“Any investor in China would have seen the signals coming” – Piet Viljoen

Our Thursday market commentator Piet Viljoen joins Bronwyn Nielsen to talk through a host of pressing investment topics. Viljoen touches on China, noting that there’s a risk factor that bears watching. “They’ve been telegraphing that they want to change the way their economy works [and] that they want to change the structure of their economy.” Together with Nielsen, he also discusses the Remgro results and ESG investing. – Jarryd Neves

Piet Viljoen on China:

I do think there’s a risk factor that bears watching. What’s happening in China has actually been telegraphed from a long way out. With the first regulatory intervention by the government [taking place] almost a year ago, they’ve been telegraphing that they want to change to the way the economy works [and] the structure of the economy. Being the type of government they are, they’re doing that. I think [that] any investor in China would have seen the signals coming. I think it would have probably been wise to have been cautious around the prices of assets in China [and] how they will react to the government interventions. I still think it’s one that bears watching. Although, right now, given the sharp declines in many of those asset prices, maybe it’s time to start doing some research [on] whether there are investable companies there. It’s normally when the bad news hits and everybody is very negative that prices start getting to attractive investment levels.

On Remgro:

It seems like things are starting to change there. They’re actively unbundling assets. RMB unbundled FirstRand, Rembrandt then unbundled FirstRand. RMI is unbundling Discovery and its unbundling Metropolitan Momentum. They’re actively taking steps to improve shareholder value and I think that is a sign for shareholders to start looking at Rembrandt. Despite its poor performance over the past 10 years, maybe things are changing. Maybe they got the wake up call to say, “hang on, let’s take some positive action to increase shareholder value going forward.” I think given what RMI has done, a lot of companies can learn from that – how to increase shareholder value.

On ESG investing:

Very importantly – from an investment perspective – sustainability is key. Any long-term investor looks to its investment companies to be sustainable and subscribe to all those good things. If you want to make a long-term investment, it’s pointless investing in a company which does things which turn out to be unsustainable and goes belly up. You don’t want that. But if one looks at what a lot of companies are doing now, they are pandering to the so-called index builders who rate companies on their ESG ratings. These companies are doing all these things to get better ESG ratings and have a better weighting in that index.

But at the end of the day, what’s happening is that sensible outcomes are being ignored and you having lots of very severe negative unintended consequences. If everybody starts saying we’re not going to invest in coal anymore – finance new coal mines – our base load energy generation capacity will disappear in a couple of years time. The coal mines can’t invest in expansion and the coal will run out – and that is our base load. Then you have what happened in the UK over the past few weeks where energy prices went through the roof because the wind stopped blowing and the sun stopped shining. Then they had a problem with their nuclear base load – which they import from France – and they didn’t have enough base load energy.

They had to start importing gas and prices went through the roof. I think for developing countries, that is a very negative consequence. It’s all good and we’ll having clean energy – but you need to have energy. Clean energy or renewable energy is not sufficient on its own. You need base load capacity, nuclear ideally – that’s probably the cleanest energy is. Unfortunately, we still have to use coal for quite a while. A lot of people say [that] renewables with batteries that will give you base load. What goes into batteries? A lot of dirty stuff. It’s fine once the batteries there. But to get to a battery, you need lots of copper and metals. All of that has to be dug out the ground – which is a dirty business.  Then one day when that battery life is finished, you’ve got to dispose of it. Where and how do you do that? You have to consider the whole value chain of so-called clean energy to make a judgment call.

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