Sasfin : Samsung expected to post lowest quarterly profit in years

MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Stocks on the Johannesburg Stock Exchange ended the day up yesterday, the All-Share index added 0.18%, while the Top-40 index ended the day 0.25% stronger. In data news, local investors will be looking at S&P Global South Africa PMI survey for December due on Thursday on how the economy fared in the last month. However, with no other major domestic economic events scheduled this week, the risk-sensitive rand is set to take cues from global drivers. Looking at sectors, Technology gained 2.72% and the Life Insurance sector jumped just over 2%.

EUROPEAN MARKET COMMENTARY

European markets closed higher yesterday as inflation data out of France and Germany indicated that consumer price increases across the euro zone are slowing. Germany published lower-than-expected inflation figures for December, down to 9.6% year on year. Inflation figures from France also offered a positive surprise, slowing to 6.7% in December from a record high 7.1% in November, data showed. The pan-European Stoxx 600 closed up 1.4%, with Retail stocks adding 3.3% to lead gains as most sectors and major bourses ended in positive territory. Oil and gas stocks, however, fell 3.1%.

US MARKET COMMENTARY

US stocks closed higher yesterday, after a choppy session as investors looked past Federal Reserve meeting minutes that showed the central bank will remain aggressive in its policy to tame high inflation. The November Job Openings and Labour Turnover report, or JOLTS, came in slightly better than anticipated, while the ISM manufacturing index, showed a contraction in the sector after 30 months of expansion. Next, investors will be looking to Friday's jobs report for further information about how the economy is faring amid the Fed's rate hikes.

ASIAN MARKET COMMENTARY

Asia-Pacific markets climbed this morning as investors shrugged off the U.S. Federal Reserve's commitment to higher interest rates in tackling inflation. The Caixin China general services purchasing manager's index showed easing of pressure on the sector for the month of December, with a reading of 48, maintaining in contraction territory. In company news, shares of JD.com and Alibaba each rose more than 6% while NetEase, Baidu and Trip.com were other stocks making notable moves higher.

CURRENCY MARKET COMMENTARY

The rand strengthened yesterday, ahead of minutes from the U.S. Federal Reserve's December policy meeting that could give clues on its interest rate tightening path. The rand traded at R16.88 against the dollar by the close, 0.75% firmer than its previous close. Meanwhile, the dollar struggled to advance this morning even though Federal Reserve policymakers reiterated their commitment last month to fighting inflation, while the Aussie rallied after China eased its restrictions on imports of Australian coal.

COMMODITIES MARKET COMMENTARY

Gold prices held steady this morning, hovering close to a near seven-month high scaled in the previous session, while market participants prepared for U.S. jobs data that could influence the Federal Reserve's policy trajectory. Meanwhile, oil prices rebounded today after opening the year down more than 9%, the worst yearly start in decades, as investors took advantage of the decline to buy futures on expectations long-term fuel demand will remain steady. The bounce back followed two days of steep declines to start off 2023 as investors worry about a potential global recession.

LOCAL COMPANIES

A2X marks the spot, grows securities by 67% in 2022

Alternative South African capital market platform A2X Markets (A2X) has grown the number of securities listed on the exchange by 67% in 2022 alone, marking the most listings it has achieved in a single year since it began trading five years ago. A2X started the year with 54 listings and added a total of 37 securities with a combined market capitalisation of R800 billion. A2X's trading volumes have also grown significantly in 2022, by over 200% year-on-year to the end of November. With a surge in new listings in the second half of this year, the A2X platform has seen an almost 300% growth rate during this period. The bourse saw eight new secondary listings in the last quarter of 2022, bringing the total number of instruments listed to 93 with a total combined market capitalisation of R5.3 trillion. According to A2X, it has grown its trade value to over R26 billion in 2022, compared to R657 million in its first year of trade. In addition, it now has 17 top 40 constituents listed, with the likes of Remgro, Nedbank, AngloGold, Implats and Discovery listing in 2022. The alternative bourse says it has calculated the potential savings, it makes available to the market, to be around R500 million per year. It claims that its savings pool, driven by cost-effective trading fees and the ability to capture price improvement, results in the buying and selling of shares at a better price when brokers transact.

J&J's talc-based baby powder still on SA shelves

More than two years after pulling the controversial talc-based baby powder off US and Canadian shelves, Johnson & Johnson (J&J) is still supplying South African retailers with the product and has given no real date of when the product will be officially pulled from local shelves. J&J announced its plans to pull the product off North American shelves in 2020 after it says demand for the product was driven down by what the company calls misleading talc litigation advertising that caused global confusion and unfounded concern about the safety of talc-based Johnson's Baby Powder. The American multinational pharmaceutical and consumer packaged goods giant in August 2022 made a further announcement that it would be discontinuing its talc-based baby powder product globally in 2023. It noted at the time that the group is set to transition to an all-corn-starch-based formula, but no specific cut-off date for production of the talc product was cited. J&J's SA office said that consumers can expect the products to disappear off local shelves, and the group responded that it was planning to slow down the production of the product in the first quarter of this year. Johnson's Baby Powder is the biggest baby powder brand in the country. Worth noting is that once J&J discontinues the talc-based baby powder range, South Africans won't get the benefit of the immediate switch to J&J's new corn-starch-based range.

INTERNATIONAL COMPANIES

Microsoft shares drop after UBS analysts warn of weakness in the cloud

Microsoft shares sank almost 5% on Wednesday while the broader tech market rallied after analysts at UBS said the software company faces weakness, particularly in the cloud. Analysts pointed to concerns at Azure, Microsoft's cloud computing platform, and Office 365, the company's family of productivity software. Office 365 could see slower revenue growth in 2023, while Azure is entering a "steep growth deceleration" that could be worse in 2023 and 2024 than investors are expecting. Microsoft provides year-over-year growth for Azure and other cloud services but doesn't give a dollar figure, nor does it specify how much of the growth comes just from Azure. The Azure and other cloud services segment also includes, among other things, enterprise mobility and security, or EMS, tools that can be sold separately. Based on a leaked Microsoft document and some extrapolation of other market data shows Azure ending the 2022 fiscal year with an operating loss of almost $3 billion, narrowing from a loss of more than $5 billion the prior year.

Samsung expected to post lowest quarterly profit in years due to memory chip 'market carnage'

Samsung's profit could nosedive when it reports fourth-quarter earnings guidance this week as prices for key memory chips continue to plunge amid weak demand. Analysts expect Samsung to report 7.18 trillion South Korean won ($5.64 billion) in operating profit in the December quarter. That would be a near 50% fall versus the fourth quarter of 2021. The pessimism stems from a rapid fall in memory prices. Samsung is the world's biggest player in so-called NAND and DRAM chips which are used in devices such as laptops and smartphones, through to data centres. NAND and DRAM prices fell sharply in the fourth quarter due to a lack of demand for the products they eventually go into, such a PCs. This has led to electronics manufacturers and other companies that use such chips holding onto their inventory, further lowering demand for Samsung's chips. Samsung's semiconductor business, which includes NAND and DRAM, accounts for nearly 50% of the company's operating profit. Therefore, any hit to the memory division will have a big impact on the overall profit the company reports. Samsung will release fourth-quarter earnings and revenue guidance on Friday before its full financial report, likely later this month.

Alibaba, other China ADRs surge as Ant Group capital plan approval fuels hope for relaxing scrutiny

Chinese tech stocks that trade in the U.S. jumped Wednesday morning after Chinese officials approved an expanded capital plan from Ant Group. American depositary receipt shares of Alibaba jumped more than 12% after the news, while stock of JD.com surged nearly 15%. Elsewhere, shares of Baidu rose more than 10%, while NetEase and Trip.com popped 7.6% and 6.5%, respectively. The moves come as investors are seeing signs of a more relaxed Chinese regulatory environment. Ant Group, which previously had its own IPO plans scuttled by regulatory concerns, was allowed to double its registered capital as part of the new plan. A softer regulatory touch among its tech stocks, as well as the reversal of zero-Covid policies, is seen by some investors as a sign the Chinese government will be supportive of private sector growth this year.

Do you prefer a full in-depth report you can read offline? Click here to download the full report.