Petri Redelinghuys, founder of Herenya Capital Advisors, provides his analysis on the topics of the U.S. Dollar, Rand, Reinet, as well as local and offshore equities.
USD/ZAR
We currently hold a large cash reserve at Herenya, and the dollar is our preferred currency over the Rand. This is due to a number of reasons, including the hawkish tone of Kevin Warsh during the FOMC report last week and the declared intention to keep inflation under control. This has led to pressure on the gold price and other commodities, and by extension, has led to gold’s loss of ability to function as an inflation hedge (at least in the short to medium term).
We’re also seeing a continued reduction in oil prices, which has been a driving factor behind the inflation, as the oil price that started the year at approximately $62 reached a peak of around $120. The 3-month period (from March to June), where oil prices ranged between $100 to $120, was a period of supply chain disruption and cost accumulation that was felt across the board and contributed to the rising inflation, which will continue to be felt for months, even if oil drops down to the $60 mark.
With these factors in mind, we expect the dollar to take off from the lows of 2025, which doesn’t bode well, particularly for the commodity sector, and while the Rand has shown surprising resilience, we simply don’t expect it to be able to keep up with the dollar, and speculate that it will drop to 1:18 exchange ratio.
The USD exchange rate against a basket of other currencies, from 2025 to the current day.
S&P 500 Index
We’ve also speculated for some time that the S&P 500 is going to come down, and the stronger U.S. Dollar, along with SpaceX’s (SPCX) entrance to the scene, could be the catalyst for that.
Another set of observable factors is the wide gap between the 200-day average and the index’s current position, as well as the decreasing momentum to the upside, which leads us to conclude that the S&P 500 is likely going to drop. There are several signs that can be used to identify a starting point, such as a close below the 50-day moving average.
As for the drop itself, we believe we prefer the safer approach of keeping our money and buying stocks once the market has found a bottom. But to the bolder trader who would rather use the opportunity to short, we recommend deliberate risk management, with careful stop loss level placement, and position sizing.
Reinet (RNI)
It’s fair to say that we are in a similarly defensive posture as Reinet, with 60% our local portfolio and 35-40% offshore being in cash. While this has resulted in a large drop in Reinet share value, we believe that it’s a sign of a patient and disciplined approach, as the company has used the opportunity to buy back some of its shares and regain some control, whilst maintaining enough cash to invest when a valuable opportunity comes. While this approach doesn’t produce quick results, it reduces our volatility when the market comes down, and it gives us a greater ability to buy stocks when the time is right.
Equity Ideas
Locals
We believe that local retailers like Pick N Pay (PIK) and Clicks (CLS) have growth potential. While we view Clicks as an undervalued stock under pressure, we see value in Pick N Pay due to its potential as a take-out target or an unbundling of Boxer (BOX). We also see value in diversified industrials like Bid Corp (BID), as well as the likes of Aspen (APN) and Sibanye Stillwater (SSW), which are some of our biggest holdings.
Left: Pick N Pay (PNP), right: Clicks (CLS)
Offshore
We see cannabis as a great investment theme offshore, as the drug’s reclassification should make trade and banking significantly easier, and promote corporate activities such as mergers and acquisitions, which makes it a more attractive long-term investment.
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