In his regular monthly review, Corion’s David Bacher explains how markets were on edge in May during the run-up to Election Day – and how investors remain nervous as politicians consider the binary choice that will determine the country’s future. He also highlights the awful share price performance of SA’s cell phone giants over the past ten years and explains why huge moves are looming in the prices of all SA assets in the next couple of weeks. Bacher spoke to BizNews editor Alec Hogg.
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Edited transcript of the interview
Certainly! Here is the revised transcript with the interviewer’s name changed to Alec Hogg:
00:10
Alec Hogg: David Bacher from Corion Capital brings us up to date every month on recent events. This month has been particularly eventful in South Africa, as you’ll see when we review the slides. This presentation is aptly named “High Stakes,” reflecting the high stakes for South Africa after the ANC’s collapse at the polls.
00:40
Alec Hogg: The market is uncertain about the future, but David will provide some insights.
00:58
Alec Hogg: Before we dive into today’s discussion, David, you’ve been traveling. Could you quickly update us on your recent trip to China? It’s crucial to everyone’s investment strategy, especially here in South Africa, given NASPERS and Prosus’s reliance on developments in China.
01:28
David Bacher: Yes, I spent two weeks in China, and it was eye-opening. I was impressed by the technological advancements, innovations, infrastructure, and the sheer scale of the place. However, it also highlighted the risks associated with China’s state-run economy.
01:53
David Bacher: The Chinese market operates under different rules where government policies can rapidly change, impacting foreign investments. Overall, I was impressed, but it made me ponder if South Africa has the building blocks to emulate China’s strategy. We have a long way to go.
02:22
David Bacher: In China, everyone knows and works towards government policies. There’s little debate, which can be a weakness, but it leads to implementation. In South Africa, our democracy offers many benefits, but implementing policy is harder. This is evident in our slow progress in economic reform, innovation, and growth. We have the ideas and plans, but execution eludes us.
03:19
Alec Hogg: Let’s move on to the recent election and its impact on investment markets. I must commend the business community for their accurate forecasts, predicting the ANC at 40%, close to the actual 41%.
03:48
David Bacher: Yes, the market is uncertain. Investors seek stable environments with predictable policies that promote growth. Election results that introduce uncertainty make the investment climate precarious.
04:17
Alec Hogg: Let’s discuss the “High Stakes” theme. We’re in a situation where multiple outcomes are possible, with politicians having two weeks to finalize decisions.
05:15
David Bacher: The poker analogy was used to illustrate South Africa’s political predicament. The ANC is at the table with other parties, each holding different strengths and weaknesses. The ANC must carefully assess risks and rewards to make significant decisions.
05:43
Alec Hogg: Despite the surprises in voting, the markets were strong, correct?
06:11
David Bacher: Correct. The major global equity assets—stocks, bonds, real estate, and gold—were all positive. Equities, particularly tech shares like Nvidia, drove the gains.
06:41
Alec Hogg: Nvidia’s focus on AI has been well-received by investors.
07:10
David Bacher: Nvidia is a leader in AI with advanced processing chips, but we must question if long-term profitability justifies the high valuations. The semiconductor industry matures quickly and faces intense competition.
07:39
David Bacher: Nvidia’s market cap is 2.7 trillion, more than the entire Hang Seng Tech Index, which includes Tencent, Baidu, Alibaba, and JD. This highlights potential competition from around the world.
08:07
Alec Hogg: This also ties into concerns about Donald Trump’s protectionist policies.
08:35
David Bacher: Yes, tariffs and trade wars impact both Chinese and American companies. China realizes it can’t depend on the West and is focusing on innovation and technology, which could increase competition for US companies. For South Africa, we might benefit from innovations from both the East and West.
09:05
Alec Hogg: Trump’s issues seem to boost his popularity, similar to Jacob Zuma in South Africa.
09:34
David Bacher: Yes, despite his legal troubles, Trump’s stock rises. This “counting cards” theme shows how much politics have changed. Like the US, South Africa faces its own political complexities.
11:01
Alec Hogg: India’s recent election results were also surprising, with the ruling party losing dominance.
11:30
David Bacher: Yes, India now has to rule in coalitions. Globally, tech shares, especially in the US, performed well. Germany was up 4.3%, and Japan also saw gains, while China was slightly down.
11:58
Alec Hogg: In South Africa, despite minimal load shedding, we have ongoing concerns.
12:27
David Bacher: South African asset classes were slightly up. We’re in a waiting game, expecting significant moves in the coming weeks.
12:56
Alec Hogg: The JSE Top 40 saw good performance from commodity companies due to higher global prices and supply constraints easing.
13:26
David Bacher: Yes, commodity stocks like Implats, Richemont, Exaro, and Sibanye Stillwater did well. Richemont saw group sales at an all-time high, boosting their share price.
14:24
Alec Hogg: Conversely, Anglo-Platinum, Discovery, Woolworths, and MTN underperformed. Why?
14:53
David Bacher: Discovery dropped after President Ramaphosa signed the National Health Insurance, affecting them directly. MTN saw a drop in revenue due to macroeconomic headwinds and currency devaluation in Nigeria. Woolworths had a poor trading update, predicting a 20% earnings drop due to weaker sales.
16:21
Alec Hogg: Vodacom and MTN have underperformed over the last decade.
16:51
David Bacher: Yes, Vodacom’s share price is down 30% and MTN’s down 60% over ten years, excluding dividends. Regulatory hurdles, economic challenges, competition, power instability, and investments in new technologies like 5G contributed to their poor performance.
17:48
Alec Hogg: And the biggest flop of the month? President Ramaphosa and the ANC.
18:17
David Bacher: Many view Ramaphosa’s political results as a flop. However, there’s hope he can turn things around politically and economically.
18:47
Alec Hogg: Magnus Heystek often says hope is not a strategy. Is there any upside?
19:16
David Bacher: There could be. If politicians prioritize the country’s interests over political self-interest, we might see positive changes. It’s a crisis for the ANC but also an opportunity. Aligning with a centrist DA coalition could be strategically beneficial.
19:44
Alec Hogg: How would the markets react to an ANC-DA partnership versus an ANC-EFF partnership?
20:12
David Bacher: A partnership with the DA would be seen favorably, leading to rallies in South African bonds, a stronger currency, and stronger banking stocks. An EFF partnership would be negative, increasing bond yields, funding costs, and economic headwinds.
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