News briefs – 6 June 2023

Tuesday 6 June 2023

Check out your Fantasy Fund Manager favourites below – here, from FFM platinum sponsor Sharenet, are today's Top Ten winners and losers of the JSE's 100 biggest shares by market value.

The Democratic Alliance (DA) plans to challenge the constitutionality of various sections of the Employment Equity Amendment Act (EEAA) in the Gauteng High Court. The DA argues that the Act enforces rigid racial quotas rather than numerical targets, violating the constitutional rights to equality and freedom of trade. The amended Act centralizes power in the hands of the Minister to determine the racial composition of workplaces, disregarding the diverse needs of different employers and industries. The DA asserts that the legislation will lead to job losses, capital flight, and economic decline. They emphasize the importance of defeating race-based legislation through legal challenges and political action.

Golf's bitter rivals, the PGA and Saudi-backed, are to merge. An announcement by the parties today said PGA Tour, DP World Tour, and the Public Investment Fund (PIF) have reached an agreement to unify golf globally. The deal combines PIF's golf-related businesses and rights, including LIV Golf, with those of the PGA TOUR and DP World Tour to create a new, collectively owned for-profit entity. The aim is to maximize excitement and competition among the best players while benefiting all stakeholders. PIF will invest capital to facilitate the growth of the new entity, which will focus on expanding commercial businesses, enhancing fan engagement, and promoting team golf. The agreement also resolves pending litigation and establishes fair criteria for player membership reapplication.

In its latest report, the International Monetary Fund has identified economic and social challenges faced by South Africa, projecting a minimal real GDP growth of 0.1% in 2023 due to increased power outages, weaker commodity prices, and an unfavourable external environment. To address these issues, the IMF recommends fiscal consolidation measures focused on reducing expenditure, improving the fiscal framework, implementing prudential measures to mitigate sovereign-debt risks, and advancing reforms in various areas, including state-owned enterprises, regulatory burdens, regional trade integration, digital economy, labour markets, climate ambition, and governance. Treasury says the SA government acknowledges the risks and plans to update economic projections, address fiscal imbalances, pursue structural reforms, and combat corruption and crime.

Food services company Bidcorp is facing difficulties in its home market due to frequent power cuts. While it reported growth in Australasia, the UK, and Europe, its emerging-markets region, particularly South Africa, experienced challenging trading conditions. The country's low economic growth and power blackouts by state-owned utility Eskom have hampered Bidcorp's performance. Unemployment, weakening currency, rising interest rates, and increasing bad debts among consumers further compound the company's domestic market problems. Despite these challenges, Bidcorp anticipates achieving record trading results for the year, partly due to diversification away from South Africa. Earthquakes in Turkey and stock valuation issues in the Middle East and Chile also posed additional challenges for the company. The company's shares slumped as much as 6.1%, the most in 15 months. 

South Africa is establishing a Water Partnership Office (WPO) to facilitate private investment in the water industry, following the successful model of the nation's electricity procurement agency. The office, set up by the Development Bank of Southern Africa, aims to attract funding from the Green Climate Fund to address the collapsing water infrastructure. South Africa's government seeks to draw private investment to improve services in sectors such as energy, water, rail, and ports. The WPO will focus on areas including water reuse, wastewater treatment, desalination, and sanitation. The initiative has garnered foreign interest, with Spain and the Netherlands offering potential funding.

Stanlib reports that South Africa's GDP grew by 0.4% in Q1 2023, meeting market expectations but indicating a modest recovery. The growth was broad-based but weak within most sectors, suggesting no significant turnaround in economic momentum. Despite surpassing pre-COVID levels, the economy remains below activity levels in Q3 2022. Challenges such as electricity outages, rising interest rates, declining incomes, and ineffective political leadership make the economic outlook difficult for the second half of 2023. Manufacturing and financial services drove the GDP increase, while agriculture struggled due to electricity outages. Construction showed improvement, but mining faced structural challenges and infrastructure constraints. Foreign tourism and fast-food industry growth provided some support. The forecast for 2023 predicts minimal growth due to persistent challenges, highlighting the need for long-term structural reforms and effective policies.

US venture capital firm Sequoia Capital, which is run by South African Roelof Botha, is in the global news today after announcing it will split its China and India businesses into a separate entities. The Chinese arm will operate independently and be renamed HongShan, while the Indian and Southeast Asian business will be known as Peak XV Partners. The US and Europe venture capital business will retain the name Sequoia Capital. The split is in response to the complex geopolitical landscape and escalating tensions between Beijing and Washington. Sequoia China, known for investments in companies like ByteDance, has faced challenges due to Beijing's crackdown on tech firms. The changes will be implemented by March 2024.

The Zimbabwe parliament's passing of the 'Patriotic Act' has been condemned by the Free Speech Union of South Africa. The law criminalizes actions that damage the sovereignty and national interest of the country, including freedom of association, assembly, and speech. Citizens are prohibited from engaging with foreign governments and issuing statements deemed unpatriotic. Penalties range from up to 20 years in prison for certain crimes and life imprisonment for planning armed intervention. Critics argue that the law is oppressive and undermines fundamental freedoms. Human rights organizations have raised concerns about the vague and subjective nature of the law, which could be abused by law enforcement. The passing of this law adds to the diminishing rights in Zimbabwe, and calls for condemnation from the international community.

Lightstone says South Africa's national year-on-year house price inflation is at 3.16%, having remained steady since last month. Annual property inflation remained steady in KwaZulu-Natal and the Western Cape, increased in Limpopo and Mpumalanga, and decreased in the Eastern Cape, Free State, Gauteng, North West and the Northern Cape. Annual property inflation in the Low Value segment was once again much higher than that in other segments – inflation for properties in Low Value
segments was 9.1%, compared to 3.6% for properties in Mid Value segments.

Ukraine launched a counteroffensive against Russian forces with the support of Western-supplied tanks, artillery, and assault brigades. Russian and American sources provided conflicting reports, with Russia claiming to have repelled Ukrainian advances in five locations, while American officials observed a surge in fighting indicating Ukraine's push was underway. Ukrainian President Zelensky praised his troops for their progress near Bakhmut. The Ukrainian government hinted at the offensive without making an official announcement and released a video symbolizing secrecy. Ukrainian and Russian sources presented differing accounts of the situation, with Russian military bloggers suggesting Ukrainian success, including the deployment of Western-supplied Leopard tanks. The Kremlin admitted that a fake address by President Putin announcing mobilization and martial law had been broadcast due to a hacking incident. Ukrainian forces have been preparing for a breakthrough of Russian defensive lines, and clashes have been reported along the front line in Donetsk, Zaporizhzhia, and Kharkiv.

A dam and hydro-electric power plant in southern Ukraine, under Russian occupation, was destroyed, leading to mass evacuations and concerns of widespread devastation. Ukraine accused Moscow of committing an act of "ecocide." Russian forces allegedly blew up the dam, causing a breach and a deluge of water. The critical dam spanned the Dnipro River, impacting towns and cities downstream. Evacuations were underway, and Ukraine blamed Russia for strategic disruption. The ecological impact is a significant concern, with the potential for an environmental disaster. The European Union condemned the attack, and the International Atomic Energy Agency is monitoring the situation regarding nuclear safety.

The US Securities and Exchange Commission (SEC) has filed a lawsuit against Binance, the largest cryptocurrency exchange, and its founder, Changpeng Zhao (CZ), alleging illegal operations and misuse of customer funds. The SEC claims that Binance operated an unregistered trading platform in the U.S. and diverted customer funds to a trading entity controlled by Zhao. The lawsuit also accuses Binance of commingling customer assets and sending them to a third-party owned by Zhao. This legal action adds to Binance's ongoing regulatory challenges and further underscores the scrutiny faced by the cryptocurrency industry. The SEC seeks to freeze Binance's assets and appoint a receiver to protect user assets.

Apple Inc. unveiled its long-awaited mixed-reality headset, the Vision Pro, at its Worldwide Developers Conference. Priced at a staggering $3,499 (R68 000), the headset marks Apple's entry into a new major product category currently dominated by Meta, whose headsets sell at one sixth of the price. It combines virtual and augmented reality, featuring high-resolution displays and the ability to overlay apps on the wearer's field of view. The Vision Pro has its own operating system, visionOS, and a dedicated App Store. While investors showed scepticism (Apple's share price fell 2.5% in pre-trading), the group aims to redefine the industry and change how people interact with technology. The company expects to sell about 900,000 units in the first year and plans to launch a lower-cost version and a more upscale model in the future.

Pepco Group NV, the pan European group in the Steinhoff stable that trades in 4 000 stores in 19 territories, delivered strong trading momentum in the six months to end March.

• Like-for-like sales growth: Pepco +15.8%, Poundland Group +4.9%.
• H1 financial performance ahead of last year on a constant currency basis.
• Revenue increased by 22.8% to €2.8bn, underlying EBITDA up 11.0% to €377m.
• Total number of stores at the end of H1 at 4,127, up 12% YoY, driven by Pepco's growth in Western Europe.
• On track to open at least 550 net new stores during the current financial year.
• The Group maintains confidence in the EBITDA outlook for the full year.
• Gross margin of 40.1% in H1, expected to recover in H2 as cost input inflation eases.
• CEO Trevor Masters highlights progress in strategic objectives, revenue growth, and net new store openings.
• Western Europe shows strong growth, particularly in Italy and Spain.
• Inflation remains challenging in Central Europe, but maintaining price leadership and market share.
• Gross margins expected to trend upwards in the second half.
• On track to deliver full year EBITDA growth in line with previous guidance.

South Africa's gross tax revenue collection in April 2023 fell by 0.6% year on year. Stanlib reports that this was primarily due to a decline in VAT collection amidst a challenging macroeconomic environment. However, corporate income tax and personal income tax collections remained solid. The weak tax collection, particularly in VAT, indicates a difficult start to the financial year and suggests that the government's ambitious tax revenue projections may be challenging to achieve. It highlights the need for effective economic reforms and solutions to address load shedding and stimulate economic activity.

Manchester City FC has become the world's most valuable football brand, surpassing Real Madrid after a four-year streak at the top, with a brand value of €1.5 billion up 13% in the past year. Brand Finance's 2023 report released today shows the club's brand value has experienced a 34% growth since the COVID-19 pandemic and is at an all-time high. Additionally, Manchester City FC generated the highest revenue this year, contributing to its ascent. Brand Finance highlighted the club's success in building a strong brand, attracting fans and sponsors.

City's arch-rival Manchester United has surpassed Liverpool to secure the fourth position in the Premier League. Both clubs have seen positive brand value growth since 2022, recovering from the pandemic's impact. Liverpool's success under Jurgen Klopp and Manchester United's resurgence with Erik ten Hag as manager have contributed to their improved standings. Arsenal FC, with a 14% increase in brand value, now ranks eighth and their young squad offers optimism for the future. Tottenham Hotspur and Chelsea, in positions 9 and 10, means 60% of the world's most valuable football clubs compete in England's Premier League.

The first Jaltech Alternatives Investment Survey reveals that South Africans are increasingly favoring alternative investments. The survey, which involved 1,300 participants, including over 200 investment advisors, aimed to understand alternative investment trends and the behavior of individual investors and financial advisors. The popularity of alternative investments can be attributed to factors like diversification, potential for higher returns, and the opportunity to invest in assets uncorrelated with traditional markets. 79% of investors plan to increase their allocation to alternatives. While structured products, hedge funds, and cryptocurrencies have traditionally been popular, renewable energy, technology/AI, and cryptocurrencies are emerging as the asset classes generating the most interest. Cryptocurrency is the most popular alternative investment among individual investors, followed by private equity and solar/renewable energy. Solar/renewable energy is expected to be the most sought-after alternative investment segment in the next 24 months, reflecting the country's energy crisis. Over 65% of financial advisors offer alternative investments to their clients, and most investors allocate 1-10% of their portfolio to alternative investments. The survey also highlights the importance of information access and licensing for financial advisors to promote the growth of alternative investments in South Africa.