold share markets. I’ve always watched gold, and I’ve never been a great supporter of it.

But I must say the strength here that we are seeing now is surprising. And it could be outside of America, it could be central banks. 

We’re trying to attribute it to the Chinese picking up a lot more gold, maybe, rather than the dollar or bonds or whatever. It could be associated with savers in China maybe picking up gold, rather than going into property where they have been before. I don’t know the regulations there, whether people can accumulate it. But it’s a surprise, and I think it’s going firmer. 

Jimmy, if the dollar weakens, if rates in the US start to come down, and the cost of holding gold starts to come down, then with what we are seeing now – because we’re in blue sky now, we’re in uncharted territory – this could go higher.

JIMMY MOYAHA: That’s definitely going to be something that ….

DAVID SHAPIRO: Do me one favour. Don’t go and buy gold.

JIMMY MOYAHA: [Laughing] I can’t buy at these levels. I agree. I think the retracement needs to take place and there’s a lot that 2024 holds for us. 

Let’s reflect on some of the sector pressures or some of the external pressures that markets may have had to contend with throughout the year. What comes to mind is Astral Foods and R1.6 billion in load-shedding costs. That’s just one example.

DAVID SHAPIRO: Yes. If we go to the local economy, I think it’s going to be tougher than the global economy for those very reasons. This is the year we have to get on top of these issues. I know it’s an election year but we are not talking election now, we’re talking about the South African economy. We can’t have a repeat of what we saw last year. 

We have to address these issues in a businesslike way, not in a political way. I wish I could stress that.

You want business to prosper here. [Companies] have to be able to either import their goods or get them out, and you can’t do that [without] proper logistical systems, proper transport or proper infrastructure. 

I think one thing that we have to do – and you don’t want to test the patience or even the resolve of the private sector – is to get on top of these issues. Be mature about it. Stop and just take a good look at where we are and help business negotiate these very, very tough issues that they’re facing at the moment. And Jimmy, they are tough issues, they are tough issues.

JIMMY MOYAHA: Absolutely. 

DAVID SHAPIRO: You’re starting to see businesses – I don’t want to say crumbling now – starting to feel the pain of these body blows. It’s hurting. 

So we’ve got to come to their assistance and do it as best [we can] without a political bias.

Take away any kind of political bias, get rid of the political ideology and say, ‘What can we do to help these companies survive and keep people employed?’

JIMMY MOYAHA: Fix it for the good of the country – not because it’s an election year. I absolutely agree. 

Uncle David, what are we looking at for 2024? You and I have touched briefly on things like Pick n Pay being undervalued, stocks and really good bargains being available in the local market, but what’s the outlook for 2024 if we’re to get this thing right?

DAVID SHAPIRO: Globally, we’ve negotiated a lot of issues – you might not realise it. We came through Covid. We’ve never seen anything in the world like Covid where the whole world just closed down. It had to produce imbalances. We’ve gone through, we’ve addressed those imbalances with higher interest rates. 

Both wars – in the Middle East and Ukraine – just seem to be grinding along. They’re there, but I don’t think they’re going to be that important, I don’t think they’re going to disturb the market. 

But I think the most important thing is that we are going to find inflation coming down and we’re going to find interest rates now going in a downward direction. 

What people don’t understand is that when you lower the interest rate, it means more money in your pocket. Yes, rates have been going up. It means we are paying more for mortgages, and paying more for HP [hire purchase] when we’re buying motorcars. All of a sudden that money’s going to come back to us and we are going to start spending it. So that has an enormous multiplier effect on the economy. So I think globally we’ll start to see rates coming down. We are going to get that pushing up the market. 

Over and above that, we’ve got some very good themes, both in the technology theme and AI. Don’t underestimate the amount of money that’s going to be spent on that and development. 

So globally, I think we are going to be in a much better space – and hopefully, that filters down to us here and improves sentiment. 

I would say that South African shares are looking very cheap and looking juicy to buy.

But, as we discussed before, we need government, business and everybody to get together and create the environment in which the Pick n Pays can prosper, where the Astral Foods can prosper – Tiger Brands and all these massive companies. Even the miners. Give them a break. 

But I’m expecting a good year. I can’t give you the level, I can’t say it’s going to go up 10%, 15%, 20%. It’s very difficult. But put it this way, I think the index will be reasonably higher than it is at the moment. For me, ‘reasonably’ means double figures.

JIMMY MOYAHA: Well, that’s always a good level to start at. It’s a good base to look at. We did hit 10% in March, and I think we did do another 9% back now in November. So it’s good to have those viewpoints in mind. 

I think alongside the AI theme we’re going to see the emergence of tokenisation. I’ve been quite interested in that space and I’ve heard the likes of BlackRock looking at that and the asset managers thinking this is where we’re going. 

DAVID SHAPIRO: Jimmy, you’re a lot younger than me; you’ve got a much better head for these things. 

JIMMY MOYAHA: I think what I appreciate the most is that in all of your years of seasoned experience, it’s still a very open mindset to, say, keep up with what’s happening, keep up with the developments, and not be rigid and stuck on things that may have worked in the past – because the world is ever-changing. Economies are that way and finance is that way. 

So I think it’s always nice to be able to reflect on what we’ve come from in the past, what we know in the past, and what is unfolding right in front of us and what’s developing. I think it’ll be very beneficial for investors to be able to keep stock of all of that information.

DAVID SHAPIRO: Oh, yes. You’ve put it very articulately. That was a nice speech. But you’re dead right. I think if you are in investment – and ‘in investment’ means when you’re looking after your own money – and even if somebody else is looking after it, you have to keep reading. Do you know what I mean? You have to keep knowing, just keep in touch with what’s happening on a day-to-day basis. It doesn’t mean you have to understand algorithms or understand how AI works; only know that that artificial intelligence is a language that everyday users can use, and a lot of companies are going to make it available to make life a lot easier for you. 

I think don’t ignore this, the move as well towards renewable energy, clean air. It’s not going to let up. It’s going to be there and there’s going to be more pressure on companies to behave themselves and to do the right thing. So that theme is still very much alive. 

And then we’ve got a lot in the pharmaceutical area as well. It’s going to be dominated by weight-loss drugs, obesity drugs.

Of course there are always new ways of addressing cancer and so on, but I think fashionably, the ones that are going to be spoken about are going to be the weight-loss drugs from both Eli Lilly and Novo Nordisk. There’s a lot of good in those drugs and what they do. 

I think those are the three conversations. You can add to that deflation versus inflation. As prices go down, as we rebalance after Covid, airline prices will start coming down now. I think we’ve already seen it in motorcar or second-hand car prices and so on. So all of these are going to add up – lower interest rates.

JIMMY MOYAHA: Sixty years of experience summed up into two words for 2024 – and that’s keep reading, never stop reading. I love it. Just keep reading; 2024 will all be okay. 

But we’ll leave it at that. Thanks so much, David, as always, for your insights. That’s David Shapiro of Sasfin, giving us his thoughts around the year that was, and what we need to do in 2024. That is ‘keep reading’.