The week that was: Stocks on discount for Black Friday?
By Justin Rowe-Roberts, Investment correspondent
A quiet week for local and international markets because of Thanksgiving in the United States. However, it still provided much to ponder. The news of a new coronavirus variant (B.1.1.529), supposedly first detected in South Africa, has spooked markets with global indices trading markedly lower on Friday morning. There are concerns the new variant may be more transmissible and able to bypass vaccine immunity and global stock markets tumbled. The UK announced 'red list' status for South Africa, which caused a knee-jerk reaction with several European neighbours following in its footsteps. This has sent local equities into freefall and the banking and hospitality sectors are the hardest hit. City Lodge fell by more than 20% at one stage in early morning trade on Friday, a day after announcing an upbeat occupancy rate (41%) for November that had surpassed expectations. Another lockdown could be the final nail in the coffin for an industry that has been on its knees for the past two years or so. Tsogo Sun Hotels and Sun International – two other leisure stocks on the local bourse – were also down by as much as 15% in early morning trade on Friday.
David Shapiro analysed whether Naspers and Prosus remain good investments, given the uncertainties in China. Management's ability to extract value has also been questioned, with a number of unsuccessful corporate actions failing to unlock shareholder value. Both Naspers and Prosus continue to trade at hefty discounts to net asset value. Crown jewel Tencent has been on the back foot following a regulatory crackdown owing to increasing concerns from the Chinese Government that the tech industry has gained too much control. Its non-Tencent portfolio, valued at close to $50bn, remains an area of concern for investors. Concentrated bets in the food delivery, payments and educational technology sectors, although growing exponentially, are still losing money. Tencent's contribution to operating profit is 118%, meaning the rest of the portfolio is detracting 18%. When will Bob van Dijk and his management team bear the fruit of those large acquisitions during his tenure?
The rand, along with many other emerging market currencies, has been in freefall. This is indicative of the risk-off sentiment ushering across markets as ongoing inflation fears have coupled with further economic disruption as a result of the new virus variants that have emerged. The rand has weakened by more than 20% against the dollar in the second half of the year; the market anticipates a higher interest rate environment in the US in the coming months.
Piet Viljoen wonders if this historic bull run will last. The bull market has been led by the technology sector in the US, with the FAANGs (Facebook, Apple, Amazon, Netflix and Google) at the forefront of innovation. Viljoen believes if the US Federal Reserve continues to implement policies that are supportive of stock market returns, then there is no indication the bull market is coming to an end. This begs the question: does the US Federal Reserve dual mandate – which is to effectively promote the goals of maximum employment, stable prices and moderate long-term interest rates – have too much of an effect on asset prices? Liftoff will certainly be interesting.
Lots to digest. Plenty to ponder. Roll on the new week…
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