Today’s market and Discovery’s entry into China.

HILTON TARRANT: Hello, good evening and welcome to the SAfm Market Update with Moneyweb. Hilton Tarrant in for Alec Hogg this Tuesday evening.
    Well, the ghost of Brett Kebble is alive and well, it seems. Another battle involving Simmer & Jack, its BEE partner, attorneys, liquidators and JCI. Barry Sergeant, investigations editor at Moneyweb and Simon Koch of Sovereignty Capital are here to dissect it all.
    Discovery makes inroads into China. We chat to chief executive Adrian Gore a few minutes from now.
    We look at the future of Telkom with Delta Partners principal Tammy Whyman.

    House prices rebounded according to FNB's house price index today.
***
David Shapiro from Sasfin is with us in the studio. David, the market rebounding today, the JSE up 1.4% and gold shares soaring - up 5%.

DAVID SHAPIRO: A combination of a couple of things. First of all, Dubai's problems were not as big as we initially though - only about $26bn...

HILTON TARRANT: Only?

DAVID SHAPIRO: Well, $26bn, if you consider that Lehman Bros was $600bn, is not a huge amount. The banks have written off $1.7 trillion, and this is only $26bn. They've got the assets to cover that, so I think that brought a lot of comfort to investors. Over and above that, we had some very good manufacturing numbers, particularly out of China. So once confidence is there, all that money that flowed into the dollar flowed out again and into gold, and I see gold kicked up above $1200.

HILTON TARRANT: Very briefly.

DAVID SHAPIRO: Very briefly, but still it's $1190 at the moment, so gold shares were in favour. All the resources were well sought, so that gave our market a lift.

HILTON TARRANT: We got those manufacturing numbers up from China this morning, the US ones just a couple of minutes ago - and our very own PMI in South Africa up above 50 for the first time in 18 months. Some good news.

DAVID SHAPIRO: Good news, and hopefully it's going to start pointing towards businesses actually buying, not restocking. We hope that we've moved beyond the point where stocks were run down and you are just replacing those stocks, and we are actually seeing consumers buying and businesses actually covering that and coming in and stocking because demand is picking up. There's no evidence of that yet, and that's why everybody just is still uncertain about where the global economy is going.

HILTON TARRANT: David, Imperial offering a trading update this morning, trading still subdued ahead of the festive season - and this is supposed to be a really good time for them with a lot of holidays and travelling. But very subdued. New car sales still in the doldrums.

DAVID SHAPIRO: And the share price went up, and up nicely. It didn't fall. I thought it was a rather disappointing statement, but obviously the market felt that it was in line with expectations. Europe is slightly improved and that. There are one or two pockets of gains, but overall all it does is just point out how difficult conditions are in this market. Also he said that demand over the festive season is lower than last year, so it's disappointing. And we've had cuts - 5% interest-rate cuts. One would have thought that demand would have started picking up now.

HILTON TARRANT: Interesting change in thinking from Eskom. A lot has been said about the drop from 45% every year for the next three years to only 35%, but for a change welcoming private investors. They are looking to offload 30% of Kusile at R40bn. Big potential investment into the country.

DAVID SHAPIRO: I think that's quite clever, because you are selling one plant or one project. I don't think anyone wants to touch Eskom as a whole, still in losses and still going to take a long time to find the kind of money to develop that. If they can sell off pieces, go into partnership with that, that could be sought, because then you can make profits on individual projects rather than Eskom as a whole. So that's clever thinking, and they've got to be clever to try and alleviate the issue and try and find the capital.

HILTON TARRANT: We saw an announcement out from Discovery this morning, looking to buy up to a quarter of Ping An Insurance's Health subsidiary. Adrian Gore, chief executive of Discovery Holdings joins us now. Adrian, what's the health insurance situation in China? Obviously a massive addressable market, a billion or so people. So what's the industry like?

ADRIAN GORE: You know, any market where you get sort of increasing wealth, prosperity, healthcare demand goes up and demand for private health insurance goes up. China has a pretty complex and fascinating environment where you have a kind of government social health-insurance system operating in the cities, but the truth is that only 300 million people are on that, and in that 300 million people they experience all kinds of really large co-pays, typically 50% out of pocket, even after that coverage. So really you have about 50 million people buying private health cover of some sort, with about 10 million households actively looking for very comprehensive health insurance. So it's really a pretty sizeable market, growing very quickly and one where the gaps are quite substantial.

HILTON TARRANT: And the size of Ping An Health Insurance, the company which you are going to be working with, and the company that you are going to be buying a minority stake in? What's it's market share in the Chinese market?

ADRIAN GORE: It's very small. Ping An Health really is embryonic. I think that's what's very exciting for us. Ping An, the parent company, is the sort of pre-eminent insurance company in China, it's the second-largest insurance company in the world by market cap. It is absolutely huge in terms of clients and agency force and things like that. Ping An Health is their sort of manifestation of a vision of the health insurance needs of China, and I think what's exciting for us is the business is really pristine, it's really just starting out. It's growing quite quickly but it just takes time. It's really a big kind of capital structure with one of the rare health-insurance licences in China, and it's really just starting out. So for us it's kind of a clean sheet of paper with Ping An.

HILTON TARRANT: You said the deal won't impact on your profits. One only has to look at Naspers and its experience with Tencent in that market, and perhaps five years from now we'll be talking about that operation in a  different light.

ADRIAN GORE: I certainly hope so. We've been at pains to explain that this is going to take a lot of work and time to establish a full-blown health insurer with scale in the market. China will take time, but our hope is of course you have a partner with such incredible assets in China, with knowledge on the ground, that I think if we do get it right the potential is there.

HILTON TARRANT: Adrian Gore is chief executive of Discovery Holdings. David, an interesting deal. Short on detail. They've got a kind of ramp-up to that quarter, but a good deal.

DAVID SHAPIRO: I admire Adrian. You've got to try these things. I hope it doesn't fail, like America or anything like that. But you've got to keep trying and, if you get it right - look, SA Breweries tried, a lot of companies tried it. It doesn't work all the time but when it does work, as we've seen with Tencent, it's been remarkable. But I don't understand healthcare in English; I'm not sure I'm going to understand it in Chinese.

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