Market Update: Sasol
On the 9th of March Chemicals group Sasol’s share price was in a downward spiral, experiencing its worst day in the market in its trading history. This trend has continued into today. In the past week the oil price, which is the biggest driver of the Sasol share price along with the Rand/Dollar exchange rate, dropped from $52 per barrel to $34 per barrel. OPEC (The Organization of the Petroleum Exporting Countries) met in order to agree to reduce prices to counter the impact of COVID-19; however, when Russia refused to tighten supply, Saudi Arabia (who is by far a lower cost producer) flooded the market with its cheaper produce. Sasol’s share price had already been under pressure after Moody’s Investors Service downgraded its long-term debt to junk status amidst cost overruns and production complications at its USA facility in Lake Charles. The share price of Sasol plunged as much as 50% to R79 in mere minutes on Monday morning, wiping about R50bn off its market capitalisation, as the global oil price for crude slipped to its lowest level since 1991.
Markets sold off on Monday with emerging markets (and their currencies in particular) being severely affected. On the JSE stock exchange every single stock in the Top40 was in negative territory. Fast forward to Tuesday and although volatility and uncertainty continued to plague markets, the ALSI opened the day on a positive note and continued to close in positive territory. Globally, markets also had some relief as Brent Crude went up around 5% to $36 a barrel. This is testament to how severely markets can overreact and then revert to more normal trading patterns very quickly.
Below is a summary of the managers in the BIV (Best Investment View) that had exposure to Sasol as a percentage of the total fund, as per latest information before the 9th of March share price decline.
While there will be a negative effect in your portfolio due to exposure to Sasol in some funds during the sell-off, it is important to note that the effect has been mitigated to a large extent because of the diversification of managers in the portfolio. We believe exploiting this short-term mispricing, given the current market chaos, gives superior investment managers the potential to outperform substantially over time.
We would like to assure you that Graviton designs and blends unique solutions for you based on a deep understanding of your investment goals and a fundamental insight into how you perceive risk. Our investment philosophy ensures we analyse the performance characteristics of various managers and develop an understanding of how they will perform in different market environments. Portfolio construction then focuses on maximising the probability of achieving the desired client objective in a variety of market conditions. The efficacy of this philosophy has been proven and you should see it demonstrated again in the degree to which Sasol’s share price decline will affect the overall performance of your portfolio, amidst the current market turmoil.