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All – bar financials – in the green

Market indicators, Steinhoff, Naspers/Tencent and overseas investors – Wayne McCurrie on Friday’s market moves.

SIKI MGABADELI:  Good evening and welcome to the SAfm Market Update with Moneyweb. My name is Siki Mgabadeli.

Let’s check the markets. We ended up 0.4% on both the all-share and the Top 40 index. The all-share is at 54 427. The rand is at R13.21/dollar, R17.18/pound and R14.80/euro. The gold price is $1 252.53/oz, platinum $941.07/oz, and Brent crude at $53.58/barrel.

Financials were really the only ones that were pretty much soft, but everybody else was in the green. Hi, Wayne.

WAYNE McCURRIE:  Yes, it was strong. The industrials actually led it, and that was mainly because of Steinhoff, when they announced that they are going to split off the African assets as a potential separate listing. This is a big share – it’s 10% of our market. That was up 6%. So that was the biggest driver.

But the whole market was good today. In financials the banks were okay, it was just all the life assurers that were down a little.

But the all-share’s approaching a 12-month high and it’s approaching an all-time high again after three years. It’s been going sideways for a long time. So it looks quite good. Certainly the Steinhoff announcement…

SIKI MGABADELI:  What do you make of the Steinhoff thing, because we still remember what happened with the Shoprite deal that fell apart?

WAYNE McCURRIE:  Yes, the Shoprite deal fell apart and I think for very good reasons from the Steinhoff side. They wanted to split the company between overseas assets and the domestic assets. They operate in two completely, obviously, separate markets, separate economies, separate macroeconomic backgrounds. It makes sense to do it, because then the investor can choose and the investment can be focused. So it’s not dissimilar to what Bidvest did – split of the South African operations and the global operations.

Steinhoff itself, the global side, is very big, very well established in Europe. But they’ve just bought a big company in America and it’s the first time they are in America, so we’ll have to see how that all goes. But they certainly have been successful with all of their previous big acquisitions.

SIKI MGABADELI:  Would they be unbundling completely, though – a complete split?

WAYNE McCURRIE:  No, they said they are still going to hold some of it. Certainly two separate listings. But it’s only a proposal so far. They are still going to investigate the whole thing.

SIKI MGABADELI:  Also the shareholders would have to decide.

Naspers and Tencent – your view? A P/E ratio of what?

WAYNE McCURRIE:  100.

SIKI MGABADELI:  But look, don’t worry too much about earnings. It’s the net asset value that’s important Tencent is an enormously successful business. There are two pros and two cons for Tencent. One pro – it’s still got a long way to go to actually monetise its user base. That process has only really started. It’s been going a good few years, but there is still a long way to go.

The other pro on the business is they can take their model outside of China. Their model is quite simple. Here we carry ten different apps on our phone to do ten different things. There you carry one app that does ten different things. So, whether you want to travel, buy, eat, talk, communicate, watch movies, listen to radio, listen to music, download – it’s one app. Buy whatever you want to – it’s one app. But we will have online Facebook, eBay, a million apps. They’ve got one app. So it’s quite a good thing.

The first negative is that the Chinese market is protected. Facebook, Google aren’t allowed in the Chinese market. Should that change they will face stiff competition. The second negative on Tencent is everyone has already got it. There are more users than there are Chinese people. They’ve got two platforms – 800 million users on each. In other words, they can’t grow any more users because they’ve got everyone. It’s like the South African cellphone market. You can’t sell any more cellphones – everyone’s got two.

But because they are still monetising the base that they’ve got, the growth can still go on. So the Naspers share price can fall back, but over time it’s still a growth story.

SIKI MGABADELI:  All right. Let’s talk the rand. It had all sorts of things blowing at it.

WAYNE McCURRIE:  And it’s been remarkably resilient. Look, there is an element of dollar weakness in this, make no mistake. If fact, the dollar could be in a long-term decline; simply because it’s had long-term strength for so long it’s bound to happen. It could weaken over the next number of years.

But maybe we worry more about junk status than overseas investors worry. They are used to it – maybe. Compare us to Brazil and it’s wonderful here. You can earn money.

SIKI MGABADELI:  I was going to say this week has proved that politics affects other people as well. Look what’s happening with Trump, look at what’s happening in Brazil.

WAYNE McCURRIE:  Ja, totally. You almost fell off your chair when you heard in the news that the IMF has upped our growth forecast. Nothing to do with anything other than that it rained and the mining sector is looking significantly better. But still, that is good news. We mustn’t move away from that. One percent is just pathetically low, but better than nothing. It’s better than a jab in the eye with a sharp stick.

SIKI MGABADELI:  What are we watching next week?

WAYNE McCURRIE:  We’ll have to see how the rand reacts. We got a bit of a fright on the back of Brazil, Trump and FBI firing. So the rand weakened up to R13.50/dollar, almost, but it’s back strongly again to R13.20. We’ll have to see. It tested R13 last week – let’s see if it tests R13 next week.

Despite all the negatives that we know so well, and despite the junk status, money is still coming in. Foreigners, not domestic people, are bringing money in. Foreigners are still investing in South Africa and other emerging markets. And, after being a little weak for the past month or so, commodity prices are going up again, and that’s good for us. We are a commodity exporter.

SIKI MGABADELI:  We’ll leave it there. Thanks for your time today. Wayne McCurrie is a senior portfolio manager with Ashburton Investments.

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