Bruce Whitfield  00:02

Petrol's going up, diesel's going up, more on that later on. But Arthur Karas, Portfolio Manager at MacroSolutions at the Old Mutual Investment Group, is with us this evening. And Arthur, I mean, we performed well today, the end of July, the JSE looks like it's in fine shape. The currency is 5% better off than it was at the end of June. It's been a pretty good month.

Arthur Karas  00:24

Yes, it has. It's been a good month, we've seen some improvements in the currency and a couple of the shares that had a weak start to the year have recovered quite nicely, as people have decided they pushed them down too far. So, all in all a good month.

Bruce Whitfield  00:40

And so, as we look now, at the Chinese PMI number, which was out today, it was a little bit on the light side, and that sort of, that cough is caused a sort of another market influenza around the world if you like, and our currency has taken an almighty walloping. I don't know if you've got a longer term view on the currency right now. But it was doing so nicely, we're up 5% against the dollar this month, as I said, but are we at a position where a little bit of weakness is due or do we keep getting the lucky breaks on the currency?

Arthur Karas  01:13

I think I'd be wary of trying to read too much into daily moves in any market. I think that you've got, always in a securities market, you've got a large number of investors, of participants. And those people have all got different objectives. So, somebody's trying to hedge the currency because they're exporting. Somone's trying to hedge it from the other side because they're importing. Other people are speculating on the currency itself. So, I'll be a little bit wary of trying to read too much into daily moves. I think there is scope for the currency to strengthen, we need the US interest rate cycle to end. Once their hiking cycle ends, then we start to move into a different world as it were, and it'll continue to open up that gap between our interest rates and theirs and give people some confidence that South African assets are attractive.

Bruce Whitfield  02:07

Yeah, well, two very interesting companies today with updates. One Telkom, one MTN. Telkom was up, MTN was down, which is a nice contradiction, I suppose. We would expect MTN to be the standard performer, it's a more complex business, perhaps, more geographical diversity, more complexity there, and Telkom sort of really trying to carve its own path, otherwise face the wrath of shareholders who may eventually decide to sell it off.

Arthur Karas  02:36

To very different businesses these days, even though they both on the surface provide telecommunications to the masses and to corporates. What you've got with MTN, is you've got a company that's certainly found a new growth path. And you can see it from the top line, their sales with both data and voice continue to grow in South Africa and in Nigeria. The challenge there is that their single biggest geographic profit producer in Nigeria has liberalized its currency in one very aggressive move, and that's seen as a large fall in the value of the Naira. Now, that's not had an impact on this quarter yet, that's going to have an impact going forward. But quite importantly, they pay for their tower rental. So, this cell phone tower rental in dollars in a lagging manner. So, this is going to have an impact on their costs going forward. It's not evident in the current set of results. So, investors are looking forward and saying, you're going to have a lot more costs in in Naira terms to balance against this fall in the value of the Naira. And that's going to hit you in the end going forward. So there's, if you like, a disconnect between what you're seeing at the sales line where people are still consuming their services, but at the bottom line, you've got a problem. And that's going to still become evident going forward. 

Arthur Karas  03:57

Telkom, on the other side, has got a dying business being the old legacy, fixed line telephone business. And it's got a growing business on the other side. Now that, these two businesses have been going in opposite directions for a while and in a short period of time, the legacy business won't matter anymore. But they still need to cut costs and make the business more viable going forward, because the other business is simply not strong enough or large enough to create a strong business there going forward. So, they've got a restructuring programme on the go, they're looking to sell bits of the business including BCX and potentially parts of other parts of their business. So, two very different businesses, one in a major transition.

Bruce Whitfield  04:39

Thank you to our market commentator this evening, Arthur Karas is with the Old Mutual Investment Group.