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from the editor contents

JACO VISSER Opinion

i his week’s cover story, finweek journalist,Timothy Rangongo, takes a 5 Job replacement and artificial intelligence
oser look at the cannabis market. Why, you may rightly ask, did we decide
an article on cannabis? The answer is simple: It could mean enormous In brief
benefits for the South African economy.
According to KPMG, the global market for CBD (a chemical component in 6 News in numbers
cannabis) is worth about $8.2bn. Should SA, with its highly suitable climate, 8 Catering for millennials’ residential needs
be able to supply this market, it could lead to considerable economic benefits 9 The aluminium bull might be rearing its head
and poverty alleviation. 10 Big miners’ boost to tax takes
Large areas in the former homelands, especially in the Eastern Cape and 11 Agriculture exports support SA balance of trade
KwaZulu-Natal, are ripe for the cultivation of cannabis. Owing to the high value
of the product – it sells for about $4 700/kg (R65 800) – small-scale farmers Marketplace
could also benefit substantially from this.
SA already has a well-regulated medical framework within which 14 Fund in Focus: Ngwedi Interest Income SNN Fund
this cultivation could take place. Cooperation between the department 15 House View: BHP, JSE
of agriculture and the medicine regulator (and may we wish for speedy 16 Killer Trade: Massmart
cooperation and implementation?) could result in the tapping of this 17 Invest DIY: Imagine a disruptive business model
enormous market of some $8.2bn. Even one tenth of this figure is a lot of 18 Simon Says: Alexander Forbes, cement
money that could contribute annually to the SA economy, which comes to
about $350bn. Not to mention how it could support and grow the rural producers, Growthpoint, Hudaco, Old Mutual,
economy. When we apply the multiplier effect of agricultural production to the Omnia, Stenprop, trade, US interest rates
rest of the economic value chain, then indeed it could bring about real change, 20 Investment: SA’s telecoms stocks pose value
economic growth, poverty alleviation and a reduction of income inequality. In 21 Investment: Momentum behind central banks’
addition, the export of cannabis could also support the rand. gold buying could last longer
This scenario for the cultivation of cannabis is not far-fetched. SA has 22 Share View: How to deal with market uncertainty
enough land and water in the eastern parts of the Eastern Cape, KwaZulu- 24 Trader’s Corner: Tencent Music Entertainment
Natal and Limpopo. The question is only whether we have the political will to rules the music coop
realise this scenario very quickly without dirty money having to change hands, 26 Invest DIY: Is the end of Eskom nigh?
with politicians who depend on patronage. 27 Investment: Three emerging market stocks
Just imagine how many lives could be changed should cannabis to watch
cultivation be implemented quickly – then the potential could be converted 28 Investment: Naspers, Prosus post strong growth
into tangible benefits. ■
Cover

30 Cash, cash, pot ... really?

In depth

36 Considering your retirement options
40 Namibia moving to centre of green metals mining

On the money

42 Motoring: Taking the Mazda CX-30 to the road
44 Personal Finance: Generation Z’s money matters
46 Piker, quiz and crossword

opinion

By Johan Fourie

TECHNOLOGY

Job replacement and artificial intelligence

o Have robots already taken over jobs and is it happening in South Africa?
ne of the existential questions of our time must surely AVERAGE DEVELOPER SALARY BY HIGHEST EDUCATION LEVEL
be: Will artificial intelligence (AI) replace me at work?
The good news for those who wake up in a cold sweat at Monthly salary

R100k

night is that it is not happening (yet). Four of the world’s

leading economists, Daron Acemoglu, David Autor, Jonathan Hazell R80k

and Pascual Restrepo, recently published an NBER Working Paper to R60k
find out whether robots have already started taking over.

To answer this, they firstly show that between 2010 and 2018, R40k
there has been a rapid increase in job vacancies related to AI. That

is, of course, good news for those who can talk to robots (i.e the AI R20k

programmers). They then classify the extent to which companies in R0 Years of experience coding professionally
their sample are “AI exposed”. The first interesting result is that these

companies are found in all industries, not just companies in what is 0-1 1-2 2-4 1-6 6-10 10-15 15+

traditionally considered the tech industry. High school Incomplete university degree Undergraduate Honours

A second interesting result is that AI-exposed companies are SOURCE: www.offerzen.com/reports/software-developer-south-africa#education

more likely to reduce vacancies for skills that they have previously

advertised, while simultaneously posting vacancies requiring skills not engineers working on Google’s search engine now than ever before. And as

previously listed. In other words, AI-exposed firms have reduced their more software gets created it enables even more software to be created.

hiring of non-AI positions even as they expand AI hiring. The point Open source software, such as Linux, Ruby on Rails and thousands of

is that the tasks that humans must perform are changing, but there other libraries, enabled us to develop OfferZen. Commercial software

is not yet any detectable change in the aggregate number of jobs or services, such as Amazon Web Service and Twilio, provide building blocks

wages. Humans are working with the robots, rather than against them. that make software development faster and easier.

Is this happening in SA too? To answer this, I met up with Malan “Secondly, software development is a craft. Software development

Joubert, who co-founded OfferZen, a recruitment platform for tech is unique, since in many ways it is closer to a craft, like carpentry or

jobs that is now expanding, as Joubert calls it, to “middle earth” (i.e. painting, than it is to a career, like accounting or law. Every table or

countries such as the Netherlands that fall roughly on the same time chair a carpenter makes is unique, and that is what gives it its distinct

zone). Much like the Luddites of old, I ask Joubert whether there is value. ‘Mass production’ in software is meaningless. Code is only

reason to fear that AI will replace workers? useful if it is unique.”

“I actually have quite a bit of empathy with the Luddites. I am a We have a huge unemployment problem. I ask Joubert whether

big fan of Bruce Springsteen, and particularly like Young’s software development can help alleviate this?

Town. For the iron workers in Young’s Town, and the “We have found some interesting things in terms of

19th century textile workers in England, the economic employment and skills in the tech sector specifically. As

argument about the ‘Luddite fallacy’ – the idea that seen in the graph, formal education doesn’t seem to be a

innovation would have lasting harmful effects on large predictor of developer salaries.

employment – did not help much. On an individual “In effect, you can think of the time spent at

level, the change came too quickly for those university as equivalent to time spent learning

workers to adapt. On a macro level, technological coding on the job. In essence, a four-year degree

progress is a massive positive, but I do believe starts you off where someone without a degree

there is a social need and responsibility to help would be after about four years of employment. This

people adapt. Teaching software development skills is one of the things I find so exciting about software

is a massive industry, one that will only get bigger.” development; it’s much more feasible to have a great

Although OfferZen is not in the business of training, career in software without formal training, than it is in, for

it is in the business of matching those with tech skills to example, law, accounting or medicine.”

companies with tech jobs. Why the focus on software development? Joubert’s remarks raise as many questions as they answer. If a

“As a recent Stripe report noted, access to developers is a bigger four-year degree is equivalent to four years of employment, should we

threat nowadays to business success than access to capital. Software not encourage more matriculants to avoid an expensive (and often

development is a critical skillset; universally there are more tech unsuccessful) university education altogether? How can we expand

jobs than people who can do the work. It is this demand and supply training programmes to more at lower costs? Is the root of SA’s economic

imbalance that makes OfferZen work. I think there are two ways in turnaround perhaps to be found in the most unlikely of tasks: using

Photo: Shutterstock which software development is different from most other work. robots to equip the next generation with the skills to talk back to them? ■

“Firstly, there is infinite demand for software. People used to think [email protected]

that software gets ‘done’, but it turns out that almost every bit of Johan Fourie is professor of economics at Stellenbosch University and author of Our Long Walk
software can keep being improved and iterated on. There are more to Economic Freedom (Tafelberg, 2021)

@finweek finweek finweekmagazine finweek 9 July 2021 5

in brief >> Trend: New co-living development in Cape Town p.8
>> Mining: Catch-22 situation with aluminium p.9
>> Mining: Miners’ cash generation keeps everyone happy p.10
>> Agriculture: Strong performance of agri sector p.11

EDITORIAL & SALES “MISHAPS
COULD
Acting Editor Jaco Visser Managing Editor HAVE BEEN
Zerelda Esterhuizen Journalists and Contributors AVOIDED.”
Feroz Basa, Simon Brown, Jacques Claassen,
Amy Degenhardt, Johan Fourie, Moxima Gama, – Trevor Manuel, former finance minister, said government’s response to the
Glenneis Kriel, Schalk Louw, Paul Marais, David pandemic was imperfect and that some mishaps could have been avoided, while
McKay, Timothy Rangongo, Petri Redelinghuys, others were out of its control. Manuel was addressing the Centre for Development
Peet Serfontein, Melusi Tshabalala, Glenda and Enterprise’s webinar, which was themed “South Africa and the next five years:
Williams Sub-Editor Ellen Hugo Layout Artists How do we resolve our political and economic crises?”. He emphasised that the
David Kyslinger, Beku Mbotoli, Mini Zwane decisions taken over the next five years are fundamentally important. On issues
Advertising Paul Goddard 082 650 9231/paul@ which the pandemic has exposed, such as rampant corruption, Manuel said SA is
fivetwelve.co.za, Tanya Finch 082 961 9429/ left as a weak state.
[email protected], Nina Frank 084 434
7776/ [email protected] Publisher Sandra “ITWAS DELIBERATE.”
Ladas [email protected] General
Manager Dev Naidoo Production Angela Silver – Strive Masiyiwa, telecommunications billionaire from Kenya, said during
[email protected] a virtual summit on vaccine equality and equitable distribution, the shortage of
Covid-19 vaccine doses on the African continent is a consequence of deliberate
Published by New Media, a division of Media24 (Pty) Ltd action by the world’s richest nations. He said that “those with resources pushed
Johannesburg Office: Ground floor, Media Park, 69 Kingsway their way to the front of the queue and took control of their production assets,”
Avenue, Auckland Park, 2092 Postal Address: PO Box 784698, and that he was told by vaccine manufacturers in December “all capacity for 2021
Sandton, Johannesburg, 2146 Tel: +27 (0)11 713 9601 Head has been sold.” Less than 1% of Africa’s population has been fully vaccinated,
Office: New Media House, 19 Bree Street, Cape Town, 8001 according to the World Health Organization (WHO).
Postal Address: PO Box 440, Green Point, Cape Town, 8051
Tel: +27 (0)21 417 1111 Fax: +27 (0)21 417 1112 “It is in the best interests of our
Email: [email protected] shareholders to dispose of … our
stake in Nedbank.”
Printed by CTP Printers, Cape Town and Distributed by
On The Dot Website: http://www.fin24.com/finweek – Iain Williamson, Old Mutual CEO, said the insurer’s decision to unbundle a 12.2%
Overseas Subscribers: +27 21 405 1905/7 stake in Nedbank would be in shareholders’ best interests. Old Mutual announced
it would distribute about R10bn in shares in the lender among its shareholders,
ENQUIRIES reducing its stake in the bank to 7.2%. This simplifies the Old Mutual group and
“provides a substantial return of capital to shareholders”, the company said in a
SUBSCRIBERS Fax SHOPS statement. The insurer once held a 54% stake in Nedbank but unbundled most of it
087-353-1305 0864-575-918 0861-888-989 in a so-called managed separation process in 2018.
[email protected] [email protected]

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6 finweek 9 July 2021 www.fin24.com/finweek

THE DOUBLE TAKE BY RICO
GOOD

The 16-member Southern African
Development Community (SADC)
approved the deployment of troops
to Mozambique to help it combat
an escalating Islamic State-linked
insurgency that threatens stability in
the region. SADC has approved the
deployment of its standby force to help
“Mozambique to combat terrorism”,
SADC executive secretary Stergomena
Lawrence Tax said, following a meeting
of the bloc’s leaders in Maputo. The
standby force is part of a regional
defence pact that allows military
intervention to prevent the spread of
conflict. The fighting displaced about
800 000 people and stopped Total’s
$20bn natural gas project.

Photo: Gallo/Getty Images THE MANUFACTURERS MORE OPTIMISTIC CONFIDENCE SLUMPS
BAD
46 points -13 points
The rate that people defaulted on their
loans increased in the first quarter Absa’s manufacturing survey for the second SA’s Consumer Confidence Index slipped
of 2021, according to the Experian quarter of 2021 indicated rising confidence among further in the second quarter, as the country’s
Consumer Default Index (CDI). The manufacturers. According to the survey, there economic recovery slowed and people held back
index deteriorated from 4.02 in was a significant improvement in overall sector on big-ticket purchases such as vehicles and
December last year to a reading of 4.33 confidence, with business confidence rising by 21 electronics. The index, sponsored by FNB and
in March 2021, as people struggled to 46 index points during the quarter, the highest compiled by the Bureau for Economic Research
to keep up with payments. Jaco van level since 2012. “The increase was largely driven (BER), fell to -13 points from -9 points in the
Jaarsveldt, chief decision analytics by strong selling price hikes and output increases,” first quarter. “A string of negative developments
officer at Experian Africa, said “this said Justin Schmidt, head of manufacturing sector in all likelihood knocked the confidence levels
deterioration is primarily due to the at Absa’s retail and business bank division. “Better of less affluent consumers, including soaring
increase in business volumes during than expected demand resulted in higher capacity food and fuel prices, the onset of a third wave of
the latter parts of 2020 when strict utilisation and early indications suggest that this may Covid-19 infections ... and the feeble recovery
lockdown rules were relaxed at the end continue – manufacturers are positive about the in low-skilled employment,” said FNB chief
of the second Covid wave – particularly export outlook over the next 12 months.” economist, Mamello Matikinca-Ngwenya.
for credit cards and personal loans over
the Black Friday and festive season NET WEALTH IN SA SA INFLATION ACCELERATES
period in 2020.”
R8tr 5.2%
THE
UGLY SA households’ net wealth is estimated to have Inflation increased by 5.2% year on year in May
grown to a record R8tr in the first quarter of 2021, after posting a 4.4% rise in April. While
At the time of writing, statistics show 2021, according to the recently released South inflation in SA is still within the central bank’s
that the seven-day average of new African Household Wealth Index by Momentum target range, Reserve Bank governor Lesetja
Covid-19 cases for SA surged above and Unisa. The increase, since the first quarter Kganyago has stated the intention to maintain
15 000, notably surpassing the peak of 2020, amounts to R1.3tr, and follows the it closer to the midpoint and he may therefore
of the first wave. The positive test rate sharp decline caused by the Covid-19 pandemic be tempted to consider a rate hike, said Luigi
rose to an alarming 27%, implying that and initial hard lockdown (level 5), according to Marinus, portfolio manager at PPS Investments
more than one out of four Covid-19 tests the survey. It attributed the increase to a strong in a note. “With the rise in inflation over the
are positive, according to the Bureau for recovery in the real value of household financial past two months, South Africans should not be
Economic Research (BER). The positive assets, such as deposits, pension funds and surprised if we do see a first interest rate hike
test rate should be at 5% for a pandemic other investments. before the end of the year.”
to be under control, according to the
WHO. The department of health said it
expects the third wave to be worse than
the second, and may also last longer
than the previous two waves.

@finweek finweek finweekmagazine finweek 9 July 2021 7

By Glenneis Kriel trend

Catering for millennials’
residential needs

What is co-living and why is it attractive to those born after the early 1980s?

Photos: Supplied I www.devmark.co.za m  illennials in expensivecities, Hein Ehlers A street view perspective of YUCO and the formal lounge.
such as New York, London and CEO of Devmark
Hong Kong, have modernised Property Group precinct, an 11.4 ha mixed-use property, located in
the concept of house sharing the northern suburbs of Cape Town.
into a new trend called co-living, taking non-exiting, Dejane Steyl
unfinished house sharing to upscale, fully furnished Head of marketing at “Galleria is set to become a vibrant new urban hub,
hotel-sized living spaces with shared amenities. Devmark Property Group a centralised destination in Bellville, for businesspeople,
After seeing some co-living spaces during a visit corporations, retailers, event organisers, tourists
to Amsterdam, Hein Ehlers, the CEO of Devmark and locals. It will include a 4-star hotel, retail and
Property Group, decided to launch a similar commercial space, lifestyle and leisure attractions, as
development in South Africa. well as YUCO,” Steyl says.
“Ehlers realised the solution not only rendered
housing more affordable to buy and rent, but also Part of the precinct’s allure is its proximity to
addressed millennials’ sense of community, which various higher education centres, multiple transit
is enjoying an even higher premium now because routes and services, and all of this against the
of the isolation experienced during the Covid-19 backdrop of the Winelands. It also is at the centre of
lockdown,” says Dejane Steyl, head of marketing at CapeTown’ second city bowl area.
Devmark Property Group.
The name YUCO was chosen for the development, “The development fits well with millennials’ desire
as acronym for “your urban co-living space.” to create memories and experiences by offering great
access to hiking and mountain biking routes, as well as
The allure wine farms for fine dining and wine tasting,” Steyl says.

Steyl says that a few other co-living developments The offering
have been launched in SA, but nothing comparable
with YUCO. The studios range from 18.7 m2 to 26.1 m2 in size, with
prices ranging from R659 000 to R1.05m.
“With most of the other attempts people had
their own studio apartments, with shared access Building has not yet started, but the development
to a coffee shop, gym, swimming pool or barbeque is destined to house its first occupants by mid-2023.
areas. We are taking this a step further by also
including communal meeting, study, lounge and play “As with all real estate, sales have been
areas, as well as a communal kitchen on each floor. negatively affected by the Covid-19 lockdown, but
In addition, the 380 studios on offer will be fully- it has picked up well since then and living up to our
furnished and serviced weekly.” expectations,” Steyl says.

The development forms part of the new Galleria Investors who bought the property before
June were able to convert 100% of their tax bill
8 finweek 9 July 2021 into a 12J Property investment by choosing the
12 J investment option. Steyl foresees that all the
properties will be sold out before investors will have
the opportunity to do so again next year. ■
[email protected]

www.fin24.com/finweek

in brief in the news

By David McKay

MINING

The aluminium bull might be
rearing its head

There is a big demand for aluminium, but its own production is carbon intensive.

Photos: Shutterstock | South32 s  outh32, an Australian-headquartered, Graham Kerr Sheets of aluminium at a factory.
diversified mining company listed on the CEO of South 32
JSE, has tended to take the back seat when think about SA, if you can keep Hillside, and we’ve got
it comes to the commodity price euphoria The hope is that Mozal in Mozambique, I think this would position us
attached to mining shares. future pricing uniquely well to go into Europe. I believe that’s going
This is probably down to the fact that it doesn’t of aluminium to be a major component ...” of South32’s short-term
have the minerals and metals – namely iron ore and will capture a growth strategy, said Kerr. It also helps reverse the
copper – that’s been causing the stir in the mining “green margin” narrative that South32 is ex-growth in SA, following the
universe. Instead, South32 produces things like to incentivise divestment in June of its 92%-owned South African
aluminium and metallurgical coal, and until recently, the investment in Energy Coal to Seriti Resources, and the closure last year
unpopular thermal coal. It does, though, mine nickel and expensive green of its manganese alloy facilities in Gauteng’s Meyerton.
zinc in Colombia and Australia respectively. production, whilst
The share’s popularity, however, could be due for also meeting This optimism about aluminium does come with
an upswing if Graham Kerr, CEO of South32, is right growing demand. a rider, however. At the heart of the surge in green
that there are grounds for an improvement in the aluminium demand lies a paradox, according to a report
aluminium price. There has been major demand for by Goldman Sachs.The metal is a key input required
aluminium, but equally significant supply, especially to produce decarbonising technologies, yet its own
from China. Beijing’s drive to improve carbon production is very carbon intensive.
emissions, however, will retard the country’s ability to
respond to future aluminium demand peaks. According to the bank, producing aluminium
“I think it’s going to be the absolute metal of the generates 2% of all global emissions.The hope is that
future,” says Kerr of aluminium, which is mined as bauxite future pricing of aluminium will capture a “green margin”
ore and processed to produce alumina, an oxide. Alumina to incentivise investment in expensive green production,
then, is smelted into aluminium, which South32 does at whilst also meeting growing demand.
its Hillside and Mozal facilities in South Africa’s Richards
Bay facility and the Mozal plant in Mozambique. Kerr described the SA government’s decision to lift
Aluminium is lightweight and is a potential substitute the threshold for unlicenced self-generated electricity to
for copper, the price of which has recently scaled ten-year 100MW from 10MW as “a positive surprise” and whilst it
highs. Aluminium has lower conductivity than copper, but doesn’t directly assist with creating energy alternatives
its combination with other metals can compensate for for Hillside’s power-intensive manufacturing – where a
this. “You can see the price run is people starting to have new ten-year power deal is currently being assessed by
that realisation,” says Kerr. Nersa – it will provide Eskom with the time to focus on
Goldman Sachs said in a recent report that aluminium grid flexibility and efficiency.
was “... in the early stages of a multi-year bull market”.
By way of illustration, prices for aluminium were likely to More efficient, greener power means more competitive
average $2 450 per ton this year rising to an average of aluminium in car parts, which will fall under carbon tax
$3 250/t in 2023, the bank said. scrutiny, especially by customers in developed economies.
This is good news for SA and Mozambique. “If you
“Hillside sells roughly 30% of the product domestically,
which obviously goes to Hulamin,” says Kerr. “A lot of that
product will end up as car parts and if those parts are
going to continue to be used in the making of cars that
go into Europe, they need to find a way or else they’re
going to put tariffs on them.” ■
[email protected]

@finweek finweek finweekmagazine finweek 9 July 2021 9

in brief in the news

By David McKay

MINING

Big miners’ boost to tax takes

t Improved cash generation from miners keeps investors happy and governments too with their tax obligations.
he European diversified minerals and 2020, owing to the out-performance of its
metals sector, represented on the JSE by 80%-owned Anglo American Platinum and
the likes of Anglo American, Glencore and its 70% stake in Kumba Iron Ore. Anglo pays

BHP, will generate the best cash flow of on average a 30% tax rate. Almost 97% of its

the last ten years, analysts say. taxes are paid in the country of production.

“By year-end, we estimate that our ten Big “The one thing I can say pretty confidently

Miners may have surplus capital to the tune ... that in the current market I think our tax

of $100bn, approximately 15% of the group contribution to SA is going to be quite material,”

total market capitalisation,” said the Bank of said Cutifani. “Obviously, I can’t tell you what

America in a recent report. it is because you can work backwards pretty

This cash generation is largely owing to quickly. But I can tell you, it’s a serious number.

the performance of iron ore and copper for “When we come out with the half year,

the likes, and – in the case of Anglo American we’ll share those numbers and we hope that

– the recovery in the that helps SA deal with

diamond market, which “By year-end, we estimate that our ten Big some of its obligations,”
was the only drag of Miners may have surplus capital to the tune of Cutifani said. “So SA gets

significance the company $100bn, a big whack of taxes from
faced in its previous us. I’m pleased to pay tax
financial year. when we’re doing well, the
country does well, and we
According to a separate

report by Goldman Sachs, approximately 15% of the group do well together.” Mark Cutifani
diversified miners will total market capitalisation.” Of course, the issue of CEO of Anglo
generate $109bn in free
cash this year, resulting in the tax-take is a critical American
one given the rise again of

a free cash yield – money paid to shareholders resource nationalism, so Cutifani speaks with

as a percentage of cash generated – at about purpose. In particular, the narrow victory of

10%. “We see scope for distributions on the leftist candidate Pedro Castillo in Peru’s recent “So SA gets a big
upside,” Goldman Sachs said on the prospect national elections may put royalties and greater

of better dividend payments and perhaps even state participation in private sector ventures whack of taxes
special dividends. back on the agenda. from us. I’m pleased

Perhaps even better news is that more Anglo is building the $5bn Quellaveco to pay tax when
of the same is expected from the copper mine in the South American
mining giants in future years. country. As a producer of copper,

Having repaired their balance and a major component of we’re doing well,
sheets from the debt crisis of Anglo’s growth story, fiscal

2014/2015, and with little change is likely to be greeted the country does
in the way of expansion with watchful caution. well, and we do
projects, these companies well together.”
are now viewed as safe bets The same may come around
in terms of yield. in Chile where national elections
are due to kick off later this year.

Apart from rebuilding the Anglo operates the Los Bronces

confidence of investors, the and Collahuasi mines in the

improved cash generation also country, also copper producers.

helps with the rebrand of mining as a Said Cutifani: “We’ll talk about

force for good in society, not least of which is that at the half-year. We’ll give a bit of time

Photos: Shutterstock | Anglo American the tax-take that flows from its profits. to that because I think where you look at

Mark Cutifani, CEO of Anglo American, told Chile and Peru, they’re talking about maybe

finweek in a recent interview that the group changing one or two things. When they see

was going to generate some “serious” cash the extra benefits coming from the copper

when it reports its interim numbers, for the six price, hopefully that will help balance the

months ended 30 June, on 29 July. conversation because we’re certainly paying,

South African assets accounted for 55% we think, a pretty good contribution of tax.” ■

of Anglo American’s full-year earnings in [email protected]

10 finweek 9 July 2021 www.fin24.com/finweek

in brief agriculture

By Jacques Claassen

ECONOMY

Agriculture exports support

SA balance of trade

i The strong performance of the local agricultural sector is expected to be repeated this year.
n 2020 the absolute value of agriculture exports increased by about was about 9% bigger than 2020’s figure. Export volumes of closer to
18% to R169.2bn compared to 2019’s R143.2bn. In addition, figures 400m litres are, therefore, expected for 2021.
released by the International Trading Centre (ITC) indicate that the

value of South Africa’s agriculture imports increased by a mere R95bn Stone and kernel fruit

in 2019 to R97.9bn in 2020 – a tiny increase of R2.9%. So, the sector’s In the 2020/2021 season for stone fruit, the export of plums by

positive balance of trade of R71.3bn in 2020 was an enormous 47.9% volume increased with 71%, while the volumes of nectarines, peaches

higher than 2019’s R48.2bn. and apricots were 29%, 22% and 93% higher respectively than in the

In 2020, the top ten destinations for SA agriculture exports 2019/2020 season. According to Nina Viljoen of Hortgro, the export

were the Netherlands, Britain, Botswana, Namibia, Mozambique, volumes of apples and peaches were expected to increase by 8% and

Zimbabwe, China, the US, Lesotho and the United Arab Emirates. 3% respectively in the 2021 season for kernel fruit.

Citrus Table grapes

The citrus industry exported about 15% more by volume Compared to a previous record of 65.4m cartons in

in 2020, namely 146m cartons (15kg each) against 2016/2017, the export of table grapes increased to a

126.6m cartons in 2019. Exports are expected to new record level of 72.2m cartons by volume in the

increase to 160m cartons this year. 2020/2021 season. The gross export earnings were

According to Deon Joubert, an export trade estimated at R11bn.

delegate, the export earnings for citrus increased from According to Willem Bestbier of the SA Table Grape

R20bn in 2019 to R25bn in 2020. After Spain, SA is Industry, the net farm income was disappointing, owing

the world’s second biggest exporter of citrus fruit. to global disruption, local logistical and climatic problems

Summer grains Christo van der Rheede that partly affected the quality of the fruit and its ability
Executive director to retain its quality, as well as concommitant claims. In
According to Luan van der Walt of Grain SA, SA was the of Agri SA addition, a stronger rand has put further pressure on export
earnings since the beginning of 2021.
world’s ninth biggest maize producer in 2020, but the

seventh biggest exporter of this commodity. Based on reported export

figures and the SARS free-on-board reported values, the estimated Winter grains

value of SA’s maize exports came to R9.6bn in 2020. SA is a net importer of wheat. Nevertheless, the wheat crop of

The total maize exports for the 2020/2021 season (from May 2.109m tonnes in the 2020/2021 season is the biggest since

2020 to April 2021) were 2.5m tonnes. A total of 1.38 m tonnes were 2008/2009. In addition, the 2020/2021 season also produced an

exported to other African countries. The balance, which consisted excellent crop of 165 00t of canola with very good producer prices

mainly of yellow maize, was exported to, among others, South Korea, being attained. Just like last year, the production conditions in

Taiwan, Japan and Vietnam. This year’s expected the Western Cape look very promising with the best

total maize yield of 16.18m tonnes will be 5.7% more This performance was germination in years. With the profitability of locally
than 2020’s 15.3m. SA consumes about 11.5m tonnes attained despite the produced wheat, which cannot compete with Russia’s
of maize annually. At the time of writing, a total of Covid-19 trade restrictions production, it would seem that canola could become an
467 141t of maize had already been exported in the and a slight decline of important component in the local winter grain basket –

2021/2022 season (which kicked off in May) while a 0.2% for human and animal consumption.
further approximately 800 000t are expected to be in export volumes, which
exported in the following eight weeks. came to 319.2 m litres. On close examination

In the summer-sowing areas, the soybean crop is SA’s net balance of trade in respect of all products,
also expected to be 54% bigger this year, while the increased by an enormous 773% from a mere R31.8bn
international prices for summer grain crops are still in 2019 to R277.7bn in 2020.This was thanks to total

performing relatively well. exports that increased from R1 305bn to R1 401bn, while

Wine all imports declined by R150bn to R1 123bn
Christo van der Rheede, Agri SA’s executive director, points out

According to Maryna Calow of Wines of South Africa, the wine that the agricultural sector made up 25.68% of SA’s net balance for

industry’s export earnings grew by 7.7% under extremely complex trade of all products. This was despite Covid-19 regulations, which

Photo: Agri SA circumstances to R9.1bn. This performance was attained despite especially impaired the game and wine industries and to a lesser

the Covid-19 trade restrictions and a slight decline of 0.2% in export extent also the wool and cotton indiustries. ■

volumes, which came to 319.2m litres. This year’s wine grape crop [email protected]

@finweek finweek finweekmagazine finweek 9 July 2021 11

Annual results announcement

for the year ended 31 March 2021

Naspers Limited (Registration number: 1925/001431/06) www.naspers.com
(Naspers or the group)
JSE share code: NPN ISIN: ZAE000015889
LSE code: NPSN ISIN: US6315122092

COMMENTARY

Our Board is immensely proud of what our people achieved during the past year. They managed the pandemic, delivered powerful revenue growth and lifted profitability. Foundations were
laid for future growth.

The year ended 31 March 2021 (FY21) was an extraordinary period. Despite the challenges, the group has delivered strong results across its portfolio and made good progress against its
strategy. Group revenue, measured on an economic-interest basis, grew 34% (32%) to US$29.6bn, a meaningful acceleration of 17pp (9pp) on the same period last year. Group trading profit
grew 49% (45%) to US$5.6bn.

Seven years ago, we set out a strategy to build valuable, global consumer internet businesses. We focus on high-growth markets, where our platforms can provide useful products and services
for millions of people in their everyday lives. In recent years, we have deliberately repositioned the group for an increasingly online world and invested effectively to accelerate growth and
deliver good returns across our portfolio.

Over the past 12 months, this strategy and the momentum we have built has paid off. The group has benefited from its online focus, its global reach, diversified operations and strong finan-
cial footing. Our teams have also adapted well to the changing operating environment.

This has meant we have been well placed to effectively respond to the world’s increased demand for online products and services triggered by Covid-19. Our businesses across online classi-
fieds, food delivery, payments and finance technology, education technology and online retail have continued to serve and support their customers and communities. We have also identified
promising adjacencies for our existing businesses as well as new business models through our global Ventures team.

In FY21 our businesses grew stronger, building on the momentum they had at the end of the previous year. For some businesses, there was an initial adverse impact in the face of early
lockdowns and restrictions. We adapted quickly, and as restrictions eased and the pandemic drove more people online, we were ready to meet heightened consumer demand with products
and services that helped people and their communities through difficult times. At a local level, we also provided additional support to our people, partners, customers, communities and in
some cases, governments, to help our stakeholders respond to Covid-19. Separately, we enhanced our commitment to environmental and social issues, and we are carbon-neutral as a group,
having offset our emissions for the past financial year.

During the period, we accelerated revenue growth, improved profitability and cash generation, and grew customer numbers. All core Ecommerce segments made progress against their
financial and strategic objectives. Classifieds performed well under tough circumstances and recovered in the second half, regaining financial and operational momentum by focusing on
continued innovation with products that support users along their transaction journey. Food Delivery and Etail performed exceptionally well as customers shifted from offline to online. After an
initial drop in volumes in India as the country entered lockdown, our Payments and Fintech business rebounded, reflected in accelerating volumes. Finally, our investments in Edtech began to
bear fruit, driven by increased adoption by students working from home.

Tencent recorded another strong financial performance. We believe it remains very well positioned for growth. We remain committed long-term investors in Tencent.

We are focused on building further value across our businesses and see significant upside in some new opportunities in which we have invested. Notably, in adding the autos transaction busi-
nesses to our Classifieds operations, a broader on-demand delivery ecosystem in our Food Delivery segment, expanding into digital banking in Payments and Fintech, and in the promising
new segment of Edtech, which will be reported on from 1 April 2021.

Over the years, we have increased our financial flexibility, allowing the group to pursue its growth objectives. This has enabled us to invest in expansion and in ourselves. To illustrate this,
we announced a US$5bn share purchase programme of Naspers and Prosus stock. This was implemented through on-market acquisitions of US$1.4bn Prosus N ordinary shares, completed in
February 2021. In addition, US$3.6bn Naspers N ordinary shares, which will be completed by the end of June 2021.

On 12 May 2021, Prosus announced a voluntary share exchange offer to acquire 45.4% of Naspers shares. We believe this is a useful step in unlocking value for both Naspers and Prosus
shareholders by reducing Naspers’s outsized weighting on the Johannesburg stock exchange (JSE). It will help Prosus in more than doubling its free float on the stock market to 59.7%. Naspers
shareholders will derive immediate value accretion from exchanging their shares into the lesser-discounted Prosus shares. This value should compound at a lower discount over time as
Prosus’s value grows. Naspers shareholders should also benefit from net asset value (NAV) accretion at the Prosus level. Importantly, while we are resizing Naspers on the JSE for the long
term, it remains the largest company in South Africa by market capitalisation. For Prosus shareholders, buying Naspers shares at a higher discount will be NAV accretive, as Prosus will buy
high-discount shares with lower-discount shares. The transaction should unlock billions of dollars of value and assist future value creation. Further, it addresses a driver of Naspers’s discount
by almost halving its index weighting, while remaining South Africa’s most valuable company on the JSE. In addition, it improves Prosus’s investment profile, increasing its free float’s economic
exposure to NAV by over 100%. It is backed by a US$5bn buyback to support the transaction and stimulate orderly trading. The transaction is expected to close in the third quarter of 2021. For
further details, please go to https://www.share-exchange-offer.com/.

Given the wide geographical span of our operations as well as significant M&A (mergers and acquisitions) in Ecommerce reported earnings are materially impacted by foreign exchange
movements and the effects of acquisitions and disposals. Where relevant in this report, we have adjusted for these effects. These adjustments (pro forma financial information) are quoted in
brackets after the equivalent metrics reported under International Financial Reporting Standards (IFRS) and is provided in the summarised consolidated financial statements.

The following segmental reviews are prepared on an economic-interest basis (which includes consolidated subsidiaries and a proportionate consolidation of associates and joint ventures),
unless otherwise stated.

FINANCIAL REVIEW

The group financial highlights for the year ended 31 March 2021 are outlined below:

Year ended 31 March

2020 2021 2021 2021 2021 2021 2021 2021
A B C D E F2 G3 H4

IFRS1 Group Group Foreign Local IFRS1 Local IFRS
US$’m composition composition currency currency US$’m currency % change
adjustment
disposal acquisition growth 6 849 growth 46
adjustment adjustment US$’m US$’m 1 609 % change 24
35
US$’m US$’m 577 55 98
1 486 18 63
Revenue 4 680 (353) 481 (325) 2 366 2 856 36 (100)
Ecommerce 1 299 (115) 310 (93) 208 >100
– Classifieds (28) 151 – 57 7
– Payments and Fintech 428 (11) 37 (189) 935 321 31
– Food Delivery 751 (17) 6 25 991 22 526 – 32
– Etail 1 756 (11) 95 – – 22 155 33 (10)
– Travel 146 (146) – (40) 81 371 28 (22)
– Other 300 (53) 33 736 211 28
Social and Internet Platforms 17 189 (115) – 786 4 716 21 –
– Tencent 16 779 (54) – (50) 4 644 – (19) 100
– Mail.ru 410 (61) – (14) – –
Media 272 4 – 72 29 586 80 34
Corporate segment – – 1 (51) 32
Intersegmental – – – 398 (439) 47
(5) – – 15 49 (66)
485 (19) 4 (68) (9)
Group economic interest 22 136 (468) (28) 7 035 6 (1)
Trading profit (50) (355) 42 43
Ecommerce (823) 100 (38) (3) 353 61 >100 >100
– Classifieds 44 45 (2) (8) – – 100
– Payments and Fintech (67) 5 (7) 3 4 (92) (17) (1)
– Food Delivery 17 (3) – 29 31
– Etail (624) 8 (2) 11 257 6 154 29 33
(63) – 190 115 6 126 (22) (71)
– 194 <(100) <(100)
– Travel (22) 22 – (4) – 28 3
– Other (91) 3 – 3 (15) (8) 45 4
Social and Internet Platforms 4 699 – 4 1 337 (152) 49
– Tencent 4 601 (72) – 178 1 346 5 555
– Mail.ru 98 (15) (1) (9)
Media (57) (51) (19)
8
– 4 [(F/A)-1] X 100. 4
1 675
Corporate segment (159) –
Group economic interest 3 725 28

1 Figures presented on an economic-interest basis as per the segmental review.

2 A + B + C + D + E. 3 [E/(A + B)] X 100.

SALIENT FEATURES are now recognised through equity. We adopted this change in accounting policy
retrospectively, but the impact is insignificant to the consolidated statement of financial
Year ended 31 March position as all previous remeasurements recognised through the income statement are
already accumulated in equity as at the effective date of the change.
2021 2020
US$’m US$’m

Revenue 5 934 4 001 Dividend

Operating loss (1 189) (720) A dividend will be paid in relation to the Naspers N ordinary shares and A ordinary
shares of the amount that Naspers receives from Prosus as a dividend as referred to in
Earnings per ordinary share (US cents) 1 243 709 the Prosus results announcement dated 21 June 2021, either (i) as a terminal economics
distribution under the cross-holding agreement between Naspers and Prosus if the
Headline earnings per ordinary share 970 496 exchange offer transaction announced by Prosus on 12 May 2021 is implemented and
(US cents) settlement thereof occurs, or (ii) if this is not the case, as a dividend payment in the
ordinary course. The board intends to declare the dividend as soon as practicable after
Core headline earnings per ordinary 814 656 the exchange offer transaction has been implemented, or when it is known that the
share (US cents) exchange offer transaction will no longer proceed.

FINANCIAL REVIEW Preparation of the short-form results announcement

The group delivered strong results for the year ended 31 March 2021. Group revenue, The preparation of the short-form results announcement was supervised by the group’s
measured on an economic-interest basis of US$29.6bn, was driven by Ecommerce revenues financial director, Basil Sgourdos CA(SA). These results were made public on 21 June
which grew 46% (55%) year on year, and Tencent which grew 32% (28%) year on year. 2021.
Group trading profit grew 49% (45%) to US$5.6bn. Aggregated trading losses in our
Ecommerce segments reduced by 47% (49%) or US$384m to US$439m. Trading profit of our ADR programme
profitable ecommerce businesses grew by 44% (49%) to US$450m. Tencent’s contribution to
the group’s trading profit improved 33% (29%). Bank of New York Mellon maintains a GlobalBuyDIRECTSM plan for Naspers Limited.
For additional information, please visit Bank of New York Mellon’s website at www.
Core headline earnings were US$3.5bn – up 21% (15%), driven by improved profitability globalbuydirect.com or call shareholder relations at 1-888-BNY-ADRS or 1-800-345-
from our Ecommerce units and the growing contribution from Tencent. 1612 or write to: Bank of New York Mellon, Shareholder Relations Department –
GlobalBuyDIRECTSM, Church Street Station, PO Box 11258, New York, NY 10286-1258, USA.
On a consolidated basis, total revenue increased by US$1.9bn, or 48%, from US$4.0bn in the
year ended 31 March 2020 to US$5.9bn in the year ended 31 March 2021, primarily due to Important information
Food Delivery and Etail. Operating loss increased from US$720m to US$1.2bn despite the
significant, improved performance in revenue and profitability across most of our segments. This report contains forward-looking statements as defined in the United States Private
This was primarily due to an increase in the cash-settled share-based payment expense as Securities Litigation Reform Act of 1995. Words such as ‘believe’, ‘anticipate’, ‘intend’,
a result of marked improvement in ecommerce and tech valuations. The strong performance ‘seek’, ‘will’, ‘plan’, ‘could’, ‘may’, ‘endeavour’ and similar expressions are intended to
of our businesses over the past year drove an increase in valuations of these businesses and identify such forward-looking statements, but are not the exclusive means of identifying
therefore an increase in the cash-settled payment liability. such statements. By their nature, forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances and should be considered in
Our equity-accounted results in equity-accounted companies increased by US$3.2bn, or 81%, light of various important factors. While these forward-looking statements represent
from US$3.9bn in the year ended 31 March 2020 to US$7.1bn in the year ended 31 March our judgements and future expectations, a number of risks, uncertainties and other
2021. The increase is driven primarily by Tencent and Swiggy, which reported improved important factors could cause actual developments and results to differ materially from
profitability during the year. The equity-accounted results include investment disposal gains our expectations. The key factors that could cause our actual results performance, or
of US$1.1bn, impairment losses of US$968m and net fair value gains on financial instruments achievements to differ materially from those in the forward-looking statements include,
of US$2.5bn. among others, changes to IFRS and the interpretations, applications and practices
subject thereto as they apply to past, present and future periods; ongoing and future
In August and December 2020, Prosus raised US$4.4bn in debt, comprising its longest- acquisitions; changes to domestic and international business and market conditions
dated US dollar offering to date and its debut euro notes offering. Strong investor demand such as exchange rate and interest rate movements; changes in the domestic and
resulted in attractive pricing that reduced our average funding cost. The group has no debt international regulatory and legislative environments; changes to domestic and
maturities due until 2025. international operational, social, economic and political conditions; the occurrence
of labour disruptions; and industrial action and the effects of both current and future
We ended the period with a strong and liquid balance sheet. We had net debt of litigation. We are not under any obligation to (and expressly disclaim any such obligation
US$2.7bn, comprising US$5.2bn in cash and cash equivalents (including short-term to) revise or update any forward-looking statements contained in this report, whether as
cash investments), net of US$7.9bn in interest-bearing debt (excluding capitalised lease a result of new information, future events or otherwise. We cannot give any assurance
liabilities). In addition, in April 2021, we received US$14.6bn from the sale of a 2% interest that forward-looking statements will prove to be correct and investors are cautioned not
in Tencent Holdings Limited. Proceeds from this further strengthened our financial flexibility to place undue reliance on any forward-looking statements contained herein.
for further investment. We also hold an undrawn US$2.5bn revolving credit facility. Overall,
we recorded a net interest expense of US$167m for the period.

Consolidated free cash outflow was US$4m, an improvement on the prior year’s free cash Further information
outflow of US$383m. This was driven by growth in our Ecommerce profitability, dividends
received from Tencent of US$458m (2020: US$377m) and improved working capital This short-form results announcement is the responsibility of the directors and
management. is only a summary of the information in the summarised consolidated financial
statements. This short-form results announcement was released on 21 June 2021 and
We continue to explore growth opportunities to expand our ecosystem and position the the summarised consolidated financial statements can be found on the company’s
business for sustainable growth. Across the group, we invested US$3.6bn, notably: website www.naspers.com and can be viewed on the JSE link,
https://senspdf.jse.co.za/documents/2021/JSE/ISSE/NPN/YE21.pdf. Copies of the
In our Classifieds unit, we merged letgo and OfferUp into a business with national reach full summarised consolidated financial statements may also be requested from the
across the United States (US), well positioned in a highly competitive market. As part of the company’s registered office, at no charge, during office hours. The summarised
transaction, we contributed US$100m to support its continued growth and monetisation. consolidated financial statements for year ended 31 March 2021 have been audited
We injected our Middle Eastern Classifieds assets into Emerging Markets Property Group by PricewaterhouseCoopers Inc., our independent auditor. Their unqualified report is
(EMPG) and contributed US$75m in a financing round that valued the business at over appended to these summarised consolidated financial statements available on www.
US$1bn. Our joint venture OLX Brazil completed the US$520m (BRL2.9bn) acquisition of naspers.com. Any investment decision should be based on the summarised consolidated
leading real estate vertical Grupo ZAP, strengthening its positioning in the real estate financial statements published on SENS and the company’s website. The information in
market. this short-form results announcement has been extracted from the reviewed information
published on SENS, but the short-form results announcement itself was not reviewed.

In Food Delivery, we acquired an additional 8% interest in Delivery Hero on 31 March 2021 On behalf of the board
for US$2.6bn to offset current and future dilution. We remain the largest shareholder.

In Payments and Fintech, we invested an additional US$67m in Remitly to expand its suite Koos Bekker Bob van Dijk
of products. Chair Chief executive

Finally, we focused on increasing our exposure to edtech by investing US$60m in Cape Town
Eruditus, a global professional higher-education online platform. In November, we 19 June 2021
announced a total investment commitment of US$500m in Skillsoft via Churchill Capital
Corp II’s special-purpose acquisition company, which closed in June 2021. The Directors: JP Bekker (chair), B van Dijk (chief executive), EM Choi, HJ du Toit,
transaction creates a leading digital-learning company with a comprehensive suite of CL Enenstein, M Girotra, RCC Jafta, AGZ Kemna, FLN Letele, D Meyer, R Oliveira de
on-demand and live virtual content. Lima, SJZ Pacak, V Sgourdos, MR Sorour, JDT Stofberg, BJ van der Ross, Y Xu

There were no new or amended accounting pronouncements effective 1 April 2020 with a Company secretary: L Bagwandeen
significant impact on the group’s consolidated financial statements.
Registered office: 40 Heerengracht, Cape Town 8001 (PO Box 2271, Cape Town 8000,
Effective 1 April 2020, the group made a voluntary change to its accounting policy on South Africa)
the subsequent measurement of written put option arrangements with non-controlling
shareholders. Subsequent changes in the carrying value of put option liabilities previously Transfer secretaries: JSE Investor Services Proprietary Limited, 13th Floor Rennie
recognised in the summarised income statement in ‘Other finance income/(costs) – net’ House, 19 Ameshoff Street, Braamfontein 2001. (PO Box 4844, Johannesburg 2000,
South Africa)

Sponsor: Investec Bank Limited, 100 Grayston Drive, Sandown, Sandton 2196,
South Africa

market >> House View: BHP, JSE p.15
place >> Killer Trade: Massmart p.16
>> Invest DIY: Novel ways for business models to disrupt the market p.17
>> Simon Says: Alexander Forbes, cement producers, Growthpoint, Hudaco, Old Mutual,

Omnia, Stenprop, trade, US interest rates p.18
>> Investment: The value in SA’s telecoms stocks p.20
>> Commodities: Basel III requirements could boost gold p.21
>> Share View: A dividend strategy in times of market uncertainty p.22
>> Trader’s Corner: Tencent Music Entertainment is set for stellar growth p.24
>> Invest DIY: The implications of private power generation p.26
>> Investment: BIM, Noah and Genomma Lab in emerging markets p.27
>> Investment: A look at Naspers and Prosus and their share swap deal p.28

FUND IN FOCUS: NGWEDI INTEREST INCOME SNN FUND By Timothy Rangongo

An alternative to fixed deposits

Generating higher interest income than a money market portfolio, with little capital volatility over the short term.

FUND INFORMATION Fund manager insights:

Benchmark: Alexander Forbes STeFI Call Index Interest income funds endeavour to deliver favourable returns regardless of the interest
rate regime, meaning that they try to offer returns whether interest rates are rising or
Fund manager: Ngwedi Investment Managers falling.

Fund classification: South African - Interest Bearing - Short Term Ngwedi Investment Managers’ Interest Income SNN Fund aims to generate higher
levels of interest income than a money market portfolio, with high levels of liquidity and
Total investment charge: 1.05% little capital volatility over the short term, by investing in money market and short-
dated fixed income securities issued by the South African government, corporates,
Fund size: R711.62m state-owned enterprises and banks.

Minimum lump sum/ R10 000/R500 An advantage of the interest income fund is that it could be seen as an alternative
subsequent investment: to fixed deposits, says Monei Pudumo-Roos, CEO of Ngwedi Investment Managers.

Contact details: 021 000 1900/[email protected] She says they have ensured that client investment returns keep up with inflation as
this is a necessary condition to preserve clients’ purchasing power. Further to that, the
TOP 10 HOLDINGS AS AT 30 APRIL 2021 7.1% fund is positioned in such a way that its yield will rise further if the SA Reserve Bank
5.63% (SARB) decides to hike interest rates.
1 Standard Bank FRN 13 May 2021 4.32%
2 Nedbank FRN 16 July 2021 4.23% Among the challenges facing the fund is that, historically, SA interest rates tended
3 Standard Bank FRN 19 June 2021 4.23% to be higher than domestic inflation, making it easier for money market or interest
4 Nedbank SUN 07 July 2021 4.22% income funds to deliver returns that beat inflation. However, since 2020, the Covid-19-
5 Nedbank SUN 07 July 2021 A 4.22% induced recession and the resulting steep reduction in SA interest rates have made it
6 China Construction Bank call 4.08% difficult for interest income funds to deliver good after-tax returns to investors,
7 ABSA FRN 21 April 2022 3.76% says Pudumo-Roos.
8 FirstRand CLN 31 July 2023 3.6%
9 Standard Bank CLN 31 January 2024 45.39% “Whilst the forward rate agreement curve (FRA) is pricing in one rate hike by the
10 ABSA CLN 31 July 2023 end of 2021, we are of the view that rates will stay flat for the rest of the year. What
could trigger an early rate hike is a significant uptick in inflation or a surge in growth,
TOTAL which we don’t foresee in the near term.”

PERFORMANCE (ANNUALISED AFTER FEES) In addition, Pudumo-Roos says if there is any rhetoric that the US Federal Reserve
(the Fed) may hike rates earlier than expected, then we could see SA rates rise sooner.
As at 30 April 2021: “The Fed has indicated that they expect to raise rates in 2023 and coupled with this
they are intending to taper their bond purchases – this will put additional upward
■ Ngwedi Interest Income SNN Fund ■ Benchmark pressure on US rates and in turn domestic rates.”
7
At every stage in the investment process, she says the goal is to always minimise
6 5.2% the fund’s sensitivity to interest rate movements. “In order to achieve this, we invest a
5 4.44% large portion of the fund in assets where the interest rate earned on the asset adjusts
4 4.5% with the movement in the prime or repo rate.”
3 3.65%
Why finweek would consider adding it:
2
The fund provides investors with diversification, liquidity and has consistently
1 outperformed fixed deposits, while delivering inflation-beating returns since inception.
Given the current market and economic environments where uncertainty and risk
0 Since inception in Oct. 2019 abound, the fund offers a low-risk investment for investors who are looking to earn a
1 year stable income stream with low capital volatility. ■
[email protected]

14 finweek 9 July 2021 www.fin24.com/finweek

house view marketplace

JSE BUY SELL HOLD By Simon Brown
HOLD
How to grow trading volumes Last trade ideas

The JSE had an excellent 2020 as market volatility erupted, BUY Thungela Resources
sending trading volumes higher and as such the JSE saw revenue 25 June issue
and profits markedly higher during the 2020 financial year.
BUY CoreShares Total Word ETF
But a trading statement released on 25 June stated what we 11 June issue
already know: Trading volumes have returned to normal, leading to
an expected fall in headline earnings per share (HEPS) of between BUY Raubex
24% and 32% for the six months ended 30 June 2021.This is 28 May issue
actually slightly better than I expected but the challenge is how
to grow those trading volumes in future. In addition, the JSE’s Revego
competition is more than just the new local exchanges. BUY 14 May issue

A company wanting to do an initial public offering can look
anywhere across the world to list and South Africa has never been
top of mind. Most of the recent listings on the JSE were either
unbundlings or BEE deals.

A struggling economy certainly does not help the stock
exchange with new listings either, and this will be what I am
watching. A SA economic growth rate of closer to between 4% and
5% (as under normal conditions) would indicate this stock being
worth a revisit. Until then I’d rather not be holding. ■

BHP BUY SELL By Moxima Gama

Shares continue to slide Last trade ideas

BHP is a diversified resources company that extracts and BUY TFG
processes minerals, oil and gas, primarily in Australia and the 25 June issue
Americas. In 1994, a major portion of Billiton was acquired by the
South African mining company, Gencor. In 1997, BHP divested BUY Adapt IT
from Gencor and was first listed on the London Stock Exchange. 11 June issue

In April this year I wrote of a potential head and shoulders – a BUY Famous Brands
bearish pattern – that BHP’s share price was forming. At the time, 28 May issue
BHP had not formed the final shoulder yet, but a selling level was
established below 40 830c/share. Resistance encountered at BUY Sasol
47 735c/share – a lower high than its all-time high at 49 575c/ 14 May issue
share – kickstarted the downward momentum of the final
shoulder. BHP breached the selling level but has now bounced Speculators also believe
back up. So, is this a recovery or a mere short squeeze? iron ore prices will
drop below
BHP went ex-dividend in March, which triggered the fall of the
head formation – shares generally fall on the ex-dividend date. But $100
other external factors may have prompted investor bearishness, per tonne by the
such as China’s commitments to net-zero emissions by 2060, end of 2022.
meaning China would have to gradually phase out its key Australian
Photos: Shutterstock | Archive imports. Speculators also believe iron ore prices will drop below
$100 per tonne by the end of 2022, since China’s stimulus could
slow, which will again affect the purchase of Australian iron ore.

How to trade it:
BHP is regaining its losses after trading through key support
at 40 830c/share. However, if it should fail to recover beyond
43 300c/share, current upside may well be a short squeeze.
In which case, a sell signal could still be triggered again below
40 830c/share with potential downside towards support at
30 350c/share. A recovery above 43 300c/share could see
BHP retest, and possibly breach, the high of the final shoulder
at 47 735c/share – thereby negating the bearish pattern.
The next resistance would be at 49 575c/share. ■
[email protected]

@finweek finweek finweekmagazine finweek 9 July 2021 15

marketplace killer trade

By Moxima Gama

MASSMART

Investors seem hopefulounded in1990and listedontheJSE

on 4 July 2000 at R12.50 per share,

f Massmart Holdings is the second-
MASSMART (WEEKLY CHART)

largest distributor of consumer goods

for cash in Africa – it owns Game, Builders,

Makro and Jumbo. As of 31 October 2019,

Massmart operated 442 stores in South Africa

and 12 other sub-Saharan countries. In

November 2010, Walmart, the American

conglomerate, made a bid to acquire a majority

shareholding (51%) in Massmart. At that time,

the offer was valued at approximately R17bn

(about $2.54bn).The deal was completed in

June 2011.

Share price history SOURCE: Metastock Pro (Reuters)

After testing an all-time high at 20 800c/ functional practice in line with Walmart. In 52-week range: R18.84 - R71.39
share in 2013, Massmart entered a bear doing so, Massmart cut jobs, closed some Price/earnings ratio: -15.3
trend in January 2019 when it broke through stores and stopped selling fresh produce in its 1-year total return:
the support trendline of its long-term bull Game stores.To demonstrate his confidence in Market capitalisation: 185.8%
trend. Investor confidence gradually slid as Massmart, the group CEO used his own money Loss per share: R14.4bn
Massmart battled to shrug off continuously from a family trust to buy 300 000 shares at Dividend yield:
disappointing results for almost a decade. an average price of R27.29 worth R8m. Average volume over 30 days: R4.27
Not even the influential US backerWalmart 0%
(with a $350bn market cap) could save On the charts
Massmart from retreating, including lodging a 333 286
complaint in June 2015 against the strict lease Massmart has breached the resistance
arrangements in malls on renting out space to trendline of its long-term bear trend and SOURCE: Bloomberg
rival food retailers – citing it was hampering its confirmed a positive breakout above 3 825c/
expansion into the fresh grocery sector. share in February this year. Still maintaining support trendline. Firm support held above
its current uptrend, Massmart has pulled back 6 200c/share would be a bullish sign –
The group generates a huge majority of slightly from an overbought position and is upside momentum could persist towards
its sales in SA. In an attempt to combat the now teetering on a key level at 6 200c/share. 9 635c/share. Continued gains could see
tough economic conditions, which hindered Bear in mind, Massmart is still not out of the Massmart gradually head back to its all-time
consumer spending, Massmart slashed selling woods financially – it has lost more than R1bn high at 20 800c/share, making the share a
prices, which pushed up volumes and drove for two consecutive years and its Game stores good buy and hold for the long term.
higher store traffic. However, the markdowns are still struggling to turn a profit. In 2020, Go long: Support retained at 6 200c/share
nibbled severely at its profit margins to a point Walmart provided Massmart with a rolling R4bn would present a good buying opportunity
where Massmart was quickly falling behind loan to help it survive the Covid-19-induced and if upside should persist through 9 635c/
Shoprite, with its far more superior strategy to lockdowns. Recently,Walmart offered to take share, increase long positions as Massmart
attract lower-income customers. over payments, by paying a third-party provider would most likely retest its next resistance
of financial services for the next two years. level at 11 920c/share.
Current outlook Despite its fundamental challenges, investors Go short: A change in sentiment would be
find Massmart attractive at current prices. indicated below 5 145c/share – a negative
Massmart tested an all-time low at 1 880c/ breakout of its current uptrend would be
share in July last year after suffering a R1.2bn What to anticipate confirmed. Support at 3 825c/share may be
first-half loss. It began to claw up its losses revisited and breaching that level could see
the following month when CEO Mitchell Massmart must bounce on two pivotal Massmart fall further to its prior low at
Slape opted to strengthen its relationship trendlines to retain its current uptrend; the 2 700c/share. ■
with parent company Walmart in a bid to support trendline on its price chart and its [email protected]
turn around the business and leverage off three-week relative strength index (3W RSI)
the world’s largest retailer’s knowledge.The Moxima Gama is an independent stock market analyst at The
turnaround strategy included collapsing its Money Hub.
business into two divisions namely: Massmart
Wholesale and Massmart Retail.The aim was
to drive market agility, benefit from group-wide
procurement and harmonising group-wide

16 finweek 9 July 2021 www.fin24.com/finweek

marketplace invest DIY

By Simon Brown

INVESTMENT

Imagine a disruptive business model

Let’s do a thought experiment, which can give insight into business models and how they can

i develop novel ways of doing business and disrupt existing companies.
recently chatted with Viv Govender, and sell them cheap” still works. That
a senior analyst at Rand Swiss, said, we are seeing a strong move where
about global banks, since they are food retailers use apps and delivery,

under cost pressure from increased and one trend that I suspect we’ll see

regulation. He made an excellent point more of is dark stores that only cater for

when he asked: If you were to design a online and not physical customers.

bank from scratch today, would it look Let’s take this question to a sector

anything like existing banks? Today, a such as telecommunications. If I

new bank designed from the ground were to design a telecommunication

up would not have branches or ATMs. company today, would I sell voice

It would function digitally with an app minutes, SMSes and data? No, I would This suggests
that manages all transactions. Deposits just sell data at a monthly flat fee, but that retail is
and withdrawals would be through I would also try to sell products, such
retailers and not branches and
as the streaming of music and

support through WhatsApp movies. changing, but that
or SMS. In other words, But what about sport?

the new bank would Cell C sponsors the Sharks, ultimately retail as
look a lot like TymeBank so why can’t a Cell C client a sector remains
and very little like the watch a Sharks game on largely a viable
existing large banks. their mobile at a modest
fee. We then have the
This doesn’t mean

the traditional banks are Viv Govender concept of virtual networks, business model.
going to disappear any time Senior analyst such as the ones launched by
soon, they are adapting as at Rand Swiss the banks, not with network
best they can and adjusting costs, but an ability to build brand

their offerings to respond to loyalty and offer special perks.

the new entrants with a new banking What I really like about this thought

model. But the future for banks will be experiment is that it helps us in two

the new model and existing banks are important ways.

struggling to change as they have large What are the threats to existing

legacy cost bases and systems. business models and how can they

This got me thinking about trying shift to exploit new ways of doing

this approach for different industries. business? We see this in many of the

If we applied this idea to the non- listed options on the JSE as education

food retail space and designed it from stocks launched online offerings

scratch it would look different, but not for school-level education and

much different from current retailers. It telecommunication companies try to

would focus more on online stores and become more than just data providers.

brochures, and retail space will be used I also like the idea as it shows where

for events, rather than exclusively as new incumbents could come from to

points of sale, since that would happen threaten existing profits.

online. Purchases would be done We always need to watch out

online but picked up in store to save on for new businesses, which have

Photos: www.twitter.com I TymeBank shipping, and returns would be taken to operating models that could seriously

a store rather than shipped at a cost. hurt existing operators, as we saw

This suggests that retail is changing, clearly with Capitec* over the last two

but that ultimately retail as a sector decades. Capitec, of course, is itself at

remains largely a viable business model. risk of being disrupted by the likes of

If we run this same idea for food TymeBank. ■

retailers, I am not sure that much would [email protected]

change. The current “pack them high *The writer owns shares in Capitec.

@finweek finweek finweekmagazine finweek 9 July 2021 17





marketplace Simon says

By Simon Brown

CEMENT PRODUCERS Simon’s HUDACO
stock tips
Value (with
Better Founder and director of investment concerns)
prospects for website JustOneLap.com, Simon
Sephaku & PPC Brown, is finweek’s resident expert Hudaco’s financial results for the six months
on the stock markets. In this column ended May, which were released on 25 June,
saw the company declaring a dividend of 240c
he provides insight into recent apiece, higher than the interim dividend a year
market developments. earlier. Hudaco’s HEPS rose 252% compared
with a year earlier and was 28.9% higher than
Sephaku and PPC, both cement producers, OMNIA the 2019 interim period. It was a strong result.
released their financial results for the Hudaco is another company operating in
year ended 31 March, on 24 and 21 June, Solid balance cyclical sectors and agriculture has boomed
respectively. Both companies are in a lot sheet, but … recently, boosting the profits. However, this
better shape than they were during 2020. sector will one day again see tough times, due
It was so bad last year for PPC, with the Two years after a R2bn rights issue, Omnia to drought or commodity prices collapsing.
issues regarding its operations in the rest of released strong financial results for the Hudaco’s automotive division also performed
Africa, that a rights issue seemed probable. year ended 31 March, on 22 June. The strong, and this is a steadier business, giving
It was, however, ultimately avoided. Cement company paid a 400c per share special them a good earnings base. Forward P/E here
dumping by other nations in South Africa dividend on top of a 200c normal dividend. is about seven times and offers value. Don’t
seems to have once again resumed, but a That’s R1bn in dividends and essentially forget that the lean years will come again,
stronger rand should put a cap on that and returns half the rights issue back to which will send earnings falling.
may even reduce it to insignificant levels. shareholders. In their results presentation,
PPC announced full-year headline earnings the company talks about its business STENPROP
per share (HEPS) of 3c, but this should being very cyclical and hence during the
quickly correct to around 50c in the current good times, such as now, it needs to keep Remains
year ending March 2022. This puts the stock a strong balance sheet with little debt buoyant
on a forward price-to-earnings (P/E) of because the tough times will be returning.
around seven times and even though it has Overall, Omnia is an extremely impressive Stenprop, a European property company listed
run from a low of 43c per share last year to turnaround story, and the company looks on the JSE, released their full-year financial
a current 399c, it still offers value as SA’s well positioned. But I have two concerns. results for the year ended March on 11 June.
government ramps up construction spending. Firstly, on a historic P/E of around 14 times, The results looked solid even as revenue and
the stock is not cheap. The second issue profit came under pressure.The company
On a historic P/E of around is their dispute with SARS dating back to left the dividend unchanged at 6.75 pence
2014-2016. The company is confident that apiece. Stenprop operates in industrial space
14 times, they’ll win. But the total amount, including with multi-let buildings. Importantly, the
the stock is not cheap. interest and penalties, is R908m and while buildings are situated on the edge of major
they can afford it, it’ll hurt, and as a rule cities where space comes at a premium.This
I stay away from businesses that have reduces competition as new construction is
outstanding tax disputes. pretty much not possible. Stenprop’s vacancies
improved to 6.3% at year end. Currently, the
company’s portfolio consists of 74.3% multi-let
industrial properties and it expects this to rise
to 100% by March 2022. Here, as with Sirius
Real Estate, the stock trades around its net
asset value (NAV) of 3 000c. Despite the lack
of a big discount, Stenprop offers earnings in
pound sterling in a niche real-estate space with
high barriers to entry.

18 finweek 9 July 2021 www.fin24.com/finweek

marketplace Simon says

GROWTHPOINT OLD MUTUAL ALEXANDER FORBES

Good or bad The end of Resilient results
news first? bancassurance?
Alexander Forbes has been a poor investment,
Growthpoint’s investor update for the nine Old Mutual announced on 23 June losing about 50% since it listed in 2014.
months ended 31 March and released on that, subject to approval, the company Results for the year ended March, which were
24 June, had both good and bad news.The will unbundle a stake equal to 12.2% of released on 14 June, saw the company move
good is that debt is under control as the loan- Nedbank’s shares, leaving the life insurer back into profit and above the March 2019
to-value ratio (LTV) is now just over 40%. But with a holding of about 7.2%. Those levels. But HEPS were down at 12.7c from
the V&A Waterfront continues to struggle with holding Old Mutual at the close of trade 35.4c the previous year end. What I did notice
low foot traffic as foreign tourists have not yet on 2 November (the proposed date for in Alexander Forbes’ commentary to the
returned. Further, office vacancies are at 19.5% the unbundling) will receive 1.32 Nedbank results was that, since the beginning of the
and rental renewals for the nine months ended shares for every 100 Old Mutual shares they year, retrenchment numbers are almost back
March 2021 are at 53.5%, indicating just how hold. The market liked the news, sending to “normal” levels after spiking last year.This is
tough the office space segment is right now. Old Mutual’s share price 9.4% higher upon good news for the economy, even as we move
Growthpoint SA’s assets constitute about the news. Ultimately, this is the end of back into level-4 lockdown and have some way
a third office space with offshore, and V&A the bancassurance idea that emerged in to go with the pandemic.
Waterfront also has some office exposure, and the 1990s and gained traction in the early
this is Growthpoint’s longer-term risk.The retail 2000s when the view was that there would TRADE
and industrial segments will recover as we move be synergies between banks and insurers
out of the pandemic. But, office space is likely to and every insurer wanted to own a stake Shipping
take a lot longer and will emerge very differently in a bank, or banks wanted to hold a stake and silicone
to what traditional offices were before the in an insurer. The only one really left is chip woes
Covid-19 pandemic. Standard Bank with their Liberty stake, but
overall, it has not worked out as expected. One feature that stands out during the
US INTEREST RATES The reality is that those consumers buying release of financial results, is CEOs stating
insurance do not feel the need to buy it that shipping disruptions, combined with a
Will it spook through their bank’s channels and as such shortage of silicone chips, remain an issue.
markets again? they rather shop around. Old Mutual also The global shipping disruptions are likely
announced they’re on track to achieve to continue for at least the rest of this year
On 16 June, the US Federal Reserve (the Fed) their R750m cost savings by the end of as Covid-19 outbreaks in different parts of
spooked markets by saying that interest rate 2022, which will conclude the managed the world add further disruptions. Part of
increases were now more likely in 2023 rather separation process and leaves the group a the problem is the uneven re-opening of
than 2024.This saw the rand weaken and much more focused business. economies, meaning some ports are open
global markets experienced a serious sell-off. while others are closed. The silicon chip
But, at the time of writing, some ten days later, Old Mutual will shortage is a larger issue, since demand
the rand is strengthening, and US markets are unbundle a stake equal currently outstrips supply and that will not
back at all-time highs. In the end, rising rates to 12.2% of Nedbank’s correct for at least another two to three years.
are good news as it means the US economy is shares, leaving the life Companies will continue generating profits,
robust. A decade and more of low interest rates insurer with a holding of but supply chains will move from just-in-time
has, however, hooked markets.The crucial first to hoarding. ■
issue, before rate increases, is for the Fed to about 7.2%. [email protected]
taper its purchases of bonds and asset-backed
Photos: Shutterstock mortgages.The central bank is currently buying
some $40bn of bonds every month and they
first need to withdraw that. $40bn is a relatively
modest amount and it being reduced shouldn’t
have a serious impact, but it could again spook
markets.

@finweek finweek finweekmagazine finweek 9 July 2021 19

marketplace investment

By Paul Marais and Amy Degenhardt

TELECOMMUNICATION

SA’s telecoms stocks pose value

Insight into the telecommunication sector and the main players in the country.
2  020 was the year of “you’re-on-
mute” work experiences, and PRICE-TO-BOOK VALUE OF SELECTED TELECOMMUNICATION STOCKS
googling “What is 5G?”, according
Price-to -book

12

to South Africa’s top five trending questions.

As work and school from home extended with 10

each lockdown level, we searched for faster,

cheaper data connectivity and technological 8

advances to support the new remote work,

schooling and entertainment environment. 6

SA telecommunications companies

Vodacom, Telkom and MTN were faced with 4

the need to modernise their infrastructure to

support the accelerated growth in demand 2
for connectivity at home. At the same time,

they continued to grapple with regulatory 0

pressures for mandatory data price decreases.
Photo: Shutterstock
Jun ‘01In the context of a struggling economy andMTN Group P/BTelkom P/BVodacom P/BSOURCE: Refinitiv DataStream
Dec ‘02high unemployment rates, consumers mayAve. MTN Group P/BAve. Telkom P/BAve. Vodacom P/B
Jun ‘04be unable to afford a premium price for the
Dec ‘05
Jun ‘07improved connectivity they so desire, which
Dec ‘08
Jun ‘10could result in margin and cashflow pressures pandemic, businesses were required to quicklyMTN’s positive results, including the
Dec ‘11
Jun ‘13to the providers.adapt to increased network traffic, and demand procurement of 29m new customers, were
Dec ‘14
Jun ‘16Telecommunication company share prices changes, such as those faced byTelkom.well received by the market. It ended May with
Dec ‘17
Jun ‘19its share price up 8.5% compared with the
Dec ‘20
have experienced a steady rise over the past six Moving forward, personalised and dynamic

months, although they continue to remain lower pricing models could be a way to tackle events previous month.The stock has been interpreted

than their five-year highs. From an income in an opportunistic, profitable way that limits by analysts as a buy, noting the repatriation

perspective, companies, such as Telkom, are negative impacts on the income statement. risks facing the company. Our market analysis

regarded as quality defensive stocks, where MTN’s dividend was also based on a views the telecommunications sector in a

investors are well compensated for risks with cashflow-driven decision made on the back of positive light with stocks, such as Vodacom and

high dividend yields. Vodacom slightly positive annual results. The company’s Telkom, being treated as a hold.

reduced its dividend, while decision to use its cash to reduce Global trends in the telecommunication

Telkom significantly reduced leverage in its holding company sector remain focused on increasing spectrum

its dividend. MTN did not rather than paying dividends and cost optimisation.The Biden administration

declare a dividend at all. was based on limitations has taken the pandemic as an opportunity to

Although arising from cash address longstanding infrastructure issues and

declines in fixed line repatriation challenges in table discussions on municipal fibre offerings.

and information its Nigerian operations. Other trends in the industry focus on 5G

technology (IT) The company has said developments, noting that the roll-out of 5G is

revenues were offset resolving the complicated anticipated to be more capital intensive than

by mobile services litigation, which must that of 4G. A joint focus approach to improve

revenue in 2020, surely involve cash infrastructure to satisfy clients and increase

Telkom’s significantly repatriations, is one of their digitisation to reduce costs is likely.This will

reduced dividend is the objectives for this year. MTN breed innovation from the industry as they try

result of a substantial fall in the predicts that dividend payments or to find a solution to provide lower costing, higher

interim period’s earnings on which share buybacks will resume in the 2021 quality networks which may result in traditional

the dividend is based. financial year. telecommunication companies moving beyond

Last year, the company announced a From a price-to-book (P/B) valuation their core business and aligning with adjacent

suspended dividend policy for the next three perspective, all three telecommunications industries to tap into new market segments,

years based on the need to retain capital for companies’ current P/B values have fallen such as the development of telehealth and

spectrum auctions. This decision is being below their 20-year averages. This indicates e-health services. ■

revisited in 2021 following the upturn in that the stocks are undervalued in relation to [email protected]

annual profits. the historic average, suggesting a potential Paul Marais is the managing director and Amy Degenhardt
Due to the unprecedented impact of the opportunity (see graph). an investment research analyst at NFB Asset Management.

20 finweek 9 July 2021 www.fin24.com/finweek

marketplace investment

By Schalk Louw

COMMODITIES

Momentum behind central banks’
gold buying could last longer

a Basel III banking requirements should continue to bolster the purchases of gold after their final implementation.
fter several shortcomings in Basel II financial TOTAL GOLD RESERVES (TONNES) HELD BY CENTRAL BANKS
regulations were identified during the 2007 AGAINSTTHE 12-MONTH AVERAGE HOLDINGS
subprime mortgage crisis, members of the
Tonnes

Basel Committee on Banking Supervision 36 000

(BCBS) began working on Basel III between 2008 and 35 000

2009, which was finally approved in November 2010. Simply 34 000
put, the latter is a set of international banking regulations 33 000
developed specifically for the stability of the international 32 000
financial system. These regulations were originally proposed 31 000
for implementation between 2013 and 2015, but following

several delays, implementation was postponed until between 30000

March 2019 and January 2022. 29 000
Why the history lesson? The Basel III agreements come 28 000
27 000
into force on 28 June 2021 for European banks, and on
1 January 2022 for British banks, and it could create a few

Photo: Shutterstockopportunities. For me, one of the most interesting passages

Mar’00in this more than 1 600-page agreement, is found on pageGold holdings in tonnes 12-month ave. holdings in tonnesSOURCE: World Gold Council
Mar’02192: “However, at national discretion, gold bullion held in own
Mar’04
Mar’06vaults or on an allocated basis to the extent backed by bullion
Mar’08
Mar’10liabilities can be treated as cash and therefore risk-weightedlong-term cash to prevent liquidity failures. Without explaining
Mar’12
Mar’14at 0%. In addition, cash items in the process of collection canin too much detail, the NSFR requirement will mean that
Mar’16
Mar’18be risk-weighted at 20%.”banks will have to hold 85% required stable funding (RSF) for
Mar’20
That means that according to Basel III, gold will be seen the settlement and financing of precious metals transactions.

as a level-1 or zero-risk (risk-free) asset for banks, which It was not a requirement to hold RSF in the past.

in my opinion, can be regarded as an extremely positive The NSFR requirement Why do I think that this will be a good thing? Let’s use
factor for holding physical gold. Since 1994, gold was will mean that banks a settlement and finance bank holding unallocated gold
considered only as a level-3 bank asset with a 50% risk to the value of R2bn as an example. Just as a point of
weight assessment (RWA). This meant that central banks will have to hold interest, the simplest difference between allocated and
could only show 50% of their gold reserves’ value on their unallocated gold, is that allocated gold is owned by the
balance sheets. With the implementation of Basel III, gold 85% investor, whereas unallocated gold remains the property
as a level-1 asset means that central banks can show their required stable funding of the bank, with the investor only being a creditor of the
gold reserves at full value, thus being able to revalue their (RSF) for the settlement bank and not the actual owner of the gold itself.
physical reserves upwards. and financing of precious
Back to my example. Of the R2bn in unallocated
When we have a look at the total gold reserves held metals transactions. gold, only R1bn is held in physical gold. Before Basel III,
by central banks internationally, you can already see the this bank would not have been forced to hold any RSF,

contribution that Basel III possibly may have made to the but they will now be forced to hold 85% (or R850m)

demand for physical gold. Between 2000 and the centre collateral in cash, with a time horizon greater than a year,

of the 2008 financial crisis, central banks were net to cover their liability.This will drive up the banks’ costs

sellers of their gold reserves. Since then, however, of borrowing and lending gold. So again, why do I think

that has changed, with central banks adding 383.5 this is a good thing? If it’s going to cost more to

tonnes per year to their gold reserves between facilitate transactions in the short selling of gold, it

2008 and 2018. For the past two years (2019 and may just relieve the selling pressure on gold itself.

2020), central banks have increased their gold The final effect of Basel III on gold will only be

reserves by 519.9t per year (see graph). established once it has been fully implemented.

The Basel III requirements also addresses the However, if gold will be regarded as a risk-free bank

net stable funding ratio (NSFR) for banks. Many asset, it definitely is a positive thing and it could

may consider this to be a not-so-positive aspect, but possibly ensure that the recent increase in central

I personally feel that it may very well have a long-lasting banks’ gold reserves can continue. ■

positive effect on gold. In simple terms, the NSFR will be [email protected]

used to compel banks to finance their long-term assets with Schalk Louw is a portfolio manager at PSG Wealth Old Oak.

@finweek finweek finweekmagazine finweek 9 July 2021 21

marketplace share view

By Peet Serfontein

OFFSHORE

How to deal with market
uncertainty

a A dividend strategy could serve as a hedge.
fter the volatility in the markets, VANGUARD TOTAL STOCK MARKET ETF ($) 52-week range: $151.35 - $223.40
owing to the coronavirus Year-to-date return: 15.4%
pandemic, many investors are on – 230.00 1-year total return: 48.7%
– 210.00

the lookout for alternative ways to – 192.00

reposition their portfolios. Apart from the above, – 176.00 3-month return: 8.24%
the US Federal Reserve (the Fed) recently – 160.00 Expense ratio: 0.03%
upset investors with the announcement that – 146.00

interest rates could be increased as early as – 134.00 Indicated dividend yield: 1.2%
2023. Remember that higher interest rates
have an opposite effect on the share market – 122.00 Assets under management: $252bn
and could therefore lead to lower share prices. – 114.00

So now, a new catalyst has raised its head. Jul 2018 Jul 2019 – 106.00 SOURCE: Bloomberg

Aug 2020 Jul 2021 Jul
SOURCE: TradingView

It’s called inflation which, of course, resulted

in government bonds beginning to weaken, adapting to higher input costs by increasing portfolio. One of the most attractive aspects of

hence the Fed’s announcement. their own selling prices or by converting this ETF is the broad basis of shareholdings and

In addition, the Fed chairman, Jerome to alternative inputs. Should this happen, the balance of exposure to the market.

Powell, also admitted that they have eventually revenue and free cash flow will increase (to But should you buy it now?
begun talking about reducing its massive bond ensure that the real revenue has recovered),

buying programme in terms of which they are as well as the dividends. Companies can Remember that this strategy is in fact that

buying US government bonds valued at $80bn, increase their dividends annually faster than of a dividend yield. Therefore, the price of the

as well as mortage-backed securities valued at the inflation rate. With inflation-adjusted cash ETFs does not really matter, as the correlation

$40bn every month. flow and with dividends back to normal real between this price movement and that of the

We do indeed remember the “taper tantrum” levels, the share prices could be rated to reflect market in general is high. You simply receive

of 2013, when investors got a fright and yields these higher valuations. more dividend payments.

on bonds increased sharply when the Fed also This is where exchange traded funds But in order to stick to an investment

announced that it would gradually reduce its (ETFs) come in handy – but more specifically strategy, one should always have a beginning

purchasing of bonds. a diversified dividend ETF. This type of ETF and an end. What I mean here is to always

In order to avoid a similar scenario is an excellent tool in this regard, as have a target price and a stop loss. The market

repeating itself, Powell emphasised companies that declare dividends will always give you another chance to increase

that the Fed’s plans to increase to shareholders, should have your exposure somewhere along the line.

rates were highly provisional considerable profits to The VTI trades above its 200-day moving

and that the Fed would spell support the distribution, and average (see reference on graph). A price

out its plans to reduce its these regular payments action above this average classifies the long-

bond buying well in advance. offer a reliable cash flow term trend as a bull. This level of $195 will also

Keep an eye on the Fed’s in the midst of all the serve as a stop loss.

annual meeting at Jackson uncertainty. Upward price momentum supports the

Hole at the end of August. This is where the price action. Remember that momentum

But how does one cope with Vanguard Total Stock Market is the power behind the price movement

all these uncertainties? ETF caught my eye. The code to keep on moving in the direction of the

Research has shown that is VTI and it’s listed on the New overall trend – which is therefore a bull.

investors prefer value shares when inflation York stock exchange. This ETF offers wide The black line is the long-term resistance

is high, because they perform better during exposure to the US stock market and invests line. Therefore, when the price gets close

periods of high inflation. Value shares are in thousands of different shares in all sectors. to $210, you should manage the risk very

shares with higher intrinsic value than their carefully (see broken black line on graph).
Note that the graph is the long-term
current trading price.They are usually shares of What makes the ETF attractive?

established companies with a strong cash flow, A dividend ETF focuses on dividend-paying (monthly) graph of the ETF’s price. The

Photo: Shutterstock although it could in time decline. shares and also offers reliable dividend scale is a logarithmic scale. ■

So a well-diversified share portfolio could payments to shareholders. It offers an [email protected]

serve as a long-term hedge if the shares alternative to simplifying your portfolio and Peet Serfontein is an independent market analyst
(companies) in such a portfolio are capable of can serve as the nucleus of a long-term and strategist.

22 finweek 9 July 2021 www.fin24.com/finweek

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