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Value fund manager and regular BizNews co-host Piet Viljoen voices his reasoning for ringing the alarm bells on Tencent as the Chinese government and regulatory authorities continue to clamp down on Big Tech and related industries. Piet unpacks what this means for South African savers and investors, with Naspers and Prosus’ disproportionate weighting on the JSE All Share Index and their poor performance over the past twelve months. Piet and BizNews founder Alec Hogg also touch on the topics of an imminent cabinet reshuffle and whether EWC is a possible reality in time to come. – Justin Rowe-Roberts
On why Tencent has such a big impact on South African’s savings:
I guess that’s the key question. And if one casts their mind back to 2001, Naspers bought a 40 odd percent stake in a company called Tencent at the time for $34m. Today, Tencent is probably one of the best businesses in the world. It is a Chinese Internet enabled business, in other words, it offers services and products over the internet to a wide set of customers in China and makes a lot of money doing so and has become a very big business. And as a result, Naspers has become a very big business and has become a significant portion of the JSE All Share Index. Naspers and its sister company Prosus I think make up around 20 to 25 percent of the index. So any South African who has investments managed by a pension fund manager that sort of manages with reference to the index, has significant exposure to Tencent effectively through Naspers/Prosus. And for the past 20 years, that’s been a great thing. I mean, it’s created tremendous wealth for South Africans specifically.
On the hostility shown by the Chinese communist party towards capitalism:
I guess when politicians get over involved in regulating businesses and sort of defining the boundaries that can operate, that’s negative for number one – the future profits and profitability of that business because the reason for regulation is to tamp down the profitability, and the second thing is it also is negative for the rating of the business because investors will expect less growth. The rating might have been higher in the past because of very high past growth rates and high expected future growth rates. Maybe the rating is a lot lower now than it has been in the past. And there’s an example of that – one can only look at the Russian stocks. There’s some great businesses that operate in Russia, which is also another very big market, a very profitable market. But these businesses trade at significant discounts to their peers in developed markets because of the government intervention. It’s a similar sort of dynamic playing out.
On what the Chinese government has actually done:
Specifically with regards to Tencent, there’s two things that I’m aware of over the past while. The first is that they have taken away Tencent music entertainment proprietary music rights. To the music publishing rights, saying that they must be available to everyone. They can’t be the only one profiting from selling music streams on the internet. So that has affected that business – that part of Tencent dramatically. I think on Monday night or Tuesday night, the regulator also said that they must stop providing online gaming, not gambling – games to minors, young children. Because they said it’s opium for the mind. Online gaming is a significant portion of the income, I think it’s about a third of the revenue numbers taken. I’m not sure what segment of that is made up by minors playing online games, but it’ll hurt profitability there’s no doubt.
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