As investors we started this year like a dream before crashing back to reality with rising
interest rates, soaring inflation and a new war in the west. But today we're talking about how
to take advantage of that as investors. We look at the top performing large shares in
South Africa for 2022 so far, and how to not only make money, but make the largest profits possible
in these new markets that you don’t want to miss. So let's get started.
Alright in todays episode we're going to review what's happened in the year so far,
and we're going to look at each of the top performing shares in the JSE 40 from January
to now. By the end of the video we’ll find out why they have grown so much
and how you can use this information to make some profits for yourself this
year. And honestly it feels like a bit of a cheat code on a difficult level.
Ok, so let's get down to it. 21 was a huge growth year, low interest rates and economic stimulus
meant shares were soaring. Then in January we heard that as Covid was coming under control,
we were left with huge shipping delays, supply shortages and soaring inflation.
The best way for the reserve Bank to fight this was to start raising interest rates again and
cutting economic stimulus packages. Overall that means less money in the consumers pocket to spend,
so less income in general for businesses and needless to say the markets don't like that.
Then as you saw in late February Russia invaded Ukraine, causing the supply of many products to
disappear and a lot of commodity and energy prices to rise and likely raising expenses for businesses
along with it. Markets of course don't like that either. So overall,
not the best conditions to run a business. BUT, it depends what business you are running.
You might have heard the saying that "One man's trash is another man's treasure."
And that's exactly the case for the best performing companies in the top 40.
What is trash for one company, are the ingredients for success for another.
Let me show you what I mean. This graph here shows the best performing shares in the JSE
Top 40 for 2022 so far, January to now. Now tell me if you notice any similarities about these.
I’ll give you a second to look and maybe like the video while we wait.
So you probably saw what I saw, which is that every one of these companies falls into 1 of
2 categories. The company is either a bank, or a mining company. The top 10 performing
large shares for 2022 are exclusively banks and mining companies. Each one. Absa Group is up 23%
from January to now, Discovery which has Discovery Bank is up 25%, Firstrand which has FNB is up 26%,
standard bank has grown 30% and Nedbank is green to the tune of 33%. And those
results are just in the first 4 months. You can multiply those by 3 to get the annualized return,
but not to say it will reach those numbers by December. Then we have Anglo American with 20%,
Sibanye grew 23%, Goldfields up by 30%, Sasol which has mining and oil operations grew 40%
and Exxaro tops the list with an impressive 50.5% growth in the last 4 months.
So what is it in the air that is making these banks and mining companies go up?
Ironically it is exactly the same conditions making other companies go down.
The war in Ukraine sent commodity prices sky high. Simply put, most of the world cut off buying oil,
energy and minerals from Russia so with that drop in supply, the prices rose to meet the demand.
While that means higher transport and utility costs for most businesses, it means higher income
for the mining companies as people pay more for the same gram of coal, oil or precious metals.
We see something very similar when it comes to the banks. The business of a bank is to
charge transaction fees, but their main source of income is from lending out money and charging
interest. Think of your home loan or your credit card. For the last two years interest rates have
been forced as low as possible to help consumers during lockdowns. But now this year the reserve
bank is starting to raise interest rates as a way to bring down the inflation that
lower rates brought about. So for a company that loans out money, when the interest rates go up,
causing you and I to pay more on our loans, their bottom line profits go up right along with it.
In both these sectors, in both these scenarios we can see that it’s good
to put away money for a rainy day, but its even better when you sell the umbrellas.
So as an investor watching this video right now what does that mean for you?
Let’s be open and honest about this. It means that if you want to ride a wave being pushed
forward by macro economic conditions, then you should look at the banking and mining
industries to invest your money in 2022. Not only these companies in the top 40,
but any company in these sectors will have an “easier” time making profits.
But keep in mind, it doesn’t mean that every company in these groups will be a winner. It
doesn’t mean every banking or mining company will do well. It also doesn’t mean that some
companies will perform better than others or even that these conditions will last long term.
Interest rates rise and fall, although its believed they will rise for the rest of this year,
and commodity prices are driven by supply and demand which usually evens out over time.
So market trends don’t make up for good research and good company management.
But what it does mean is that you may be investing ‘with’ the current
rather than against it. Like running a race downhill.
It means at the end of the day that the current economy makes it easier for these companies to
make a profit, and in turn it might be easier for you to make a profit along with them.
For beginners you can take the easy route, and if you’re advanced maybe you can take advantage.
But that’s it for todays episode. I hope you enjoyed it and find these helpful,
feel free to like the video or subscribe to the channel if you haven’t already,
for more insights into markets and my own portfolio. All questions are welcome in the
comments. We’re nearly at 1 thousand subscribers in 4 months, which is incredible so you’re welcome
to join the community. But until then, ill see you again next time on Casual Cash. Cheers.