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Rand loses ground after post downgrade rally

JSE slips, financials up and PGMs mixed – Wayne McCurrie on Friday’s market.

WARREN THOMPSON:  Good evening and welcome to the SAfm Market Update with me, Warren Thompson.

It’s time now to have a look at the markets and see how the JSE performed today. It was slightly off, 0.5% down, closing the all-share index at 59 449 points, led largely by gold mining, which was down 1.32% and industrials down 1%.

Sectors in the green included financials up 0.25%, and resources just marginally higher at the close.

The rand lost ground against the major trading currencies today, closing 0.66% lower against the lower dollar, where it’s trading at R13.74. It lost 1% against the pound, where it’s trading at R18.48, and against the euro almost 0.75% weaker at R16.30.

Gold is at $1 273/oz. It was a mixed day for the platinum group metals, platinum closing 0.33% weaker at $934/oz, while palladium was 0.75% higher at $1 021/oz.

Here to discuss the market with me as we come to the end of the earnings season is Ashburton’s Wayne McCurrie. Good evening, Wayne.

WAYNE McCURRIE:  Hello, Warren.

WARREN THOMPSON:  I guess rather an interesting week in the wake of the downgrades. We saw the rand immediately depreciate on the back of the news that came in early Saturday morning, I guess it was. We saw it trading at R14.11/dollar and then an incredible rally, where I think at one point it got as low as R13.61/dollar. It just goes to show that as long as you’ve been watching markets they never fail to surprise.

WAYNE McCURRIE:  Very much so. But I think everyone knew there was some form of downgrade happening and that, by and large, was the reason for the initial weakness. A few people had to close their positions out. But the rand rallied quite significantly, as you said, this week and we wait for the ANC conference in a few week’s time to see the actual direction of where the rand is going to go.

WARREN THOMPSON:  So this will certainly indicate that we should be in a fairly narrow trading range as we wait for that conference, which is roughly two weeks away now?

WAYNE McCURRIE:  Yes, I would think so. Look, you are going to get lots of political action and announcements and lots of revelations and one side having a go at the other side, etc. So we can expect a little bit of volatility. It’s going to be an interesting two weeks going forward until the results from the conference are known.

WARREN THOMPSON:  A lot was spoken about Naspers this week, Wayne. But just on the results that they published to the end of September, what was your perception of the businesses outside of Tencent? Obviously Tencent had another incredible result. But the real investment into the e-commerce businesses, the food-delivery businesses – the e-commerce businesses including the payment profile? We heard analysts talking about the discount in the Naspers share price, where it trades below its stake in Tencent. How would you like the company to address that discount?

WAYNE McCURRIE:  Look, it’s really up to the market to address that discount. There are two aspects to it. It’s the market valuation of the non-Tencent business, and then the discount you put on the actual stake in Tencent. You can use Tencent as 100% of its value, because those shares are not available to you to sell on the market. So the market will have to decide at some stage on the other businesses of Naspers, what they are worth, and then what discount you want to put on let’s call it the holding company’s discount in the underlying company.

But, make no mistake, Naspers management doesn’t ignore this discount because they are big shareholders in Naspers. So they will probably be looking at ways of potentially trying to unlock that value. Whether they can or not – there’s a whole set of regulations that they’ve got in China around that stake, there’s a whole set of regulations in South Africa they’ve got with exchange control, etc. So it’s not that easy to unlock it. But there is clearly a lot of potential value there. The non-Tencent businesses probably did better than anticipated by the market, to be honest.

WARREN THOMPSON:  Perhaps some insight there – this is a business that is very unfamiliar to South African investors. It is completely independent of anything related to South Africa. What is driving the earnings growth in Tencent?

WAYNE McCURRIE:  The easiest way to view Tencent is that all of those apps you’ve got on your program, your social media apps, your payment apps, your [background interference] your Twitter – every single app you’ve got on your phone here in South Africa in China is all encompassed in one app, and that’s Tencent. So on Tencent you pay everyone and you chat to your mates and you play games and you buy things on the internet, all in one app. There are more users of these apps than there are Chinese people. Understand, it’s a massive, massive setup. …

WARREN THOMPSON:  Wayne, we are battling with the line a bit, so we are going to have to let you go. But we’ll engage with Tencent with you in the near future. Thank you very much for your time today.

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