The Dubai implosion. Why’s David switching out of MTN?

ALEC HOGG: Hello, good evening and welcome to the SAfm Market Update with Moneyweb. I'm Alec Hogg.
     Dubai, the once-booming city state, whose buildings and ambitions kept defying gravity, came back to earth with a bump today. The Emirate declared a debt standstill, similar to the one South Africa was forced into in 1985. Dubai companies have considerable interests in this country, including ownership of the V&A Waterfront in South Africa. We'll explore what this means for those businesses and indeed for this country.
    Also, coming up this evening, Naspers chief executive Koos Bekker, who reflects on a great half-year from a media business, to his bold decision in the early days of the new South Africa, turned it from an operator in the backwater to one of the top ten media companies in the world.
***
Well, the big news happening around the world right now - Dubai is imploding, and imploding in a  big way. Barclays Bank, which has got a big exposure to Dubai down 7.5%, and some of the other big banks on the international stock market also falling. Many South Africans know Dubai, have worked there, have been there, have visited and hopefully have not invested there, because it looks like those investments are going to be under a lot of strain. But it did weigh on the stock markets around the world. The London stock market is down 3%. We will find out more from David Shapiro in this Traders' Update.
    David, if you were in the Make-a-Million competition and you went short ahead of today you could be smiling.

DAVID SHAPIRO: I'm not sure everybody went short, because yesterday we had a very strong up-day driven by a record gold price. So if you would have maintained that momentum you would have stayed long. The only area that would have gone short was after the Murray & Roberts update. Now, that's also reflected today on Dubai, with the Dubai story, all the construction companies. You know, Group Five had exposure there, Murray & Roberts, I don't think Wilson Bayly had...

ALEC HOGG: No. it's mainly those two.

DAVID SHAPIRO: But all four of the big ones came down today over 4%. And I think it was a combination of Murray & Roberts plus Dubai that took them down.

ALEC HOGG: The JSE - it was like a tyre deflating. It started off pretty well in the early stages and through the session ended 460 points lower, or one-and-two-thirds percent. Financials, everything down, except gold.  

DAVID SHAPIRO: You know what's interesting about the JSE? One would assume that the news would spark almost an instantaneous reaction, but the news came out this morning and yet it started to gather momentum only throughout the day. America's closed today for Thanksgiving. There wasn't an immediate reaction. I think the markets would have been worse if America was open. I think there would have been a much more severe response from the Americans. They tend to be a lot more emotional than other markets. But still, we did come down and I'm not sure this story is over yet. ... It's not going to be a one-day story. I think it's going to create worries about other sovereign defaults, and you might get the shift back into safe-haven assets, US treasuries, European treasuries, UK treasuries.

ALEC HOGG: It could strengthen the dollar, you say?

ALEC HOGG: Yes, ja. I would watch the dollar. I was surprised at gold. I thought that gold might kick - it didn't. It actually remained flat, coming down quite a bit. Platinum came back. There wasn't much reaction in oil, either. So I think it's more safe-haven movements than anything, going back out of that - I like to watch the dollar. I thought the dollar might improve. But maybe those markets were closed.

ALEC HOGG: So David, if you were in a  Make-a-Million position - you are a trader - and you were looking to have that last boost tomorrow that could win you a million rand, I guess what you'd be doing is going short on rand beneficiaries.

DAVID SHAPIRO: Ja. When America opens tomorrow for a half day, I think they'll kick it. I think they'll respond. So I would imagine we are going to have quite a day tomorrow. And also we wait for Asian markets to open as well. They weren't open, they haven't responded to this as well. So I would expect quite a pull-back.

ALEC HOGG: If you look outside of the Dubai influence - and we are in fact going to be talking in some depth with Abdullah Verachia - the Naspers results today. I did have a long, 20-minute discussion with Koos Bekker, which is a fabulous podcast, well worth getting hold of. He really is one of the extremely smart and astute global businessmen who happen to be living in South Africa nowadays.

DAVID SHAPIRO: Very quiet, understated. And they've gone about their business. There's been a lot of scepticism about Tencent, which is their Chinese investment and which they have. But, I mean, look at those numbers - 485m users. That's a lot of people!

ALEC HOGG: He was explaining, and it's all in the podcast - we are going to have about seven minutes of that discussion a little later - he was explaining that the way they make money on Tencent is they have so many people who are transacting, they take a tiny little percentage when they date, when they play games or some of the other online gambling; he says they take a very small percentage. And in this six-month period Naspers banked R1.1bn in profit out of Tencent.

DAVID SHAPIRO: That's a half-year?

ALEC HOGG: Half-year, six months. So you can see what you've really got to give them a pat on the back for is that they were involved in the company, Koos says, when they were 30 people. There are now 11 000 employed at Tencent. And he says: "We are not selling our shares, we think there's more upside to come." Fascinating.

DAVID SHAPIRO: You've go to look at Google. They've got 435 [million searches on Google every day] - and in the States they said at any one or peak time there are 70m simultaneous messages moving. Now it's starting to kick in.

ALEC HOGG: No, there are 75m people simultaneously on.

DAVID SHAPIRO: That what I mean, ja.

ALEC HOGG: So if you take every man, woman and child in South Africa and add another half to them - that's how many people. It's quite incredible.

DAVID SHAPIRO: And, over and above that, what impressed me is the number of subscribers as well in pay-TV in SA, increasing all the time, bouquets at the lower level.

ALEC HOGG: So we are enthusing about Naspers - as a trader would you be buying the stock?

DAVID SHAPIRO: Well, I've got them. I've been buying them for a long time, even though the price appears to be very high. In this kind of market - in fact what I am doing, Alec, I am switching my MTNs into more Naspers.

• Subscribe to a daily email of transcripts from Moneyweb Radio - click here

COMMENTS

View disclaimer

 

responses to this article

Name
Subject
Comment

View disclaimer