Naspers and the entire JSE take a dive

Bad day for BAT, Steinhoff, Resilient, Fortress and EOH – David Shapiro on Thursday’s market.

NASTASSIA ARENDSE:  Good evening and welcome to the SAfm Market Update with Moneyweb with me, Nastassia Arendse.

Joining me on the line is David Shapiro from Sasfin Wealth to take us through the markets. David, how did the markets do today?

DAVID SHAPIRO:  It was an absolutely shocking day. It’s really quite worrying because I think what’s disturbing markets is nothing to do with the Federal Reserve. In fact, I listened to Jerome Powell’s statement last night – I listened to the press conference. He was very bullish and upbeat about the US economy, which is going to grow at 2.7% without any real inflationary pressures.

But I think why markets are coming down is that they are really concerned about President Trump who is due to announce $50 billion worth of tariffs against Chinese goods. That’s for everything from shoes to electronics. I think what’s worrying markets is that this is going to trigger a trade war, for which there are going to be no winners.

I think this also comes on top of concerns about Facebook, and where this is going to lead, which we discussed on Tuesday.

So put those together an markets are very, very jittery, although I don’t think it’s going to last. I think in the next few months, once results come through, we’ll see a turnaround.

Tash, the big story today was Naspers. It announced that it’s going to sell 2% of its 33.2% stake in Tencent. It’s a transaction which I worked out is going to raise about R130 billion. What’s R130 billion? That’s probably the size of Remgro. It says it’s going to use it to reinforce its business, and obviously expand other businesses. But Naspers was down quite dramatically today, down about 4.5% – and not as a result of the announcement, but rather that Tencent came out with results which I thought were very good, but they did say in those results that they are going to spend – obviously on expanding their businesses. That was at margin. So the market responded to that. But I’m sure that the overhang of Tencent shares as well by Naspers is also weighting on the price. So we saw Naspers come down and, when Naspers comes down 4.5%, that’s over 20% of the index, and of course it’s going to have a very damaging impact on our overall market.

But we also saw quite a bit of pressure on British American Tobacco, down 5%. Broadly we’ve seen tobacco stocks, under pressure really, on increased worries that the US Food and Drug Administration is going to increase efforts to regulate tobacco. There is also this worry that increased interest rates in the US are going to hurt demand for consumer staples – in other words, take away money from people who won’t be able to buy these staples.

AB InBev – I feel so sorry. Carlos Brito today made a big announcement of a sustainability campaign where they are going to use water better, smarter agriculture, climate change, all those good-governance things that companies should do, and the share price comes down 4%. A bit of a slap in the face.

But I think that set the tone for the kind of market that we saw today. A lot of pressure right across the board. Steinhoff’s down another 13% now, the market cap R13 billion – that’s from R230 billion that we saw back in November.

EOH was down another 7% today, just losing ground. Resilient, Fortress, all those shares have been under pressure, continuing to lose ground. So a very difficult day for us. Big volume, R39 billion worth of trade today, most of which was Naspers – 42% of that or about R16 billion.

So not the kind of day we like to be here for. Wherever we looked it was just red.

NASTASSIA ARENDSE:  What I believe is a first-world problem is when Tencent says that their revenue growth of 51% is slower than expected. In SA I’d never see a JSE-listed company complain about that.

DAVID SHAPIRO:  Tash, you are absolutely right. I’m saying that analysts are being a little heavy. Of course, you are going to see where a company produces that kind of revenue, and where it starts to spend to protect that, you are going to see lower margins as they increase their reach. So I don’t know what analysts expect, and I don’t know what their expectations are or what they say on their spreadsheets. But I’m with you. For any business that can expand at that rate I’m a buyer, even though they might be expensive. I think it’s a wonderful company and I think sooner or later those things will be ignored and brushed aside. You are dead right, we don’t see anything close to that. We get excited if we get a 1% or 2% increase in revenue.




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