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Simon’s weekly wrap: SA’s indirect link to the US-China trade war

Also this week: praise for Investec’s fossil fuel disclosure, virtual AGM benefits, improving exports and challenging retailer trading updates.

US President Donald Trump is ratcheting up the trade war with China and has issued an executive order banning TikTok and WeChat, also mentioning Tencent. The order is delayed for 45 days, giving TikTok time to be sold (reportedly to Microsoft). But there is confusion about whether it is aimed at WeChat, with relatively few US users, or Tencent which has stakes in a number of US gaming and entertainment companies. For South African investors this distinction is important with Naspers/Prosus having a 31% stake in Tencent. Likely we’ll get clarity in the weeks ahead, but for now we find ourselves caught up in the US/China trade war.

In the same show, we discussed trading updates from Shoprite* and Pick n Pay, with markets loving the former and hating the latter. On the surface, Shoprite certainly looked to have the better numbers. But the updates cover different periods, with Shoprite updating the market for the full year to end June (so including only three months of lockdown and nine months of normal trading activity). Pick n Pay however covered the four months to August – in other words essentially a lockdown update – and it should be no surprise to investors that this was probably the toughest period for our economy.

 

Local purchasing managers index data remained above 50 for July (a level of 50 plus shows industry is growing), but the employment index remains very weak and is a huge worry for South Africa as we look to an economic recovery post the pandemic which needs to also include significant re-employment of the many lost jobs.

Climate change is a threat to many businesses. Investec has issued a comprehensive risk disclosure on its exposure to fossil fuels. Tracey Davies of Just Share praised the disclosure, as it helps shareholders understand the longer-term risks to the bank. She also updated us on virtual AGMs after expressing concerns early in the lockdown. The benefit of a virtual AGM is significant, as it makes it easier for many to attend, especially those not based in the city where it’s held. But there are issues in terms of complexity of the process and notably in shareholder questions not being correctly relayed to the board.

On a positive note, improving exports indicate that our largest export market, Europe, is recovering from lockdown, although we are starting to see cases rising again, which could see harsher lockdowns re-introduced.

Also this week:

Petri Redelinghuys of Herenya Capital discussed the Top40 and looked at Aspen; Cotton On’s Phil Marais spoke about the logistics of online retail and how it can benefit brick and mortar stores; and Brikor CEO Garnett Parkin discussed having the company’s JSE suspension lifted and why bricks are flying out of its factories.

Deryck Janse van Rensburg of Anchor Capital gave a market update after the Top40 closed at a 2020 high. JSE CEO Dr Leila Fourie discussed the company’s results as revenue shot up 22%. We also looked at impact investing versus prescribed assets with Alexander Forbes Investments’s Janina Slawski.

*The writer holds shares in Shoprite

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