Since the heavy crash and subsequent rally in global equity markets in the first half of this year, many investment market participants have been asking about the extent and timing of the recovery from the rapid and devastating impact of the fight against the spread of the Covid-19 virus. These questions are often based on shapes – “will it be a V- or a U- or an L-shaped recovery” are some examples. When formulating a response to such questions it is important to know which measure or metric is under scrutiny and to what extent that measure is important or not in formulating investment strategy and making informed investment decisions. The Dynasty Investment Committee has characterised the measures that drive our investment process in this way. Read on for more.
- As the US dollar this week came under renewed pressure on the back of currency debasement fears, gold surged past the $2000/oz level. South African gold mining shares, which are leveraged to the price of the metal and the weaker rand, rose sharply by as much as 8% on Wednesday, before settling back slightly as the week drew to a close. As mentioned in our previous communications, Dynasty has introduced a gold ETF into our domestic Wealth Preserver Fund and a dollar-based gold ETF into our offshore Global Preserver Fund.
- President Trump may have a massive impact on the largest stock on the JSE: President Trump signed a pair of executive orders prohibiting any person or property within US jurisdiction from doing business with Chinese-owned TikTok and WeChat, beginning in 45 days. The reason given was to protect Americans’ personal data and comes as he has been pushing for the sale of TikTok to US company Microsoft, where he has insisted that the US should get a substantial payment from the sale. The share price of Tencent Holdings Ltd., the holding company of WeChat, fell by 5.07% today on this news. SA’s largest listed company, Naspers Limited, whose valuation is primarily driven by its own holding in Tencent, fell by 4.18%. Furthermore, Naspers is a major holding in most SA portfolios.
- Banks are getting ready for the impact of Covid-19 as they set aside large sums of cash to cover potential write-downs on borrowings by companies and households. HSBC Holdings plc estimates that they may have to write off $13 billion this year from loan losses, and Societe Generale SA reported a loss of €1.26 billion on charges at its trading unit.
- Google has bought a $450 million stake in home security firm ADT. This could bring Google’s smart home products to millions of new customers.
- Are Tech Stocks Expensive? A logical answer to this question is provided by UK-based investment firm Baillie Gifford, who state: “Think of it as growth at unreasonable prices. We need to be willing to pay high multiples of immediate earnings because the scale of future potential returns can be so dramatic. The valuation will turn out to be low on the stocks that flourish. On the others, we will lose money.”
- Update – Ninety One Global Franchise Fund: This particular Fund is a key component of our Dynasty proprietary funds. For our clients’ interest, we have included a link to a recent webcast by Clyde Rossouw, manager of the Fund, who provides insights on the portfolio’s current positioning and return prospects. Following on from our previous point as to whether technology stocks are expensive, Clyde explains why the Fund has 35% exposure to this sector – but not Amazon, which is trading at over 100 P/E. Generally, the Fund is invested in second-tier companies which are either disruptors or disruption proof. Dynasty’s bias to quality-style managers has indeed paid off, with the Fund returning 9.3% in dollars, net after fees, for the twelve months ended June – this being 7.1% ahead of its benchmark. Please access this link to learn more about why the Franchise Fund is one of our two preferred, actively managed, offshore equity funds.
- South African Financial Assets – Detached from Reality? In an extensive research paper published by UK-based MRB Partners on South Africa, the investment management firm explains why SA financial assets have continued to rally in the face of feeble domestic growth, deteriorating fiscal metrics, and a massive health crisis. In their view, South Africa has for now been ‘’Saved by the Fed’, in that this dichotomy can only be explained by the global liquidity backdrop. Central banks have become hyper-accommodative and as a result, a low global interest rate environment is expected to persist for the foreseeable future. Investors will, therefore, be pushed “further out on the risk spectrum”, to the benefit of South Africa. Interestingly, the firm is positive on the outlook for SA government bonds, the upweighting of which is currently being evaluated by our Investment Committee in our domestic-based Dynasty Wealth Preserver Fund.
- President Ramaphosa has attempted to stop the corruption associated with Covid-19 services. He has issued a detailed report on which companies have been approved to supply Covid-19 services and has appointed a Committee of Ministers to handle the allegations of corruption. Steven Grootes from the Daily Maverick has written an article detailing the corruption, the impact that this may have on the ANC, and the consequences for the nation.
- The Public ‘Protector’ – Seriously?! Public Protector, Busisiwe Mkhwebane, ordered the Minister of Security to implement the findings of a classified 2014 Inspector-General of Intelligence report, which she herself had never seen, read, or interrogated. This report has since been found to be unlawful – it was the notorious report that implicated Pravin Gordhan, Ivan Pillay, and Oupa Magashula. The hearing was set to continue today.
- Eskom and the Special Investigating Unit have initiated the process to recover R3.8 billion from Eskom’s former executives, former board members, and the Gupta family, who illegally diverted the funds during the 2015/2016 acquisition of the operations of Optimum Coal Holdings.
- Could land expropriation work without destroying the economy? Follow this link for an opinion piece by Steven Grootes that analyses how land expropriation could take place in a way that boosts the economy and enhances social stability.
- A possible explanation for the continued availability of cigarettes in South Africa: Namibia is missing stockpiles of cigarettes, and this is particularly strange as South Africa has been exporting record numbers of cigarettes to its neighbouring country. In May alone, SA exported the equivalent of what that whole country smokes in a year. For more on this, follow this link.
- Panda, a group of actuaries, economists, data scientists, statisticians, medical doctors, lawyers, engineers, and business people who have an objective to replace poor political responses with good science, have compiled another article showing the extent to which the lockdown in South Africa has been detrimental. They also suggest, perhaps controversially, how we as a country should be moving forward from this point onwards. Follow this link for more.
Sources: Dynasty, Reuters, Bloomberg Markets, The New York Times, Daily Maverick, and Moneyweb, etc