EPaper

China problem is a Naspers headache for SA investors

Reading the direction of stock markets in the past 16 months has not been for the faint-hearted. The irony is that the biggest winners are probably not the smart people who tried to anticipate every twist and turn, but those who stayed put.

Investors who kept their nerve while the JSE slumped about 34% in the space of a month to a seven-year low as the country approached its first hard lockdown in March 2020 have been rewarded with an 18% gain. Even better if they added to their holdings as the losses accelerated. From its lows then, the local index is up more than 80%.

Much of that would have been driven by Naspers, Africa’s most valuable company, which surged with other technology stocks, mainly on its large holding in Tencent (now nearly 29%), one of China’s biggest companies valued at the equivalent of R8.9-trillion.

Even before the sell-off of recent days, risks for stocks could be seen everywhere after gains in 2020 that had investors fretting about whether they had been pushed too far — first by demand for companies that trade over the internet and then by optimism for an economic recovery driven by the speedy development and distribution of Covid-19 vaccines.

Those hopes of an economic revival led to concern that inflation might accelerate faster than central banks expected. This could lead to them tightening policy sooner and more aggressively than markets foresee.

That hasn’t materialised yet, and a look at international bond markets shows that the lower-for-longer trade remains intact. The demand for bonds is an indicator that the previous optimism is evaporating. Among the culprits has been the highly infectious Covid-19 Delta variant which has led to a return of restrictions in many countries, including SA.

And then the Chinese authorities came with a regulatory crackdown on technology companies in which Tencent was one of the main casualties. It was sold off as it announced the suspension of customer registrations on WeChat. It fell the most in a decade as its music business also gave up exclusive streaming rights and was hit with fines.

The latest round of regulatory-induced stress, which in 2020 hit Alibaba Group cofounder Jack Ma’s companies, started days after Didi Global went public in New York at the end of June.

The authorities soon launched a probe into alleged data breaches by the company, which took over Uber’s China business in 2016 and in which the US company still holds almost 13%, according to Reuters.

Other companies have since been caught up in the net in a battle between China’s communist rulers and the tech billionaires it blames for rising inequality and undermining state power.

The consequences for Naspers, in which probably every South African with an investment product owns a stake through its dominance of the JSE, have been brutal. Losses on Monday and Tuesday amounted to just under R200bn. Though by Thursday, it had recovered R132bn of that.

It’s a well established fact that the JSE has a Naspers problem, exposing investors to a single share risk due to it and sister company Prosus accounting for more than 20% of the index.

When times are good, it’s as nice a headache for SA investors as it is for Naspers CEO Bob van Dijk. A vast amount of wealth has accrued to local investors since Naspers bought into Tencent in 2001, which means they can live with a short-term hit.

More recent events have highlighted the other side of that coin. Naspers has a China problem that it will struggle to solve until it can find winners to match Tencent.

And that means SA investors potentially have a huge Naspers problem, despite recent efforts by Van Dijk to find a solution.

NASPERS WILL STRUGGLE TO SOLVE ITS CHINA PROBLEM UNTIL IT FINDS WINNERS TO MATCH TENCENT

OPINION

en-za

2021-07-30T07:00:00.0000000Z

2021-07-30T07:00:00.0000000Z

https://bdmobileapp.pressreader.com/article/281685437882893

Arena Holdings PTY