Innholdsfortegnelse for 6/25/2020 i Finweek - English

as the rest of the world gingerly reopens, South Africans are knee-deep in the lockdown lull. It’s been nearly three months and we’ve had to accept this bizarre new reality. And with Covid-19 cases increasing, it’s likely that we are going to have to live in this state of uncertainty a while yet. However, the government has changed its tune from the ominous tone at the start of the lockdown to one of measured caution. In his 8 June letter to South Africans, President Cyril Ramaphosa signs off by urging us not to be alarmed, but prepared. Considering our current recovery rate, this isn’t an unfair request. Of course, fatalities remain devastating – no matter the figure. Furthermore, South Africa faces this inevitable increase in infections as we battle winter.…

Statistics South Africa (Stats SA) has conducted two of three “waves” of online surveys since President Cyril Ramaphosa announced the national state of disaster on 23 March. These surveys measure the impact that the national lockdown, which began on 26 March, has had on SA society. One of the first-round (Wave1) surveys “focused on health-related issues, specifically on behaviour, knowledge and perceptions around Covid-19”. Data collection for Wave 2 focused on employment, income and hunger-related issues and occurred during the sixth week of the national lockdown between 29 April and 6 May 2020. Some of the results of this survey can be seen in the graphs on the left. The second wave of Stats SA’s Covid-19 business impact survey “provides an update on how SA businesses are currently faring under…

famous Brands, which owns local franchises such as Steers and Wimpy, in late May reported improved profits for the year ending February. But, the impact of the Covid-19 pandemic and lockdowns has diminished the group’s revenue since. The company took action to right-size the business, reduce costs and preserve cash. “These include a freeze on operational and capital expenditure; providing franchisee relief in the form of temporarily deferred payments (for pre-lockdown debt) and reduced royalties and fees post the lockdown; negotiations with banks and landlords; strategic temporary hibernation of parts of the business which are not permitted to operate undercurrent lockdown restrictions; and a limited retrenchment programme where all other options have been exhausted,” the company said in its annual financial statements. Outlook: The share price breached the support trendline…

after collapsing in March, markets locally and globally have rallied. The Nasdaq has led the way to near-all-time highs while the S&P 500 is back above 3 100, close to its record high of 3 386. Both indices reached record highs in February. Locally, the FTSE/JSE Top 40 Index is trading just below 49 000, at the time of writing, after kicking the year off at 51 500. The all-time high for the Top 40 was just under 54 000 in November 2017. Looking at these indices’ levels, it’s fair to ask: what pandemic? Valuations are stretched to record levels. The forward price-to-earnings ratio (P/E) of the S&P 500 is the most expensive it has ever been, with two exceptions: the 2001 dotcom boom and the 2008 crisis. The former…

following the sharp sell-off across global financial markets induced by the coronavirus pandemic, South African investors are understandably worried about the values of their portfolios. Yet, despite the ongoing market volatility and uncertainty about future economic growth, at Prudential we believe now is a good time to invest in well-diversified balanced funds, especially for longer-term investors looking for inflation-beating returns over time. Even though investors may be reluctant to invest in these funds due to their recent historical underperformance, they should consider embracing them even more. Our analysis shows that a great deal of bad news has already been priced into our markets, presenting a rare opportunity to invest across different asset classes at very attractive levels simultaneously. SA equities, bonds and inflation-linked bonds have been trading very cheaply –…

the Covid-19 pandemic has seen monumental swings in investor sentiment. While it cannot be denied that there are many investment risks that may persist after the pandemic, there is also great value to be found. Are bonds attractive enough to offer investors a haven from coronavirus fears, and if so, where are the opportunities? “South African bonds are pricing in enough bad news to be attractive, offering interest rates more than double the rate of inflation,” says Londa Nxumalo, portfolio manager at Allan Gray. Before jumping in and investing, Nxumalo says that it is useful to understand the context in which bonds have performed over the last year. “Most of bonds’ poor performance over the last year can be traced to March 2020: Bonds sold off massively, with yields on…

We have seldom been in a bigger mess economically than we are now. The financial system, in fact, is more fragile than we have been told and could still unwind at frightening speed. The only other time that I can recall something similar in South Africa was when the Hertzog government of the early 1930s stubbornly refused to abandon the gold standard and pushed the country deeper and deeper into the Great Depression. We seem to be in a matching boat now, precipitated by an obtuse ANC-led government whose huge R500bn economic stimulus could equate to something between a 7% and 12% shrinking of our economy. Not least of the upfront difficulties is that Sars has hinted that tax collection could fall by as much as R250bn this year alone…

“Remgro’s aim is to render outstanding returns through ensuring sustainable dividend and capital growth to shareholders over the long term.” a series of unbundlings from investment companies over the past couple of years has raised the question among many investors as to whether these companies, together with the discounts on their net asset value, or even their intrinsic net asset value, are at all worth investing in. One of the largest investment holding companies in South Africa is undoubtedly Remgro, with its interests in private healthcare, food processing, optical fibre infrastructure and banking – to name but a few. Despite the group’s apparently sound underlying companies, its share price is trading at a firm discount to its intrinsic net asset value. The latter is a measure used by Remgro to…

Darth Kitchens, a dark (or ghost) kitchen in Cape Town’s CBD, has developed and launched eight brands over the past year. And while the lockdown has affected food delivery numbers in South Africa, Darth Kitchens CEO, Tom Shackle, believes the delivery-only model as premised on the virtual kitchen concept will become more popular in SA. “The market for food delivery in this country is growing fast. The lockdown in this country has affected those numbers, but with delivery being one of our only options these days, the customer is provided with a quick, simple option to get food, while staying in the comfort of their own home. Given the rise of the need for convenience in the market, food delivery in this country is following a similar trajectory to the…

‘Capitalism’ has been misunderstood since it was coined in the 19th century. The term was first used as a criticism of the rising income gap between factory workers and factory owners. But until the early 20th century, it was rarely used; Karl Marx only mentioned the word a few times in his later writings. In 1908, economist Thorsten Veblen explained it as a socialist term for a “large-scale industrial regime”, not exactly the description we would use today. The term evolved during the 20th century to mean many things to many people. If I were to ask my undergraduate economic history class for a proper definition, I’d get as many answers as there are students. Some would define it as French socialist Louis Blanc did in 1850: Capitalism, he said,…

localisation in South Africa’s mining sector is a controversial subject. The government has increasingly asked for it, making procurement from local firms a feature of legislation, most notably in Mining Charter III. As the Mining Charter currently stands, about 70% of all procurement by SA firms must be local in three years’ time to comply with mining licence regulations. The government goes so far as to prescribe the level of empowerment required of suppliers. The mining sector said it recognises the benefits of localisation, but says the targets are too onerous. That’s where the matter stands while the government and the Minerals Council await the outcome of a High Court process which is primarily focused on deciding whether past empowerment efforts should be recognised. But could global economic trends fall…

Our local banks are very well-capitalised, with higher capital adequacy than required by Basel III, and the SA Reserve Bank (SARB) has also relaxed some of these requirements. The central bank is also lending R200bn to commercial banks, as underwritten by government’s Covid-19 economic response package. Local commercial banks have significant challenges ahead of them, with bad debts already on the rise and certainly continuing to increase as businesses struggle or go bust. Consumers are under extreme financial pressure, with many losing jobs or making ends meet with reduced salaries, which will see banks’ impairment ratios spiking, likely surging above levels of the global financial crisis of 2008/09. This even as legislation since then has improved the quality of their loan books. Banks will also struggle to secure new business…

it goes without saying that currently we’re going through trying times economically and otherwise. And many millions may consider themselves blessed that they’re invested in mutual funds. The average person simply doesn’t have the time or expertise to manage their personal or to efficiently reinvest interest or dividend income, or investments every day, to investigate the thousands of securities available in the financial markets. Mutual and hedge funds are managed by professionals who are experienced in investing money and who have the education, skills and resources to search diverse investment opportunities. No less important, many manage several different funds and allow you to switch between them at little or no charge. That enables you to change your portfolio as and when your personal needs, financial goals or market conditions change.…

it goes without saying that the objective of any intelligent investor is to maximise their capital by earning the highest returns that they can get over the longest period possible. The general view is that equities are preferable to bonds or cash equivalents because of their riskier nature and that they offer the highest possible returns. And as bonds are traditionally considered safer investments than equities, the rate of return offered by them is typically lower. But some bonds (high-yield bonds) may offer exceedingly high rates of return. In the case of junk bonds, for instance, they could yield returns as high as 50% per year, the catch being that they carry extremely high risks of default. Appropriate allocation of portfolios to these classes is currently being debated both globally…

maslow’s hierarchy of needs describes how human motivation manifests through five categories of needs. The idea being that one first must meet the most basic of human needs (such as food, water and shelter) before progressing to more complex (and abstract) ones involving certain psychological and self-actualisation desires. Similarly, the needs of South African investors can be arranged from the most basic, such as simply avoiding losses, through to the most complex (and desirable), involving the long-term growth of global purchasing power. This is an important concept for long-term discretionary savers. In times of crisis, such as the current Covid-19 pandemic and the accompanying economic fallout, we are typically driven by the most basic of investor needs: don’t lose money. However, one must maintain focus on your actual goals which,…

global travel and tourism have been decimated by restrictions imposed to halt the spread of the coronavirus, but attention is starting to turn to how and when a recovery might take place in a sector estimated to account for 200m jobs and a tenth of the world’s economy. Uncertainty prevails amid concern over whether there will be a “second wave”, or resurgence of infections in countries that have begun easing their lockdowns – a scenario the World Health Organization says is inevitable, based on the behaviour of previous pandemics. This raises the prospect of recurring restrictions until an effective vaccine is found, and travel is the most vulnerable of any activity, especially given that it was responsible for the initial spread of the virus from its place of origin in…

most people with retirement plans will have received that e-mail from their investment manager; the one that chimed jauntily in your inbox, but ought to have landed to the sound of an anguished cry. That’s because there’s a crater where your retirement savings used to be, courtesy of Covid-19. There were fault lines in the world economy even before the virus, but for now, with recessions expected in all but India and China, the prognosis for the global economy is on a spectrum of poor to dire. “First of all, I think Covid-19 is going to leave all of us with a scar,” says Derrick Msibi, CEO of STANLIB, in an interview with finweek. “I would be very surprised if it’s not seen as an important or defining fact in…

it takes hard work, time and effort to amass valuable possessions, so it makes financial sense to protect them against loss or damage by insuring them. “The purpose of insurance is to place you in the financial position you were in at the time directly prior to the loss. You cannot predict the future, and that is why you need insurance,” says Ricardo Coetzee, head of Auto & General Insurance. By paying a monthly premium to an insurance company, you can be reimbursed for losses of insured items. The majority of clients that contribute to the premium pool don’t lodge claims during the year, which enables the insurance company to reimburse those clients that do incur losses, explains Marius Neethling, personal lines underwriting manager at Santam. Short-term insurance, according to…

promises are the sweetest lies, reads a five-word inscription on my daughter’s WhatsApp profile picture. She is only 14, but this message struck a chord with me when I first saw it, something that caught me by surprise from the introverted teenager. The message forced me to reflect on a string of broken promises made by our elected politicians under the guise of broad-based black economic empowerment (B-BBEE) policy, which has throughout its various iterations over the past 26 years only benefitted a tiny politically-connected black elite, while widening inequality among the people it was supposed to uplift. The policy’s failure to deliver on its promise of radically increasing black economic participation is becoming a source of frustration and disenchantment among its intended black beneficiaries. As a result, an opposing…

The ebb and flow in the price of manganese, which is important in the manufacture of steel to which it gives hardening properties, has been blamed on Covid-19. But this may be a mistake, according to analysts at Morgan Stanley in a recent report. “The recent squeeze in manganese prices is wrongly blamed on the SA lockdown,” said Christopher Nicholson, Jared Hoover and Brian Morgan, analysts for the bank. “In fact, today’s high prices are a function of last year’s low prices, paving the way for prices to fall again,” they said. It was this pulse in the cycle that has proved to be the undoing of Kalagadi Manganese, the company owned by award-winning entrepreneur Daphne Mashile-Nkosi. The Industrial Development Corporation is also a significant shareholder in Kalagadi Manganese. The…

Telkom is expecting to report a significant drop in earnings for the year to end-March due to Covid-19-related losses and the costs of its restructuring programme. The group expects its headline earnings per share to decrease by between 65% and 70% and basic earnings per share to fall by 80% compared with the previous year, mainly due to one-off costs of about R1.2bn relating to its restructuring programme. But, even with the current economic challenges, Telkom’s debtors’ book performance didn’t deteriorate between March and May. Telkom’s results are due on 22 June and it’s warned investors that its biggest challenge for the year was the decline in fixed-voice revenue, down 22% from last year. However, growth of over 50% in mobile service revenue for the year off-set these losses. How…

the coronavirus pandemic spooked many investors – both locally and globally – as the erratic swings in world equity indices, and even South Africa’s bond market, can attest. Local fears were enhanced by SA’s sluggish economic performance and rightly prompted investors to question whether or not they should shift their money offshore. In this follow-up to my previous column on offshore investment (4 June issue), I continue to look at reasons why an investor would opt to move their investments out of the country, and the important considerations that need to be kept in mind before doing so. Foreign against rand-denominated funds You can invest offshore either by buying and using foreign currency, or by using rand. If you opt for foreign currency, you will be limited to your annual…

much has been said and reported lately about emergent golden opportunities for investors while the herd stampedes away from markets. Kokkie Kooyman, a director at Denker Capital and the portfolio manager of the Denker Global Financial Fund and its rand-denominated feeder fund, is particularly confident that his investment glass is full and deserving of serious consideration by investors. Leon Kok spoke to him. Is there a case to invest in global financials at present? Very much so. True, there are strong fears in the market, for instance that banks’ net asset values (NAVs) will be considerably written down via bad debts. Our experience and research point to the market being wrong. Bad debts will be high, but we are confident that banks will remain profitable in 2020. Further, we believe…

during the mid- to late-2000s and then more recently from January 2015 to date, South African investors could invest in the money market and earn an attractive real return with little risk to their capital. The more recent period of positive real money market returns coincided with a period of disappointing returns from growth assets (equities and property), with the result that more and more investors switched their growth asset exposure to cash. This action has only accelerated after the recent equity market collapse. Some observations The SA repurchase (repo) rate is the key monetary policy tool used by the SA Reserve Bank (SARB) to control inflation. As inflation rises (or is predicted to), so the SARB responds by raising the repo rate, and as inflation falls (or is predicted…

RAUBEX Beware the risk Raubex is one of the few remaining construction stocks left on the JSE. It published decent results for the year ended 29 February at the end of May and commented that it has seen an increase in tender activity in the last few months. Raubex is also well-positioned to benefit from the Integrated Resource Plan programme approved by Cabinet in October 2019, but which is not yet out on tender. Another opportunity is the likely infrastructure spending planned by the government to help mitigate the economic impact of theCovid-19 pandemic and lockdown. So, the sector could start seeing some work returning. However, the problem is that after years of little activity in the construction space there is certainly an oversupply of potential bidders for any work…

As with owning a house or car, pet care can become quite an expense. “The obvious concern that always comes to mind is the situation where a pet parent has to compromise on the care, or even has to euthanise their pet, because they can’t afford the vet bill that would follow a surgery or treatment,” says Ansu Clarke, marketing manager at Dotsure. Clarke tells finweek the insurer is fast closing in on 150 000 pet insurance policies taken out and has already paid out more than R80m in claims to South African pet owners. “Veterinary expenses are not decreasing since the medicines and machinery that they use often need to be even more complex or sophisticated than those used by human doctors. We just want to allow and pet…

Cathy Mohlahlana @CathyMohlahlana Can someone please explain, why Tupperware thieves always leave the lids? Acab @leonardcowalski Golf courses are like dog parks where you can take your dad to let him run and play and have a good time with all the other dads. John Fritchey @johnfritchey Canada must feel like they live in an apartment above a meth lab. Lucie Steiner @TheSteinbag Every bartender I’ve ever met is better at de-escalating conflict than the police. Tim Siedell @badbanana On the bright side, I’m saving a lot of money by only having to dry clean the front half of my work shirts. David Burr Gerrard @DBGerrard Future historians will be asked which quarter of 2020 they specialise in. Dan Skinner @danielrskinner “I’m an early Covid-19 era specialist, with particular expertise…