Lulu Sweet Lemon

“Sportswear apparel maker, Lululemon had a cracking session, the yoga pants manufacturer reported some really good numbers with prospects out in China looking pretty good.”


To market to market to buy a fat pig Up, up and away for equity markets yesterday in the city founded on gold. Stocks as a collective closed up just over one and one-third of a percent, the all share index is around 52 and a half thousand points. The last 12 months has delivered exactly nothing to equity investors, of course if you had been buying in-between and getting the benefits of Rand cost averaging, well then you would have caught some better moments to buy. Compounding interest with regular deposits makes Jack a rich boy. Jack just needs to be desperately patient. Even in the economies that you would think that equity markets would struggle, stocks still do just OK. Constraints placed on companies force them to become even more innovative and to find better ways around regulatory hurdles, rather than focusing on innovations.

A headline that caught my eye yesterday was one suggesting that Argentina are going to return to debt markets after a 15 year struggle and hold out, an effective default. Yet over that time, with the socialist government eventually being removed and booted for a more market friendly one, the equities market actually went up. Byron recounts a trip to Argentina where cash literally was king, and by cash I mean greenbacks, real Benjamins, the Dollar. This may well be the biggest issuance by an “emerging market” for the last 20 years. The new market friendly president Mauricio Macri is shaking things up, I suspect that it may well be their time in the sun again. Hopefully there isn’t a lurch to the leftist policies again that take the country back to the economic brink.

The point is simple, even though Argentina had defaulted, and by extension their credit rating wasn’t just non-investment grade, it was rubbish (piling up on the streets), the stock market went up 6 fold in the last decade. In fairness, much of the moving was recent and expectations that market friendly individuals would restore confidence and openness (and drop controls) meant that equity investors would take a better view of how it all works there. I never actually realised how big the country is, it is the 8th largest by land mass in the world. A smaller population than us, around 43 million folks, an economy bigger than ours, around the same size as Belgium, and one superstar in Lionel Messi. It is difficult to believe that fellow is only 28.

Quickly, let us zoom in on the local equity market performance. It was pretty much a broad based rally, stocks were up across the board, the weaker Dollar = a stronger Rand, and that helped ease inflationary pressures for now, meaning that the local financials and banks enjoyed a decent enough day. Equally helping was the news that emerging market equity flows had been at their highest in 21 months. Yes, thanks for that people, the confidence has returned.

As such, forget the fact that the constitutional court is about to deliver news today that may or may not be very important for the country, about the president, the currency finds itself at 14.95 to the US Dollar. Admittedly, the day before Nhlanhla Nene was redeployed to the New BRICS Development Bank dismissed from his post, the Rand was at 14.60 to the US Dollar. As a matter of interest, the Brazilian Real has firmed by 4 percent to the Dollar since #Nenegate. So the different between where we are now, relative to some of our peers, can be attributed directly to nonsensical political motivations. Since the 11th of December, the Rand has done better against the US Dollar than the Russian Rouble, possibly as a result of their woes, having to deal with a weaker oil price.

In the losers column on the local front, Rand Hedge stocks such as SABMiller and AB InBev, as well as British American Tobacco, Steinhoff and Mediclinic were all in the red, their Rand share prices lower as a result of a stronger currency. The double edged sword. In the winners column Anglo American was at the top, along with some of the banks and insurance companies. SA inc. exposure will benefit from the emerging market inflows no doubt, one bigger benefactor there is almost always Naspers, it has a high weighting in those indices. And by those indices, I mean the South Africa only stocks, which often ignores the external listings. More recently the weighting and importance of the likes of Steinhoff and Mediclinic (with their offshore listings) would have diminished.

Over the seas and far away in New York, New York, stocks enjoyed another session of gains, they did as a collective close a little lower than the session highs. A good ADP employment read lent credence to the idea that the US economy continues to show signs of strength in the labour market. Yet America still needs to be made great again. Great again relative to what I ask? What was pretty encouraging was that there was some pretty sizeable job growth in construction, you won’t build anything unless you had a positive view on the economy in the coming years, that is always a given.

Session end the Dow Jones, the S&P 500 and the nerds of NASDAQ all showed almost equal percentage gains, a rarity nowadays. Stock indices added nearly half a percent across the board. Apple was again the benefactor of continued optimism around their new product cycle, the stock is nearly back at 110 Dollars a share. The last 12 months have delivered a return of minus eleven percent, Mr. Market will never have the consensus in the short term that long term holders look for. If you want steady gains, go and plant flowers and water them every day, tend to them, ward off pests and make sure they get just the right amount of sunlight. Equity returns are always going to be harder. Energy stocks were also the benefactors of higher oil prices, hovering around the 40 Dollar a barrel mark for the time being.

Sportswear apparel maker, Lululemon had a cracking session, the yoga pants manufacturer reported some really good numbers with prospects out in China looking pretty good. Is yoga just as much an art form as it is designed to put you in touch with both yourself spiritually, as well as making you darn flexible? There are suggestions that the exercise form could be 5000 years old. Which is pretty old by most standards, bearing in mind that mainstream sports such as football do not have the same amount of history. Having said that though, FIFA (according to Wiki) recognises a Chinese version called Cuju as being the oldest form of football. Or soccer, if you will, for you Americans. Cuju is around 1500 years old.

Lululemon has great brand appeal, the company needs to deliver on earnings as their share price is highly rated by the market. The company has a market capitalisation of around 10 billion Dollars, it is really sizeable, although full year sales for 2015 was 2.1 billion Dollars, around 6-7 percent of the annual sales of Nike. I guess that you can still argue that is big. Revenues are on track to be around the same growth rates as Nike, which is why the company enjoys a similar market rating to Nike, a marginal premium. There is the pesky issue of the founder being a large shareholder, he is as an ex employee and CEO a bit of a handbrake. Otherwise, the company seems to be in the sweet spot, you cannot own everything however.


Linkfest, lap it up

Today is the big launch of the Tesla Model 3!. Is this bigger than when Steve Jobs launched the first iPhone? Tesla Model 3 Electric Car Seen Getting 225 Miles Per Charge. Here Bloomberg does an in depth preview.

With education and wealth comes a slow down in population growth. Japan is not the only country worried its population will go extinct. If you are concerned about overpopulation, education and wealth creation is key.

Apple for the Next 40 Years. This analyst certainly seems very bullish.


Home again, home again, jiggety-jog. Most of Asia is down slightly, we have followed in those foot steps. Commodities are taking a beating. Now that is a choppy ride.


Sent to you by Sasha and Michael on behalf of team Vestact.

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