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contents

from the editor JANA JACOBS

he passing of George Bizos gave much pause for reflection. Not only on his legacy and activism, but about the giants he stood with. Those who gave their lives and fought fearlessly to allow us to live in a free and fair society.

While we boast one of the most progressive constitutions – crafted by those very giants – in our democracy it seems that the concept of public service has been all but lost. Politics has become self-serving and as a young South African, I am hard-pressed to find any political party or politician that I believe is worthy of the legacy of those that came before them.

I am not just referring to the current ruling party.

The DA has done anything but paint itself in glory and seems to have adopted a strategy of ousting any dissident voices within their ranks. Engaging in mudslinging on Twitter rather than addressing the deep systemic issues within the party. Mbali Ntuli is a breath of fresh air, but her chances of becoming the leader of a party that favours the old guard serves as reminder as to why many young South Africans might not consider the DA a viable choice.

Then there is the divisive rhetoric and violent actions of the EFF. Those very actions harming the livelihoods of the people they claim to be fighting for. Add to that the misogynistic and derogatory insults hurled at, for example, former public protector Thuli Madonsela when she spoke out against their Clicks protests and it again becomes clear that the EFF would rather react than engage in meaningful dialogue to actually address the problems at hand.

Given the status of the three party “giants” of our current political milieu, it leaves one wondering who is worthy of a vote? A right and privilege that should be exercised by every South African.

In our last national election in 2019, 9.8m eligible voters did not register to vote, according to Africa Check. Of those, about 6m were younger than 30. Only 21% of the voters who did register were under the age of 30. Various statistics are available for the median age of South Africans – all landing in the late-20s mark.

There is no concrete evidence to explain this lack of voting, but it is deeply worrying to think that those South Africans who, ostensibly, will need to take this country forward, are not politically engaged.

I’d venture that disillusionment might be a reason. Disappointment in the leaders of today who do not begin to measure up to those who liberated this country. ■

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8 10 12 14

In brief

News in numbers Fighting hunger with digital solutions A platinum renaissance?

Getting fed-up with an unruly neighbour

Marketplace

16 Fund in Focus: A vigilant fund for turbulent times 17 House View: Aspen Pharmacare, Tiger Brands 18 Killer Trade: Bidvest, Richemont 20 Simon Says: Banks, Cashbuild, City Lodge, Fortress REIT, indices, maize harvest, Richemont, S&P 500, Shoprite, Transaction Capital, Zeder 22 Investment: Sprouts of recovery 23 Invest DIY: Prediction risk and management 24 Trader’s Corner: Supply of uranium worsening 26 Invest DIY: Quality bargains up for grabs 27 Share View: Hedging instruments could allay your fears of market swings 28 Economy: The debate we should be having

Cover

30 Investment: Where asset managers are seeking returns

In depth

36 Can SA survive the callous curse of corruption?

On the money

38 Spotlight: Game repositions for the win 40 Motoring: Back to the future: electrifying ride 42 Personal finance: Post-Covid financial springcleaning 45 Quiz and crossword 46 Piker

Seeing the bigger picture tells the full story.

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Opinion

6 How big data is changing investment

opinion

By Johan Fourie

TRADING

How big data is changing investment

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Photo: Shutterstock

The old way of looking at asset management decisions are changing. The use of data is boosting this revolution. he world of investment is changing rapidly. A combination of Covid-19, lockdowns, fiscal stimulus packages, higher savings, and more leisure time has caused a surge in retail investing. Online investment platforms like eToro, Robinhood and EasyEquities now not only make it easier for ordinary people to invest in global stocks, but also allow amateur traders to build up an international reputation and following. Dave Portnoy, better known as Davey Day Trader, is at the vanguard of a movement to upset the ways of institutional investors – the ‘suits’. This democratisation of investment arguably threatens the livelihoods of investment companies and their asset managers.

Asset managers are fighting back with better technology. In almost all sectors of the economy, better technology means greater efficiency; yet many new technologies in the investment world have been blamed for higher volatility, illiquidity and inefficiency. The reason for this is big data and ever-growing computing power are changing the nature of financial analysis. Old-school investment practices in which investors carefully comb through company financial reports and business models have, over the last decade, given way to analyses that focus more on the trading activity of other investors, also called ‘investor demand data’. Sophisticated algorithms now help traders engage in statistical arbitrage where they search for profit-making opportunities from others’ poor decisions. This approach relies on the identification and persistence of systematic mispricing because of psychological, as opposed to, fundamental factors.

Think of it this way: Fundamental data is valuable as it tells us how markets should price assets (normative approach); it allows investors to predict future cash flow and asset prices.

Investor demand data contains no fundamental information. It instead focuses on why prices are where they are now (positive approach) – which may or may not be fundamentaldriven. Yet this approach has proven successful as investors trade against demand shocks, sometimes referred to as searching for ‘dumb money’. By using sophisticated algorithms to combine the decisions of millions of investors, it allows the trader to buy low, sell high and profit, without knowing anything about the firm or its business strategies.

In a new American Economic Review paper, economists Maryam Farboodi and Laura Veldkamp argue that this shift towards demand data arbitrage is happening at a frightening pace and will no doubt affect pricing efficiency. To make their case, they built a model. Their augmented information choice model has three novel features – they not only model a choice between fundamental information and investor demand information (the crux of their story), but also longrun technological progress and long-lived assets, assumptions that have not been combined in a model like this before.

The model allows them to draw certain conclusions. It begins with the fundamental insight that prudent use of available data can reduce risk, but also create it. Stay with me here. More data reduces risk by allowing investors to better forecast asset payoffs. If we can predict

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US MONEY MANAGERS’ INVESTMENT APPROACHES

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Fundamental Quantitative Mixture Quant and mix

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6 4 2 0

1995

1997

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SOURCE: Farboodi, M. and Veldkamp, L., 2020. “Long-Run Growth of Financial Data Technology”. American Economic Review, 110(8), pp.2485-2523.

more of the payoff, we end up with less risk. But the payoff of an asset also depends on its future price. That price, however, depends on what future investors will know. If future investors have a lot of data, the future price is more informative and thus more sensitive to future innovations in cash generation or product demand. Yet, if future prices are more sensitive to unknown future innovations, they are riskier today. To sum up: more informed traders in the future make prices react more strongly to new information, which makes future asset values riskier. This is what the authors call future information risk, because the future price of an asset that is less predictable today creates risk. And therein lies the trade-off that more data creates: It could lead to better predictions of the future payoffs, but also expose greater future information risks.

The point is that traders would want both types of information. They want fundamental analysis to make better predictions about future asset prices. Their new methods allow them to extract such fundamental analysis from the decisions of everyone else. But too much of such demand information can also cause volatility, because it creates future information risks, leading to inefficiency and illiquidity.

Does this model have any real-world predictive power? One obvious conclusion is that fundamental analysis would decline as technology improves. To show that this is true, they plot how hedge fund assets over the last two decades have shifted away from fundamental analysis to quantitative analysis. In fact, as the accompanying figure demonstrates, fundamental analysis has been replaced by a mixture of quantitative and mixed approaches. Will this trend continue?

Although the authors make no predictions, I suspect there is little that will stand in its way. As more retail investors join the democratisation of investment, fuelled by personalities like Davey Day Trader, the amount of ‘dumb money’ traded on the world’s leading stock exchanges will likely proliferate. And as big data techniques improve, the sophisticated algorithms that investors use to take advantage of arbitrage opportunities will become more lucrative.

The likely rewards will push traders further away from fundamental analysis and towards demand data analysis. ■ editorial@finweek.co.za Johan Fourie is professor in economics at Stellenbosch University.

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EDITORIAL & SALES Acting Editor Jana Jacobs Deputy Editor Jaco Visser Journalists and Contributors Simon Brown, Peter Fabricius, Johan Fourie, Moxima Gama, Mariam Isa, Glenneis Kriel, Schalk Louw, David McKay, Brendan Peacock, Rob Price, Timothy Rangongo, Petri Redelinghuys, Peet Serfontein, Melusi Tshabalala, Glenda Williams Sub-Editor Katrien Smit Editorial Assistant Thato Marolen Layout Artists David Kyslinger, Beku Mbotoli Advertising Paul Goddard 082 650 9231/paul@fivetwelve.co.za Clive Kotze 082 335 4957/clive@mediamatic.co.za 082 882 7375 Sales Executive Tanya Finch 082 961 9429/ tanya@fivetwelve.co.za Publisher Sandra Ladas sandra.ladas@newmedia.co.za General Manager Dev Naidoo Production Angela Silver angela. silver@newmedia.co.za

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“WE WERE ON A ONEWAY TICKET TO TOTAL DYSFUNCTION.”

President Cyril Ramaphosa

− President Cyril Ramaphosa told journalists in a media briefing that his administration is “not playing games” when it comes to eradicating corruption in the country. Ramaphosa acknowledged the depth of public frustration with the lack of progress government has made in tackling corruption and implementing growth-enhancing economic reforms since he took office in 2017. He explained that state structures had been “broken, piece by piece” during the previous administration and gave assurance that although it had taken time to put things right, “we have now reached a stage where the changes we all want to see will start to unfold”. (Also see story on p. 36).

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George Bizos

“THERE COMES A TIME IN THE LIFE OF EVERY PERSON WHEN YOU EITHER SUCCUMB OR YOU FIGHT.” C

− Distinguished human rights lawyer George Bizos, who defended Nelson Mandela in many of his trials during the anti-apartheid struggle, has died at the age of 92. President Cyril Ramaphosa announced his death, saying the news was very sad for South Africa. “An incisive legal mind and architect of our Constitution, he contributed immensely to our democracy,” he said in a tweet. Bizos studied law with Mandela and fellow civil rights activist Oliver Tambo. They became friends and worked together as young lawyers. After Mandela’s release from prison, Bizos served on the constitutional committee of the ANC, helping to write the country’s 1996 Constitution.

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Photos: Gallo/Getty Images

in brief

>> Trend: Getting food to those in need of nourishment p.10 >> Mining: Is platinum staging a comeback? p.12 >> Foreign Affairs: SA might finally be losing patience with Zim p.14

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finweek 24 September 2020

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UP IN THE AIR

R9.3bn

DOUBLE TAKE

BY RICO

The government has given SA Airways (SAA) R9.3bn towards paying R16.4bn it owes creditors.

The debt includes interest on historical debt and additional funds that banks lent to SAA to ensure its operations continued while under business rescue. SAA needs shortterm funding from the government in September for the state carrier’s business rescue process to continue, according to its administrators, Les Matuson and Siviwe Dongwana. “It is prudent to advise affected persons of the company’s dire financial position,” they said in a statement. “The existing funds which are available for operational expenditure ... are near depletion.”

DEAL CONCLUDED

R5bn

Harmony Gold announced its conclusion of the transaction to acquire Mponeng mine and Mine Waste Solutions (MWS) from AngloGold Ashanti for $300m (R5bn). The company said the deal is scheduled to close in accordance with the transaction agreement on 30 September 2020, upon which Harmony will assume full ownership and operation of Mponeng, MWS and all other assets and liabilities that form part of the transaction.

Harmony will take effective control of the assets as of October. Aside from improving Harmony’s portfolio mix between surface and underground operations, the transaction has the potential to improve the group’s overall recovered grade and increase Iress Advert 210 x 70mm.pdf cash flowPrint margins.

THE GOOD

THE BAD

THE UGLY

Unilever South Africa said it’s setting up a new diversity and inclusion assets committee, representative of their consumers, to ensure future advertising campaigns and publicity materials reflect their values. This comes after the company supplied images that portrayed black hair as inferior for the Clicks website, prompting public outrage. The company said it has begun reviewing all marketing campaigns and images in its SA portfolio to make sure they match their commitment to celebrating all beauty and promote diversity and inclusion. Unilever agreed with the EFF to remove TRESemmé products from shelves 1for ten 07/09/2020 16:35 days.

South African banking stocks are down 40% since the beginning of the year, already more than twice as deep a slump as in 2015, the sector’s previous worst year on record, reported Bloomberg. The sell-off in the sector reflects investor expectations that bad loan provisions will hurt earnings and valuations, according to Nolwandle Mthombeni, an analyst at Mergence Investment Managers. While the pandemic has ravaged earnings, banks have bolstered defences by increasing provisions for Covid-19-related losses under revised accounting standards. High capital buffers have also remained intact, strengthening the case for dividends to resume once regulators give the go-ahead.

More than R100m of electrical engineers’ pension funds that had been invested in risky initiatives are allegedly in peril because of a criminal case against evangelist Shepherd Bushiri, reported City Press.

JM Busha Asset Management invested R110m in Bushiri’s Sparkling Waters Hotel development in 2017, where the self-proclaimed pastor was arrested last year. The fund hit a brick wall when it wanted to withdraw its money, which had grown to R140m. Bushiri’s assets were attached by the state during the arrest and therefore the pension fund money is not accessible.

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By Glenneis Kriel

i

Fighting hunger with digital solutions The use of digital technologies has allowed FoodForward SA to increase its footprint, better match food surpluses with beneficiaries and reduce costs and food wastage.

n 2017, FoodForward SA (FFSA), a non-profit surplus food redistribution company, significantly increased operational efficiencies after launching a digital solution called FoodShare.

The digital platform allows food donors – primarily wholesalers, manufacturers and retailers – to donate their edible surplus food to nearby beneficiary organisations in the FFSA network. The beneficiaries then use the food to cook meals for hungry people within their networks.

Andy du Plessis, managing director of FFSA, explains that food donors upload notifications of food surpluses onto the platform, notifying member organisations of ad hoc or regular collection slots. A notification is sent automatically to three nearby beneficiary organisations, with the first to react to the notification receiving the slot. Distribution data is also updated in real time when the beneficiaries collect the food.

Du Plessis says that having beneficiaries collect the food themselves, instead of FFSA having to distribute the food to them, has reduced the organisation’s fuel costs by roughly 30% and also reduced wastages by shortening the supply chain and the time it takes for the food to reach beneficiaries.

What’s more, it has added transparency to the network by mapping exactly how much and what food went where and when. As most food depots are in cities, FFSA still makes use of trucks – referred to as mobile depots – to distribute food to rural areas once a month.

“We are in the process of adding the mobile depots to our digital platform to directly link them with our Second Harvest Programme suppliers, which is food surpluses supplied from farms. The idea is then for these beneficiaries to collect food themselves, as is currently done with FoodShare in the urban areas,” Du Plessis says.

FFSA was in the process of increasing its mobile depots from eight to 12 at the time of writing.

Photo: Supplied

Small beginnings

FFSA was born out of Feedback Food Redistribution, an organisation launched by Bianca du Plessis in 2003, after she saw the huge volumes of food being wasted on film sets.

“Bianca quit her job and then used her own car and funds to collect food from film sets and distribute it to beneficiary organisations,” Du Plessis says.

Feedback Food Redistribution merged with other service organisations, such as the Lions Clubs, and the name was changed to FoodBank SA in 2009, after an introduction to the Global Food Banking Network (GFN) in Chicago.

The organisation was renamed in 2017, after the Reserve Bank told them that the word “bank” was “reserved for commercial banks”.

With the help of GFN and financial support from the National Lottery, the organisation has turned into the biggest food distribution charity in the country.

Food donations from manufacturers, wholesalers, retailers and farmers – either surpluses, food that does not 10

trend

finweek 24 September 2020

make the market grade or are close to their sell-by date – in combination with financial donations and new efficiencies brought through its digital platform, have also helped to streamline operations, allowing FFSA to provide meals at a cost of only 85c per meal.

As testament to its innovative approach in the battle against hunger, the organisation has over the past three years won The Community Chest Impumelelo Social Innovation Award for Excellence, Service and Innovation; the Old Mutual Staff Volunteer Fund Trust for Recognition of Volunteerism Excellence, and The Canadian Arrell Food Innovation Award for Global Excellence in the areas of innovation and community impact.

Plans

Andy du Plessis Managing director of FoodForward SA

14m “Over

people were food insecure across South Africa preCovid-19, and this number will drastically increase as millions of people become unemployed due to the pandemic.”

Sourcing food is one of FFSA’s biggest challenges.

“Finding food donors and getting them to donate surplus food is difficult. They usually come on board once they realise the tax benefits and see the direct savings of no longer having to dump or incinerate food,” Du Plessis says.

While outcomes show impact, it is also becoming increasingly difficult to convince donors to support operations.

“More than 200 000 NPOs are registered with the department of social development. The funding pool is shrinking, resources among NPOs are dwindling, while the demand for their services are increasing,” Du Plessis says.

FFSA has the advantage of implementing a unique model. “We are the largest food redistribution charity in the country, with huge logistics and warehouse infrastructure.

Also, more than 75% of our beneficiary organisations focus on education, vulnerable children, youth and women, allowing for surplus food to be an important catalyst for social change in underserved communities.”

Du Plessis points out that they are significantly scaling up their efforts to address the impact of Covid-19 over the next 18 to 24 months.

“Over 14m people were food insecure across South Africa pre-Covid-19, and this number will drastically increase as millions of people become unemployed due to the pandemic.

The United Nations Development Programme forecasts that around 3.2m people will lose their jobs in SA by the end of 2020, and food insecurity will grow as a consequence.”

To this end, the organisation plans to increase its beneficiary network from 1 005 to 1 500, which in turn will increase the collective number of meals provided. However, an additional R43m would be needed to fund this expansion, according to Du Plessis.

As part of their immediate strategy, FFSA will be expanding its reach into Mpumalanga in October thanks to a donation of R3m from RMB/Spire. The expansion will extend FFSA’s reach to all nine provinces, enabling it to increase its reach to the envisioned 1 500 beneficiary organisations, serving 750 000 vulnerable people daily across SA. ■ editorial@finweek.co.za www.fin24.com/finweek

IN PARTNERSHIP WITH

WE HAVE EMPTY RESTAURANT KITCHENS … BUT MORE AND MORE HUNGRY SOUTH AFRICANS

WE’RE RAISING FUNDS FOR RESTAURANTS TO FEED THOSE IN NEED

DONATE AT HELP.EATOUT.CO.ZA

in brief in the news

By David McKay

MINING

A platinum renaissance?

Platinum’s price has slowly been rising, with some suggesting it may start tracking that of gold more closely.

Others caution that investors should maintain a measured, long-term view on platinum group metals.

Photos: Shutterstock I www.sc.com I www.platinuminvestment.com

a

rebrand in recent years of does look fragile but longer term – whether platinum companies into it’s fuel cell development, whether it’s a fact platinum group metals (PGMs) that demand has perhaps reached the lowest producers was to acknowledge point of the cycle – we are starting to see more the increasing role played by palladium, and optimism,” said Cooper. more recently rhodium, in the performance So what’s behind a platinum renaissance? of the sector. For instance, the two metals Part of it is the fact investors, having flooded comprised half of Impala Platinum’s into gold as the realities posed by Covid-19 have (Implats’) revenue in its 2020 financial year, been brought to bear on macroeconomics, are even though the company is predominantly a now looking for other options. Platinum and platinum producer. gold used to track one another closely, until gold Yet, there’s growing evidence that the collapsed in the early 2000s. Analysts think much-ignored platinum is finally back on that bond may be re-established in the context investors’ radars. “A lot of interest that of a global recession. “There’s no good reason we’ve seen in platinum, whether it’s through platinum should be trading at $1 000 per ounce futures positioning or whether it’s through less than gold,” says Trevor Raymond, head ETF (exchange-traded funds) holdings has of research and investor development at the been very much based on the fact platinum World Platinum Investment Council (WPIC). continues to be undervalued,” said Suki But there’s more to platinum’s resurgence Cooper, executive director than just the metal itself. of precious metals There is, in fact, growing “There’s no good reason platinum research at Standard evidence that supply of the should be trading at Chartered Bank in New entire PGM suite is under York at the Joburg pressure to meet demand.

Indaba PGM conference Whether it’s for rhodium earlier this month. or palladium, nickel or even per ounce less than gold.”

The metal has started arcane-sounding metals such to slowly creep up in price. as ruthenium, which is also At the time of writing, the dollar platinum part of the PGM family, future demand may price is 14% higher over the last 90 days. It’s overwhelm the supply response of primary still outstripped by palladium pricing, which is production. In anticipation of this, buyers of the nearly a fifth higher over the same timeframe, metals, such as auto manufacturers that use but in the past platinum has languished even PGMs for the ability to absorb noxious fumes as prices for its sister metals surged. from exhausts, are setting about substitution “In the near term, the recovery certainly of palladium for the less expensive platinum.

Suki Cooper Executive director of Precious Metals Research at Standard Chartered Bank in New York

$1 000

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finweek 24 September 2020

Trevor Raymond Head of research and investor development at the World Platinum Investment Council

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in brief in the news

“It seems the sun is shining on the PGM industry now, but it is important to think ten or 15 years out because these assets are 20 to 30 years’ life assets.”

Substitution of metals in auto catalysts takes manufacturers time to engineer, but it’s already happening, says Raymond. In the case of rhodium, there would appear to be no ready substitute, hence its astronomical price hikes of the past year: up more than 100% on a rand basis. According to Stephen Forrest, co-founder of industry research house SFA Oxford – which has been bought by SibanyeStillwater, a PGM producer – unfulfilled rhodium demand could even lead to “injury” of the PGM sector.

For PGM shares like Implats, Anglo American Platinum, Northam Platinum and Sibanye-Stillwater, the recent benefits have been enormous. Despite Covid-19 production interruptions, all four have been able to pay some kind of capital return.

But it wasn’t always like this. Less than three years ago, Implats unveiled plans to retrench 12 500 employees from its Rustenburg operations. Its share price sank to about R20/

share (compared with R167 today) which represented an all-time low – low enough for Sibanye-Stillwater to consider a buy-out. In the end, Sibanye-Stillwater opted for the takeover of Lonmin, which had retrenched nearly 7 000 employees in its 2016 financial year and was preparing for thousands more.

These recent memories are fresh with the current crop of PGM CEOs, which is why few of them are talking aggressive growth plans other than Northam Platinum, which is building up to a million ounces of annual PGM production, a doubling.

The emphasis is, therefore, on increased dividend returns instead of growing supply.

While great for investors, a dearth of major new production is adding pressure to the supply and demand equation. “We aren’t seeing any significant growth in capital from the mines,” says Simon Kendall, an analyst for Prudential Asset Managers.

In addition to past pains, there’s also

future uncertainty. A fair dose of the optimism regarding PGMs is on the transformative effect of demand from the so-called hydrogen economy. As mentioned in the 27 August cover story of finweek, hydrogen engines are expected to absorb 400 000 ounces in platinum production by 2030 from demand of less than 50 000 oz today, according to SFA Oxford.

“It seems the sun is shining on the PGM industry now, but it is important to think ten or 15 years out because these assets are 20 to 30 years’ life assets,” says Mandi Dungwa, a portfolio manager for Kagiso Asset Management.

“You want to ensure that when the sun isn’t shining that your business can survive.

So that’s what I’d be looking at, but most importantly for investors is that they are very patient to get capital returns out of these investments,” she says. ■ editorial@finweek.co.za

Renewed offshore interest

Analysts believe that due to improved fundamentals – and regulatory frameworks – foreign investors might be taking a shine to SA’s platinum group metals industry.

Jean-Sébastian Jacques, Rio Tinto CEO, paid the ultimate career price mid-September when he agreed to leave the Anglo-Australian group. This was after the company ignored an impact study that should have overturned the earlier approval for blasting an iron ore site in Western Australia containing 46 000 year-old Aboriginal settlements.

The point of Jacques’ departure for SA’s mining sector is that a new precedent has been set for how company boards sanction abuses of environmental, social and governance (ESG) standards.

It’s no secret ESG has been a growing influence in the investment world. Analysts say SA’s mining sector, with its labour-intensive, technically-risky, and sometimes unsafe mines has suffered from the growing popularity of ESG-led investing.

“ESG for mining companies is always tricky, specifically for the South Africans, because the most common question we get asked is around fatalities

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and safety,” says Patrick Mann, an analyst for RMB Morgan Stanley. “Foreign investors are very reluctant to invest in a company where you would expect to see any fatalities.”

According to Kagiso Asset Management’s Mandi Dungwa, some mines have their report cards permanently blotted owing to systemic safety risks.

“A couple of years ago, we did an exercise where we looked at where we wanted to be positioned in this sector and one of the things that came out of that exercise was a realisation that there are some structural safety risks related to certain mining assets that are not so evident with others.”

In the platinum sector, it has led to an externalisation strategy. Both Impala Platinum and Sibanye-Stillwater have bought shallow, mechanised and relatively low-labour platinum group metal mines offshore (both in North America) in order to add “defensiveness” into their portfolios

and ease the ESG risk of SA mining.

The improvement in government’s approach to mining has helped to allay some investor concerns, however. And ESG issues notwithstanding, the improved economics is starting to alert investors to SA, especially its platinum sector.

“Offshore, a lot of people had written off the SA PGM industry,” says Mann. “I used to have these conversations when I’d phone and ask if they’d like to talk SA PGMs and they’d say ‘no’: oversupply, double-digit cost inflation, it was just structurally unattractive,” he says.

The impact was that many foreign investors sat out the first run-up in PGM prices. “Now they’ve seen that there are deficits, and it looks fundamentally in a better position,” he says. “So definitely there’s better interest both from a regulatory, pricing and a fundamental perspective for the metals. It’s definitely much better than it’s been.” ■

finweek 24 September 2020

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in brief in the news

By Peter Fabricius

FOREIGN AFFAIRS

Getting fed-up with an unruly neighbour The economic hardships in Zimbabwe are stoking domestic problems. Zanu-PF might have crossed a line with Pretoria.

Photos: Supplied I Gallo/Getty Images

z

imbabwe is deeply dependent on South Africa, perhaps more so than is commonly realised. About 41% of Zimbabwe’s imports come from SA, 60% of its exports are to SA and 80% of its exports go through SA, as Bulawayo business executive Busisa Moyo, who also chairs the Zimbabwe Investment and Development Agency (Zida), told a Chatham House webinar on 8 September. And he said SA had also recently overtaken the UK as the largest investor in Zimbabwe.

So, there was a lot SA could do to help fix the Zimbabwean economy, Moyo thought. The high trade and investment interdependence – coupled with the large amounts of remittances from the many Zimbabweans in SA – meant that the Zimbabwean economy was already deeply integrated into SA’s. It would thus make sense for Zimbabwe to make much greater use of the rand, and less of the US dollar or the succession of local currencies it has recently been experimenting with – now back to the Zimbabwe dollar – all of them prone to precipitous depreciation.

But when SA proposed to Zimbabwe a few years ago that it would make sense to join the rand system, the ruling Zanu-PF flatly rejected the idea, largely out

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finweek 24 September 2020

About 41% of Zimbabwe’s imports come from SA,

60%

of its exports are to SA and 80% of its exports go through SA.

Busisa Moyo Bulawayo business executive, who also chairs the Zimbabwe Investment and Development Agency

of jealous pride in its own worthless money.

Yet, the same sort of statistics which Moyo quoted also give the ANC government in Pretoria tremendous economic leverage over the Zanu-PF government in Harare on this and other issues – if it chose to use it.

Until now Pretoria has been opposed to applying any sort of economic pressure against its neighbour.

Politically, that would be diametrically opposed to the ANC’s ideological posture that anything that whiffs of sanctions supports a Western “regime change” agenda. And so, the ANC regularly condemns the few remaining Western sanctions against Zimbabwe. It did so again on 9 September this year when a senior ANC delegation went to Harare, met the Zanu-PF Politburo and Central Committee and issued a joint communique which stated, among other things, that sanctions were the “albatross” around the neck of the Zimbabwean economy.

Such statements have now become part of the public liturgy of ANC-Zanu-PF relations. Privately, though, the ANC is growing increasingly weary of this excuse for Zimbabwe’s woes since it knows the remaining sanctions have little impact on the economy.

In December last year the minister of international relations and cooperation, Naledi Pandor, gave a hint www.fin24.com/finweek

in brief in the news

Privately, though, the ANC is growing increasingly weary of this excuse for Zimbabwe’s woes since it knows the remaining sanctions have little impact on the economy.

of this impatience at an Institute for Global Dialogue seminar when she agreed sanctions should be lifted but added that “political dynamics are inextricably linked to the economy and thus should be confronted simultaneously”. She suggested “initiating an inclusive political dialogue” in the country.

Then in February, SA’s ambassador to Harare, Mphakama Mbete, publicly proposed a social contract involving politicians of all sides, businesspeople and citizens as the way to revive the economy. They were both saying, in essence, that the root of Zimbabwe’s economic crisis is its chaotic politics.

Since then Zimbabwe’s economy has crumbled, exacerbated by the Covid-19 pandemic, the Zanu-PF government has clamped down further on its opposition and Zimbabwean refugees have continued to flow across the Limpopo, now in defiance of coronavirus lockdown regulations. The influx had added to the increased burden which the millions of Zimbabweans already in SA have placed on social services and the competition for scarce work. Last month MDC-Alliance vice president Tendai Biti – the finance minister in the 2009-2013 unity government – told a Brenthurst Foundation webinar he had heard that on average 20% of the beds in Soweto’s Chris Hani Baragwanath Hospital were being occupied by Zimbabweans. All of this is stoking xenophobia, as social development minister Lindiwe Zulu noted on 10 September.

The crackdown by Zanu-PF on the nationwide anti-Zanu-PF protests on 31 July seems to have acted as a catalyst, crystallising Pretoria’s growing impatience with Zanu-PF into a decision that it was time to act – again – to try to resolve the growing crisis across the Limpopo River.

Before the events of September, on 10 August, President Cyril Ramaphosa sent special envoys – former cabinet ministers Sydney Mufamadi and Ngoako Ramatlhodi, and former deputy president and parliamentary speaker Baleka Mbete, plus deputy director-general for Africa Ndumiso Ntshinga – to Harare to meet President Emmerson Mnangagwa and a delegation from Zanu-PF. The idea was that they would then go on to meet both formations of the MDC and civil society.

But after they had met with Mnangagwa, he blocked them from meeting with anyone else. The envoys went home, mission incomplete. Not for the first time and not the last, SA had been humiliated by its little neighbour.

Then, on 9 September, the ANC as a party sent a senior delegation headed by secretary-general @finweek

finweek

finweekmagazine

Ace Magashule and including two cabinet ministers – also on the ANC’s national executive committee – to meet Zanu-PF. In-between the two visits, Ramaphosa had made it clear the ANC mission should meet a wide range of stakeholders to get the broadest possible picture of the nature and causes of the crisis in Zimbabwe.

Yet, once again, he was thwarted. The delegation only met Zanu-PF. Afterwards, Magashule insisted that there had simply been no time to meet others and that the ANC would return later to meet other stakeholders.

Veteran Zimbabwe analyst Ibbo Mandaza was sympathetic to Zulu’s view, believing that the ANC mission had been a success because Magashule’s team had at last engaged with Zanu-PF about the crisis – despite Zanu-PF having vehemently denied that there was a crisis – and also because, he said, the ANC had got Zanu-PF to agree that the ANC could meet with the political opposition and other stakeholders. As the International Crisis Group’s Zimbabwe expert Piers Pigou noted, it would be a first for a fellow liberation movement to formally meet Zanu-PF’s political opponents.

Zanu-PF’s recalcitrance has gradually begun to shift the thinking in the SA government about the use of economic pressure to leverage the kind of behaviour it believes Zanu-PF should be exhibiting in order to stabilise Zimbabwe’s politics and therefore also its economy. This, the ANC realises, is the only way to persuade the US and others to lift the sanctions.

Officials say Zimbabwe has recently asked for assistance from SA. This was to buy supplies and equipment to fight the Covid-19 pandemic, get a big private international loan to help balance the budget, and to deliver the emergency grain supplies which SA has already given them to fend off growing hunger.

But at least some Pretoria officials are saying: “But wait a minute. You are refusing to let our envoys meet the opposition and that is sabotaging our efforts to help you resolve your crisis – and it’s that crisis which is now forcing you to ask for our help.”

It is not yet clear if that will be the approach which prevails. One can only hope so. And, who knows, if turning the screws just a little bit produced results, maybe, just maybe, the ANC government might acquire a taste for it and put some real economic pressure on Zanu-PF to get its unruly house in order. If only. ■ editorial@finweek.co.za

Naledi Pandor Minister of international relations and cooperation

Ace Magashule ANC secretary-general

Emmerson Mnangagwa President of Zimbabwe

Peter Fabricius is a consultant to the Institute for Security Studies (ISS) and a freelance foreign affairs journalist.

finweek 24 September 2020

15

>> House View: Aspen Pharmacare, Tiger Brands p.17 >> Killer Trade: Bidvest, Richemont p.18 >> Simon Says: Banks, Cashbuild, City Lodge, Fortress REIT, indices, maize harvest, Richemont, S&P 500, Shoprite, Transaction Capital, Zeder p.20 >> Investment: Cautiously start looking for blossoms p.22 >> Invest DIY: Knowing the future doesn’t guarantee the right investment choice p.23 >> Trader’s corner: Uranium destined for a vicious bull market p.24 Oscillator divergence is an important accessory to RSI p.25 >> Invest DIY: The quality sale is on p.26 >> Share View: Protect capital with this hedge p.27 >> Economy: Where will monetary expansion find expression this time? p.28

market place

FUND IN FOCUS: STANLIB BALANCED CAUTIOUS FUND

By Timothy Rangongo

A vigilant fund for turbulent times

Aiming to achieve long-term capital growth and a reasonable level of current income at average risk levels.

Fund manager insights:

FUND INFORMATION:

Benchmark: Fund managers:

CPI +3% Herman van Velze and Henk Viljoen

Fund classification:

South African – Multi-Asset – Low Equity

Total investment charge:

1.9%

Fund size:

R6.53bn

Minimum lump sum/ subsequent investment: Contact details:

R5 000/R500 0860 123 003/contact@stanlib.com

TOP 10 HOLDINGS AS AT 31 JULY 2020:

1

Naspers*

4.53%

2

Prosus

2%

3

Anglo American

1.35%

4

BHP Group

1.19%

5

MTN

1.01%

6

Sanlam

0.97%

7

Standard Bank

0.79%

8

Northam Platinum

0.68%

9

Bidcorp

0.53%

10

Bidvest

0.48%

TOTAL

13.53%

*finweek is a publication of Media24, a subsidiary of Naspers.

PERFORMANCE (ANNUALISED AFTER FEES)

As at 31 July 2020: ■ STANLIB Balanced Cautious Fund

■ Benchmark

10 8

8.29%

8.7%

7.97%

6

Why finweek would consider adding it:

5.03%

4 2 0

16

1 year

finweek 24 September 2020

STANLIB’s Balanced Cautious Fund seeks to protect capital and achieve longterm investment growth. The fund is specifically managed to suit extremely cautious investors who want to draw an income over an extended period of time.

The fund achieves its objective by investing in a diversified spread of investments in equity and non-equity securities, including cash, bonds, shares, and property. Because it is a low-equity fund, equity exposure is capped at 40% of the portfolio.

Shares usually offer the best growth but come with the greatest risk of shortterm losses. The fund’s exposure to shares is therefore balanced with investments like bonds, which take up more than a quarter of asset allocation.

For instance, the fund comprises South African government bonds, which the fund managers Herman van Velze and Henk Viljoen say are capturing real yields on offer and currently pricing in many negative expectations. Local bonds went through a recovery after the SA Reserve Bank stepped in to provide liquidity to the market in addition to its aggressive rate cuts.

“The low growth and inflation environment locally, as well as the potential for a rotation out of short-dated cash assets by investors, will be supportive of the local bond market,” according to the fund managers.

Overweight positions in global and SA technology shares such as Prosus, Naspers, Amazon and Microsoft assisted the fund’s performance. These companies have enjoyed strong earnings upgrades and improved ratings as the market appreciated their position in a world where people are doing more over the internet from inside their homes.

MTN is among those companies which the fund managers say proved to be one of the most challenging holdings to manage. “Growth in data and work-fromhome initiatives continued to support revenue and earnings these past quarters.

Even though [MTN’s] exposure to Nigeria weighed on the share, the recovery in oil prices did not have the desired effect on investor sentiment.”

The duo is confident about the fund’s resource holdings, saying that commodity prices are currently favourable and resource companies will be very profitable for the remainder of the year as they ramp up production after the lockdown. “In the short term, SA’s mining industry overall is well-placed to maintain relatively healthy profits and provide much-needed support for the economy.”

10 years

The fund has managed to deliver positive returns by employing a moderately conservative risk strategy. Investing in a low-equity fund lowers the volatility of returns while at the same time remaining exposed to growth assets. The fund is Regulation 28-compliant, meaning it’s also a suitable low-risk fund for a retirement annuity, provident fund, preservation fund or pension fund. ■ editorial@finweek.co.za www.fin24.com/finweek

house houseview view ASPEN PHARMACARE XXXXXXXXXXXXXXXX

BUY

SELL

marketplace

HOLD

By Simon Brown

Attractive valuation

Last trade ideas

Solid results from drug manufacturer Aspen Pharmacare saw headline earnings per share (HEPS) come in at 1 268c, up 9%.

The company’s debt ratio is now 2.89 times HEPS and below the 3.5 times covenant level it had been in breach of as debt spiked to almost R55bn.

After the year-end, Aspen also sold off its commercial rights and intellectual property for the thrombosis business in Europe for R12.6bn, and this will further reduce its debt.

The market was, however, spooked by comments from CEO Stephen Saad about looking for new acquisitions and the stock was sold off. My view is that while debt did spike to levels that were not sustainable, overall the group has undertaken particularly good deals and, importantly, has never issued shares to fund a deal. All were facilitated with debt, which has been paid back and should now be around R25bn – lower by about a half.

On the current HEPS the stock sits on a price-to-earnings (P/E) of around 10 times. This is cheap for a quality global drug manufacturer that, at its peak, once had a P/E of around 40 times. ■ BUY

TIGER BRANDS

SELL

BUY

PSG 10 September issue

BUY

Distell 27 August issue

BUY

Shoprite 13 August issue

BUY

Pan African Resources 30 July issue

HOLD

By Moxima Gama

Aiming for key resistance level

Photos: aspenpharma.com | tigerbrands.com

Tiger Brands is South Africa’s biggest food producer and despite being classified as an essential services provider during the lockdown period, the company had to write off assets worth a hefty R557m in May. Write-downs have become familiar territory for Tiger Brands, who previously wrote down R106m in its Nigerian investment, UAC Foods.

However, Tiger Brands’ share price remained quite composed when the worldwide Covid-19 sell-off occurred. Firm support was retained at 14 380c/share. In fact, Tiger Brands has been forming rising bottoms above that level, which is an indication that investors were incrementally buying the share.

So much so that Tiger Brands’ share price is now edging closer to a key resistance level that, once breached, will trigger a good buy signal.

How to trade it: Tiger Brands has been in a bear trend since breaking out of its long-term bull trend in August 2018. It is currently teetering on the resistance trendline of that bear trend and upside through 19 825c/share would confirm a positive breakout – potentially commencing a new bull trend. A good buying opportunity would be presented at any level above 19 825c/share. Long positions could be increased above 24 000c/share as gains towards 29 350c/share would then be possible.

Refrain from going long if Tiger Brands encounters major resistance at 19 825c/share, as it could trade sideways with support being at 14 380c/share. Breaching that level could see the share price retest next support at 11 265c/share. ■ editorial@finweek.co.za @finweek

finweek

finweekmagazine

Last trade ideas BUY

Massmart 10 September issue

BUY

Sasol 27 August issue

BUY

MTN 13 August issue

BUY

South32 30 July issue

Despite being classified as an essential services provider during the lockdown period, the company had to write off assets worth a hefty R557m in May.

finweek 24 September 2020

17

marketplace killer trade

By Moxima Gama

XXXXXXXXXXXXXXXX RICHEMONT

r

Breakout possible

ichemont has maintained its long-term bull channel, although it has been volatile for the past three years. The company announced a 47% slump in revenue for the three months through 30 June as the coronavirus pandemic ravaged sales of its luxury products in its large Asian markets. It shored up cash in advance of the economic fallout. The share price has gained 8.7% in 2020 due to a weaker rand.

Outlook: The share price has been confined between 3 500c/share and 8 865c/ share since November 2017 – in a triangle formed within its long-term bull channel.

Notwithstanding the share price drop in January, which was quickly recovered, the long-term bull channel remains intact.

RICHEMONT

52-week range: R79.19 - R122.17 Price/earnings ratio: 42.94 1-year total return: 4.85% Market capitalisation: R641bn Earnings per share: Dividend yield: 0.89% Average volume over 30 days: 3 166 211 SOURCE: IRESS

SOURCE: MetaStock Pro (Reuters)

On the charts: Richemont is currently testing the upper slope of its symmetrical triangle. It has failed to breach that slope a few times before – and may reverse.

Otherwise, a positive breakout would eventually be confirmed, and the share price would embark on an uptrend towards the upper slope of its long-term bull channel.

Go long: The upper slope (blue bold slope) of the symmetrical triangle would be breached above 11 690c/share. A positive breakout – which would end the three-year sideways movement – would be confirmed above 12 545c/share (go long).

Thereafter, Richemont should retest its all-time high at 13 500c/ share. The short- to medium-term

target of the pattern is at 17 180c/ share and could be tested once the all-time high has been breached.

Go short: A negative breakout of the symmetrical triangle, including the long-term bull channel, would be confirmed below 8 865c/share (go short). A new bear trend would commence to support at either 6 880c/ share or 5 150c/share. ■

BIDVEST

a

Will it retain its bull?

nnouncing its full-year financial results through June, the impact of the lockdowns across the world became evident as Bidvest’s 2019 profit of R3.8bn swung to a loss of R186.9m this year. The company furloughed more than 70 000 employees at the height of the lockdown and by 14 September saw 91% of its staff back at work. Bidvest is now considering selling its car rental and airline servicing units.

Outlook: Bidvest is teetering on the support trendline of its long-term bull trend dating back to 2011. In early July, Bidvest announced its decision to write down its 27% stake in Comair, which operates local airlines Kulula.com and British Airways.

Despite the share price experiencing its biggest drop since 16 April, support at 12 640c/ 18

finweek 24 September 2020

BIDVEST

52-week range: R126.39 - R266.17 Price/earnings ratio: 38.64 1-year total return: -22.85% Market capitalisation: R51.8bn Earnings per share: R3.94 Dividend yield: 1.48% Average volume over 30 days: 1 526 393 SOURCE: IRESS SOURCE: MetaStock Pro (Reuters)

share seems to be holding firm.

On the charts: Bidvest’s trading range is likely to narrow over time as its share price zigzags between its long-term support trendline and resistance at 15 160c/share.

Its three-month relative strength index (3M RSI) has bounced from oversold territory, which means buyers are resurfacing. However, the RSI would have to trade through the red bold trendline to

indicate that momentum is set for a full recovery.

Go long: Upside above 15 160c/ share would mean Bidvest is retaining its major bull trend, and further gains towards 17 200c/ share could ensue. Breaching the blue bold slope should push the share price further to the 22 500c/share level.

Go short: Encountering resistance at 15 160c/share

increases the chances of Bidvest breaching its long-term support trendline and extending its current downside towards 10 270c/share.

Go short below 12 640c/share. ■ editorial@finweek.co.za Moxima Gama has been rated as one of the top five technical analysts in South Africa.

She has been a technical analyst for 12 years, working for BJM, Noah Financial Innovation and for Standard Bank as part of the research team in the Treasury division of CIB.

www.fin24.com/finweek

HAVE YOUR INVESTMENTS PERFORMED LIKE THIS? R8 524 800

R3 770 200

R1 000 000

April 2006

April 2013

August 2020

The 36ONE SNN QI Hedge Fund has returned an average of 16% per annum since inception in April 2006.

Disclaimer: Collective Investment Schemes in securities and hedge funds are generally medium to long-term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. The performance shown is not guaranteed and is for illustrative purposes only. Buying and selling of financial products entails risk, please ensure that you are always appropriately advised and aware of all risks involved. No guarantee as to investment value or performance of any financial product is given or should be inferred.

Sanne Management Company (RF) (Pty) Ltd, (“Sanne”) (“the Manager”) is registered and approved in terms of the Collective Investment Schemes Control Act 45 of 2002. The Manager does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of actual annual returns, fees, charges and maximum commissions is available on request. 36ONE Asset Management (Pty) Ltd (“36ONE”) reserves the right to close and reopen certain portfolios from time to time in order to manage them more efficiently. Additional information, including application forms, annual or quarterly reports can be obtained from 36ONE, free of charge. Performance figures quoted are from Bloomberg and Sanne as at the date of this report (as at 31 August 2020) for a lump sum investment, using NAV to NAV with income reinvested and do not take any upfront manager’s charge into account. Income distributions are declared on the ex-dividend date. Actual investment performance will differ based on the initial fees charge applicable, the actual investment date, the date of reinvestment and dividend withholding tax. Annualised return is the weighted average compound growth rate over the period measured. Sanne retain full legal responsibility for third party named portfolios. Highest and lowest calendar year performance since inception (as at 31 August 2020): High 35.57%, low -10.80. The fund became regulated under CISCA on 1 November 2016. The Mandatory Disclosures can be obtained on our website by following this link: 36one.co.za/legal/disclaimer 36ONE Asset Management (Pty) Ltd. is a licensed financial service provider. FSP# 19107

marketplace Simon says

By Simon Brown

MAIZE HARVEST

Prices ignore bumper crop South Africa is on course for a great 2020 maize crop, yet the maize price is back at levels last seen during the drought. A possible reason is locust plagues in East Africa that have seen crop yields there well down on previous years, pushing demand – hence prices – higher. Locally these high prices are bad news for those with maize as an input cost, most notably Astral Foods, whose sweet spot for the yellow maize price is around R2 000 to R2 300 a tonne; the current price is over R3 000. For those looking for a trade or investment here, wait for the maize price to start coming back down before jumping in.

SHOPRITE

A good year Shoprite’s* financial results for the year ending June were top drawer and best illustrated by the final dividend increasing from 162c to 227c per share, increasing the full-year dividend by just over 20%.

Shoprite’s operations on the rest of the continent recorded a loss but should return to profitability in the current financial year as these divisions were operationally generating profits. Operating margins in SA supermarkets increased from 6.3% to 6.6%, with net debt falling from over R8bn to just over R2bn. The bottom line here is that Shoprite is one of the best food retailers in the world, if not the best, and should be a cornerstone of any SA Inc portfolio.

20

finweek 24 September 2020

Simon’s stock tips Founder and director of investment website JustOneLap.com, Simon Brown, is finweek’s resident expert on the stock markets. In this column he provides insight into recent market developments.

TRANSACTION CAPITAL

An odd choice The news that Transaction Capital is buying a 49.9% stake in WeBuyCars.co.za has me scratching my head. Firstly, a minority stake is never ideal, as you have almost no input in the running of the business nor its strategic direction. Hence, why bother? Secondly, while I am sure the idea is to extract lots of synergies with its SA Taxi operations, they are vastly different markets and I am not convinced about this at all. Especially with Transaction Capital as a minority shareholder.

Time will tell and, certainly, until this point, Transaction Capital has not put a foot wrong and this deal is small enough (and profitable from day one) to not be able to derail the business overall.

35% It would seem the

occupancy level is about right for breakeven, and the group says it doesn’t expect to be back in profit until the last quarter of 2021.

ZEDER

On the cusp of being appealing Zeder announced the retirement of its CEO, Norman Celliers, who led the company for eight years, as well as a review of its corporate strategy. News of the new strategy saw the share trade at two-year highs. With Zeder’s Pioneer Foods and Quantum Foods stakes sold, the company can stand on its own, but a clear strategy is needed. My ideal plan would be for it to be majority holders in agricultural assets such as silos, seeds, fertiliser, and the like. Not primary growers, but rather investors into businesses that support the agricultural industry. Also important is that Zeder should acquire majority stakes in these businesses so that it has control and can affect synergies between the different businesses. I will wait for details, but hopefully Zeder can finally become an attractive investment option.

CITY LODGE

Write-offs drive loss In the 27 August issue of finweek, I wrote that, based on my simple calculations, City Lodge would probably break even once it achieves an occupancy level of around 35%. The latest financial results for the year ended June saw the company’s occupancy level drop to 38% for the entire group. The net loss was almost R500m. The loss was, however, impacted by the impairment of property, plant and equipment

by R245.5m and write-offs in right-of-use assets worth R242.9m, which was pretty much the net loss overall. So, it would seem the 35% occupancy level is about right for breakeven, and the group says it doesn’t expect to be back in profit until the last quarter of 2021. Especially important for these results is that they covered the period before the rights issue and, as such, metrics – such as earnings per share – are woefully out of sync as City Lodge issued 12 new shares for every one share owned. www.fin24.com/finweek

marketplace Simon says

CASHBUILD

FORTRESS REIT

A logistics boost

Who’s in and who’s out

Fortress REIT’s financial results for the year ended June show the resilience of the logistics space in listed property. This sector accounts for some 42% of Fortress’ business, while overall rental collections held up well, averaging 93% between April and August. Fortress has a dualclass dividend structure where A shares get a 5% or inflation increase in dividends, whichever is smaller, and the B units get the balance. This saw the dividend for A units fall 32.1% while holders of B units got 51.9% less than a year ago. The key metric everybody is watching is the company’s loan-to-value (LTV) and that came in at 38.5% while cash stood at R2.8bn.

An LTV of below 40% is generally considered a good ratio, even as it weakened from a level of 32.2% in June 2019. Overall, it’s a decent set of results considering the hard lockdown. The worst is now behind Fortress and all properties are open and operating. That said, the share price remains above its net asset value. This, for me, makes the share expensive during a pandemic year.

Locally our indices are changing, effective 21 September, with only the Top40 of the big four indices seeing any changes. Harmony will be joining as RMB Holdings exits. Both make sense as RMB essentially winds down the holding structure and Harmony has been flying with its share price doubling in the last year. With Gold Fields, AngloGold Ashanti and Sibanye-Stillwater* all now included in the Top40, gold miners are making a comeback and miners even more so if we also look at diversified and platinum group metals miners.

BANKS

Compare carefully

Photos: Shutterstock | cashbuild.co.za

INDICES

FirstRand was the last of the big four banks to report results and they should be carefully compared, as FirstRand is for a full year whereas the other three lenders reported for the six months ending June. So direct comparison is hard, but we have solid trends that emerged.

Standard Bank and FirstRand both felt they could have paid a dividend, even if reduced, but did not after the Reserve Bank requested them not to do so. We’ve also seen impairments and bad debt provisions spike, and all four banks seem very cautiously optimistic. Valuations on all four are cheap, but my preferred bank would be Standard Bank. The risk remains if loans that were given payment holidays default at a higher level than expected. @finweek

finweek

finweekmagazine

Will DIY boom support sales?

Cashbuild’s financial results for the year ended 28 June were hit by the hard lockdown that saw the group close all stores and record no revenue during April and May. The company did, however, report a 22% increase in sales in the six weeks after the year-end, compared with the same period in 2019. This ties in with what we’ve seen in the US, with Lowe’s and Home Depot both reporting record sales as hard lockdowns were lifted. Homeowners are tired of staring at the same crack or stale paint job and went out shopping for home DIY improvements.

The challenge locally is that the consumers are under severe financial pressure. But if we add the boom in lower-cost home sales, Cashbuild could have a decent 2021 financial year. My concern would be the proposed acquisition of The Building Company from Pepkor for just over R1bn. Cashbuild is using debt for the deal, despite being able to finance it with cash. But having been burnt by enough big deals going wrong over the years, this one concerns me, even though it should be an easy fit and revenue boost.

RICHEMONT

Market welcomes postponement Richemont has postponed its warrant loyalty programme, which was widely disliked by the market. Exactly how disliked is best illustrated by the share adding almost 10% on the news of the postponement and trading at a high for the year.

S&P 500

The risk remains if loans that were given payment holidays default at a higher level than expected.

Tesla snubbed The managers of the S&P 500 Index elected not to include Tesla as the index is reweighted and recompiled, even though it meets the requirements of four consecutive quarters of profits (as measured by generally accepted accounting principles) and its market cap is over $347bn. Instead, Etsy (online retailer of gifts), Teradyne (equipment maker) and Catalent (biologics and delivery company) were added to the S&P 500. ■ editorial@finweek.co.za *The writer owns shares in Shoprite and Sibanye-Stillwater.

finweek 24 September 2020

21

marketplace investment

By Schalk Louw

JSE

Sprouts of recovery

s

Company analysts expect the FTSE/JSE All Share Index to gain substantially over the next year at current valuations. It’s time to start looking for the blossoms, albeit cautiously.

Jul ’21

Feb ’21

Sep ’20

Apr ’20

Nov ’19

Jun ’19

Jan ’19

Aug ’18

Mar ’18

Oct ’17

May ’17

Dec ’16

Jul ’16

Feb ’16

Sep ’15

pring has finally arrived, and we’re getting closer to FTSE/JSE ALL SHARE INDEX WITH 12-MONTH EXPECTED GROWTH CONSENSUS FORECASTS the time of the year when most people’s minds start leaning towards sun, sea and sand. The less pleasant 70 000 side of a seaside vacation, however, is rip currents.

65 000 Anyone who has had the unfortunate experience of crossing paths with one of these monsters will know 60 000 that it must be one of the most terrifying and frustrating experiences to go through. Your every instinct will prompt 55 000 you to swim back to shore, only to find yourself being drawn 50 000 further back into the ocean. The key to your survival when caught in these currents, strangely enough, lies in either 45 000 conserving energy and floating on your back along with the current; or swimming sideways – parallel with the shoreline 40 000 – until you can feel the current weakening, giving you the 35 000 opportunity to swim to shore safely.

Rip currents provide the perfect example to explain the current situation in our local stock market, especially over these past few months. In the same way that your instincts will SOURCE: PSG Wealth Old Oak & Thomson Reuters prompt you to try to swim against a rip current to shore, human instinct will always prompt us to try and determine either the peak or the bottom of a market, and more specifically, investment term called the bottom-up approach. When At current price levels, individual shares. However, this is exactly where many investors follow a bottom-up approach, they focus on the [analysts] still expect investors earn themselves a few extra self-inflicted grey hairs. analysis of individual shares and not so much on the market History offers some apt examples. After the FTSE/JSE as a whole. When looking at analysts’ consensus forecasts All Share Index (JSE) declined by more than 29% for the on individual shares, for example, we will be able to get an 12 months ending 30 April 2003, the “swim against the indication of how positive or negative their outlook is on current”-mentality was clearly visible when the index gained each individual share. When placing their findings relative to growth in the index over the next 12 months. nearly 43% in the following 12 months (up to 30 April something like the FTSE/JSE All Share Index, we can get an 2004). It feels like yesterday that the press was filled with idea of the expected growth for the market. news on how the market had “rallied too much” and cash After following a bottom-up approach on each individual had suddenly “become king”. What happened after that, was listed share on the stock exchange and calculating the onethat the JSE managed to grow by a further 25% in the 12 year expected future price on each of these shares, it was months that followed and three years later (30 April quite interesting to see that analysts remain moderately 2007), had delivered almost 200% growth in total. optimistic about local shares, despite the fact that That said, the last thing I want to do is to the index’s earnings suffered quite a bit over the suggest that our current local market environment past two months. In fact, for the first time in years, is anywhere close to what it was in 2004. But I do analysts have adjusted more companies’ earnings want to point out that investors should be careful forecasts upwards than downwards in the past of swimming against the market rip current.

30 days. At current price levels, they still expect As at the end of August 2020, JSE levels 27% growth in the index over the next 12 months. of 55 476 not only meant that we were in a It is important to remember that although full-blown recession in addition to the Covid-19 they may be experts in their fields, these analysts pandemic, but also that the JSE found itself in a still cannot provide any guarantees in terms of space where it hasn’t been able to outperform the future growth, profits or pricing. local money market since 2013. The fact is that since Remain calm when approaching the noise and the market declined by more than 33% from the beginning “currents” surrounding shares now. It remains a higher-risk of 2020 until 19 March 2020, no one thought that six investment than other asset classes, such as the money months later we would again be trading at levels higher than market and bonds, but those who can demonstrate patience those seen at the end of 2019. Is this the peak then? What over the long term can definitely reap the rewards. ■ are the experts saying? editorial@finweek.co.za Before I answer this question, I would like to explain an Schalk Louw is a portfolio manager at PSG Wealth.

Photo: Shutterstock

27%

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finweek 24 September 2020

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marketplace invest DIY

By Simon Brown

STRATEGY

Prediction risk and management

a

Photo: Shutterstock

Do we know what will happen in the future? And if we did know, would it change our investment behaviour? great tweet from Stuart Theobald of Intellidex reads: “Imagine you had a machine that told you the news a year’s time from now. Imagine you had that a year ago. You would have shorted the market, right?”

The implication is obvious; if we’d known about the pandemic before it arrived, we’d surely have shorted the market – fully confident that it would be lower for longer – yet, the sell-off was short, and markets recovered quickly.

Humans tend to fall into the trap of believing that if one thing happens, then the other linked event will most certainly follow. But this is not true. One would expect a pandemic to see markets very much lower for a lengthy period, at least until we had a vaccine. Yet, central bank stimulus and a surge in tech stocks have global markets at, or near, all-time highs.

The point is that we are trying to determine not only what the situation will be in a year or two, but also how markets will respond.

We’re not working with just one forward variable, we’re actually working with two and we can be right on both, either or neither, and this adds risk. The truth is that even if we knew the future, we may not profit from that knowledge.

Years ago, I was teaching a trading workshop with about 40 people attending and I used an experiment to illustrate this point.

I told the group they’d be trading a share over 200 days of simulated data and they could go short or long whenever they wanted and that the person with the best return would be the winner. I also told them that at the end of the 200 days, the price would be up 100%. If they bought at day one and held to the end, they’d be guaranteed a 100% return. @finweek

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With this knowledge, only three participants did better than the 100% gain that the share achieved as they traded over the 200 days.

In this case they knew the outcome, but to win they wanted to do better. Had they bought and held, they would have had the fourth-best return. Sure, this is not winning. But fourth out of 40; isn’t that an excellent result?

This exercise was focused on trading. As investors, however, we need to be very clear about the risk that we can be wrong about the future (nobody predicted a pandemic for 2020) as well as that even if we are right about the future, we may still be wrong about the response.

To manage this, I keep my expectations very general and rather actually look out longer. For example, I never try and forecast a recession; I rather own longterm stocks that will manage a recession well enough and may even pick up market share if the competition struggles.

Furthermore, what I mean by ‘looking out longer’ is that I, for example, assume that people will still be eating in the future. Equally, they will be needing banking services – even though I have no real idea of what exactly banking will look like in the decades ahead.

Based on the assumptions that we’ll be eating and banking, I started looking at food producers, retailers, and banks. This approach removes one of the risks of forecasting in that I’m not trying to forecast some large event that could occur in the next year or two.

Naturally, this does leave me with the risk that while we will still be eating, the retailer I bought may no longer be the winning retailer.

But that is one rather than two risks to manage. ■ editorial@finweek.co.za

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For example, I never try and forecast a recession; I rather own long-term stocks that will manage a recession well enough.

finweek 24 September 2020

23

marketplace trader’s corner

By Petri Redelinghuys

ANALYSIS

Supply of uranium worsening

i

Photo: Shutterstock

The yellowcake ingredient of nuclear power reactors has moved into a large structural undersupply. n 2011 a massive tsunami hit Japan, killed thousands of people and wreaked havoc on the world’s thirdlargest economy. The tsunami caused the first nuclear catastrophe since Chernobyl, with certain security features failing at the Fukushima nuclear reactor, leaking radiation to a nearby town. Not only was this an environmental catastrophe for Japan, but the suppliers of uranium found that suddenly, the promised recovery in uranium was dead.

The world rushed to close its nuclear reactors, Japan acted immediately and over the next few years shut down all its nuclear reactors. A few other countries announced their intentions to close reactors, or stopped any plans for new reactors. Japan has since restarted some of its nuclear reactors and, as a country with no natural energy sources, nuclear power is the cheapest option.

Unbeknown to most people, nuclear energy is not as expensive as is often believed. While these reactors in Japan were offline, energy bills in Japan rose by 20%.

Fast-forward to 2020 and nuclear energy is slowly coming back to life. Many people are coming to realise that nuclear might be the only solution to reducing carbon dioxide emissions. In fact, nuclear energy is now part of Japan’s plans too, as they have committed to reducing greenhouse gases.

It’s not only Japan that has had a reversal of interest in nuclear – there are currently 50 nuclear reactors under construction, which will add to the 440 reactors in operation worldwide. Many older nuclear power stations have also been given life extensions as many countries are coming to terms with the fact that nuclear power is part of a longer-term solution to the world’s fossil fuel dependence.

It’s clear that nuclear is part of the future energy mix, but it’s on the supply side that things look more interesting. Before we cover supply, a few more words on the demand side.

A nuclear reactor takes two years to plan and up to ten years to build. Decommissioning a nuclear reactor typically takes up to five years. Demand is therefore predictable, barring no accidents.

Since 2011 the supply of uranium, the fuel for reactors, has been a problem. This caused the price to remain subdued and the shares of suppliers to stay at multi-year lows. The supply landscape has slowly been changing since 2018, but with a limited impact on prices until very recently.

Supply of the uranium market is dominated by two players. Kazatomprom and Cameco supply about 60% of the market. These two suppliers began cutting production in 2018, but things really heated up when Covid-19 hit in March.

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SPOT PRICE OF URANIUM ($ PER POUND)

140 120 100 80 60 40 31.6 20 2000

2004

2009

2013

2017

2021 SOURCE: Trading Economics

Cameco, which is listed in Canada and New York, was quick to use Covid-19 as an excuse to close the world’s biggest and Canada’s only producing uranium mine, called Cigar Lake. The uranium price is currently at $31 a pound and there are unconfirmed reports that Cigar Lake may only be brought back online when this price reaches $45. Cigar Lake alone accounts for 12% of world uranium supply.

These closures have caused the major producers to enter the spot market to fulfil their contractual obligations. Yup, you read that right – producers are now entering the market themselves buying uranium. Added to this limited supply, many producers are rolling off old contracts at much higher prices and are now refusing to supply the market at current low prices. Supply agreements can run for many years.

As utilities know that their demand is constant, and that uranium is a small component of the cost of running a nuclear power station, it means that users are not too concerned about paying up for the product. There is no alternative to using uranium, which makes bull markets in uranium particularly aggressive, as we saw back in 2004 to 2008 when there was a 16-fold increase in the uranium price.

The Kazaks have also said they’re no longer supplying the spot market, which is also bullish. What seems likely now is that the excess supplies have been worked through the system and, even if Cigar Lake comes back online, the market is destined to be in deficit for years to come.

Uranium is a commodity market in deficit with only about 40 producers who are destined for a vicious bull market. So how would we play this? One can buy a single producer, like Cameco directly. The other way is through an ETF. We are looking at the North Shore Global Uranium Mining ETF. ■ editorial@finweek.co.za

Cigar Lake alone accounts for

12% of world uranium supply.

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marketplace trader’s corner

RSI alone not enough

o

Oscillator divergence signals can show the way earlier. scillators, such as the relative strength index (RSI) and stochastics, are often used as signals for overbought and oversold zones. Let’s use the RSI as an example. Generally, an RSI set on 14 days is considered overbought above the 70 level, but there are many examples where this fails to stop an advance. Many novices have shorted a stock when it reaches the 70 RSI level, only to notice many days later that the share is still climbing.

Let’s use an example (see graph 2): the Nasdaq was overbought according to normal metrics from late December through late January. Anyone who shorted during this period, or sold their assets, would have been severely disappointed. Oscillator divergence helps to achieve better timing. Oscillator divergence is when the oscillator no longer makes a new high, whereas the price of the share makes a new high at the same point. How oscillator divergence works is the market continues to make new highs through December with a small pause in January, followed by higher highs into late February, but the oscillator did not make a new high in February. This was a condition telling us that the rally is weakening, and a better

shorting opportunity was building. In the days ensuing this warning, the market began the historic Covid-19 crash of March 2020.

Divergence can also be used to determine when to exit a parabolic move or even short one (which isn’t really recommended).

JSE-listed Harmony Gold recently had a parabolic move (see graph 1) that saw the share run up over 130% in a few weeks. It was difficult to determine where to exit a long as the news just kept getting better and better, with spot gold price trading at new all-time highs daily.

Harmony’s RSI remained overbought for almost a full month, but the divergences that started to happen gave us a clue that the market was topping, and it was best to take profits. An investor should have exited on the second divergence. By the time the third divergence formed (where Harmony traded and closed at an all-time high), it was clear that the rally had run out of steam and the share dropped almost 20% in the days after the divergent signals. ■ editorial@finweek.co.za

Oscillator divergence helps to achieve better timing.

Petri Redelinghuys is a trader and the founder of Herenya Capital Advisors.

GRAPH 2: INVESCO QQQ NASDAQ ETF

GRAPH 1: HARMONY GOLD

90 70 50 30 10

90 80 70 60 50 40 30

$235 $230 $225 $220 $215 $210 $205 $200

R130 R120 R110 R106 R100 R90 R80

$195 $190 $185 $180 $175 $170 $165

R70

Photo: Gallo/Getty Images

R60 R50 R40 R30 1 8 Jun

15 22 29

Jul

6

13

20

27

3 11 17 Aug

24

31 7 Sep

14

21

SOURCE: Stockcharts and Herenya Capital Advisors

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18 25 Dec 9

16 23 2020

13 21 27 Feb 10 18 24 Mar 9

16 23

Apr 6 13 20 27

SOURCE: MetaStock and Herenya Capital Advisors

finweek 24 September 2020

25

marketplace invest DIY

By Simon Brown

STOCKS

Quality bargains up for grabs

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Photo: Shutterstock

The lockdown has given investors the opportunity to buy some great companies at great prices, writes Simon Brown. hen the markets collapsed back in March, and then started to stage their recovery, all the talk was centred around what shape that recovery would take. Would it be V-shaped (a crazy idea at the time, but one which has pretty much held true for overall indices)?

Many said it would be W-shaped and we would see a second sell-off – this never happened. Another option was an L-shaped recovery, but that was never on the cards as markets rallied fast off their lows. A last offering was a proposed U-shaped recovery.

The shape of the recovery, if we dig deeper into the market’s performance, is a K-shaped one. We have an upper leg that is booming. In the US, it’s the large tech stocks and locally, it’s miners. The lower leg is pretty much everything else, with some sectors, such as leisure, right at the bottom. Locally, the banks are also really holding on to that lower leg.

Back when we were in hard lockdown my investment approach was simple.

I stopped buying any shares and only bought my regular exchange-traded funds (ETFs) every month. I simply didn’t know how the pandemic would play out and I felt erring on the side of caution was the best approach.

I have, in the last few months, been buying individual stocks again, focusing on miners and stockbrokers. Two easy winners from the lockdown boom in online trading and investing, and of course the commodity price moves.

But now we’re at six months after the collapse, the hard lockdown is behind us and very unlikely to be re-introduced.

We need to start looking at those stocks in the lower leg of the K-shaped recovery, as there is value there. What we are also seeing is company financial results that include the level-4 and level-5 lockdown stages. So we are able to get an idea of how companies coped, although this is behind them.

So, what am I looking for? The usual and the simple. I want to own the best

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finweek 24 September 2020

companies in sectors that have underlying fundamental growth prospects. What the lockdown gave us is an opportunity now to buy some great companies at great prices.

What we’re also seeing from these ‘lockdown financial results’, is the quality of management. AVI’s results again showed evidence of a top management team, while Shoprite’s* results confirmed my belief that it’s the best food retail management team in the world, never mind South Africa.

What I’m not doing is buying beaten down stocks with lots of debt and a hope that things will get better. Sure, it will get better (from a pandemic perspective) but they will never beat the better-managed companies. I’m also still extremely cautious on both listed property and leisure.

Property is cheap; unbelievably cheap by any metric. But this lockdown is changing trends and I’m not sure how it will play out in the long term. The exception is property logistics stocks such as Equites. This is because we’re doing more online shopping and thus logistics warehousing becomes ever more important.

Leisure stocks are the cheapest on the market and for a good reason. There is huge pent-up demand, but SA’s borders remain closed and local consumers may be spending right now, but the economy is in bad shape and so too are consumers.

But banks, retailers, healthcare, and telecommunications stocks all warrant a solid look. The next 12 to 18 months will remain tough. But, as I said earlier, the hard lockdowns of April and May are not likely to be repeated and we’re seeing some impressive results considering that lockdown. Look for quality companies with great management teams who are coming out of this pandemic with strong potential and stock up on this sale in shares.

Lastly, the next year or two will be rocky, but remember we’re long-term investors buying quality at great prices. ■ editorial@finweek.co.za

Banks, retailers, healthcare, and telecommunications stocks all warrant a solid look.

*The writer owns shares in Shoprite

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marketplace share view

By Peet Serfontein

OFFSHORE XXXXXXXXXXXXXXXX

Hedging instruments could allay your fears of market swings

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Inverse exchange-traded funds help to protect capital. he question of what an investor should do when markets become volatile and suddenly undergo a correction always arises in times like these. Should you sell your current investments in order to protect your capital, or should you rather take no action and wait for the storm to pass?

In most cases, and especially if you are a long-term investor, it is advisable to wait for the storm to subside, but this usually requires nerves of steel.

I believe that market movements such as the recent correction that occurred on the Nasdaq – during which Apple’s share price dropped by about 8% on a specific day and closed unchanged on that day – will happen more often as the US election draws closer.

Let us pause a while and consider a characteristic exhibited by share markets.

On average, they usually increase 80% of the time and decrease only 20% of the time. The 20% usually goes hand in hand with a fast and aggressive movement.

Which brings us to hedging: something an investor can do when the markets are undergoing a rapid correction and they want to protect their portfolio. Hedging is a strategy to manage risk and is used to counter losses in a portfolio by taking the opposite position in a related share. Just remember that the reduction in risk offered by hedging usually also means a reduction in potential gains.

Hedging involves the use of derivatives, futures, options and over-the-counter instruments. Because the mechanics of the pricing of these types of instruments are based on complicated math, hedging is mostly aimed at sophisticated investors.

Nowadays, exchange-traded funds (ETFs) can help investors to protect their portfolios against such a correction. To put hedging in perspective, one should buy an ETF that’s moving in the opposite direction to the primary index. For example, should the S&P 500 index decline in price, then the price of the chosen ETF should rise. And when the S&P 500 rises, then the price of this ETF should drop.

Remember I mentioned that the correction in the 20%, when markets decline, @finweek

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PROSHARES ULTRA SHORT S&P 500 ETF

– 160.00 – 140.00 – 120.00

– 113.62

– 100.00 – 80.00 – 60.00 – 40.00

– 33.38 Pre – 8.8100

– 20.00

Nov

2020

Mar

Apr

Jun

Jul

Aug

Oct SOURCE: Peet Serfontein/TradingView

usually happens very quickly. This means that should you lose $1, it won’t help to hedge your portfolio to recover a mere $1. This inversion is usually available on a leverage effect, meaning that should the S&P 500 drop by 1%, this type of ETF could move up from 2% to 3%. So ensure that you know exactly how this type of ETF works.

Also remember that no hedging strategy is a 100% reflection of your portfolio (except if you keep all the underlying shares in exactly the same exposure ratio). It’s usually referred to as partial hedging, but should be effective enough.

In this context the ProShares Ultra Short S&P 500 ETF, code SPXU, caught my eye.

It offers three times the opposite, or short, exposure to the S&P 500 and uses different swaps and other instruments to provide investors with a reverse gearing position.

What makes the ETF an attractive investment option?

When the S&P 500 declines at a given moment, this ETF is expected to increase threefold in value over the same period. If going long is the only possibility, investors are limiting their potential. It’s like a car that can only travel forward. You should after all be able to get your car out of your garage, so you also need a reverse gear.

But should you buy?

If the markets become volatile or are in seriously overbought territory, I suggest introducing such a hedge.

As we have used the S&P 500 as an example, it is advisable to determine certain technical levels and to introduce such a hedge when the index breaks through these levels.

An example of such a technical level is when the S&P 500 weakens further and you are worried about the price movement, then you introduce your hedge.

Afterwards determine further levels such as, for example, 3 200 index points to increase this hedge. Also determine the level where you will cancel this hedge, for example at 3 000 points.

Should the hedge already be in place and the market suddenly moves upwards through the 3 400 level, then you also cancel your hedge.

Remember that these reverse or opposite ETFs can be more risky than an ordinary ETF. So do not regard these types of ETFs as a long-term investment.

The next time you become worried about the price movement of the markets, know that there are instruments you can use to calm your nerves. ■ editorial@finweek.co.za Peet Serfontein is an independent market analyst.

finweek 24 September 2020

27

marketplace economy

By Rob Price

INFLATION

The debate we should be having

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Focusing on CPI inflation is missing the point. Monetary inflation and the declining value of cash are the themes of 2020. he inflation or deflation debate has been heated since the Global Financial Crisis (GFC) and it’s reared its head again in 2020.

During both periods central banks implemented extraordinary monetary loosening measures and analysts feared that this would produce inflation. Low CPI inflation across the world after 2009 led many to conclude that inflation fears were unfounded. Applying that 2009 to 2016 experience to 2020, one could forecast that inflation will remain contained over the coming years. This conclusion is overly simplistic and constructing portfolios on the back of it is dangerous.

Monetary inflation and the deterioration in the value of cash are big themes for client portfolios in 2020.

The missing ingredient to the inflation or deflation debate is a holistic appreciation of inflation. University economics focuses on the basket consisting the consumer price index (CPI), but this is just one definition of inflation.

A broader definition of inflation is monetary inflation – the amount of new money being created. This is measured through money supply growth, which is dependent on central bank policy and the actions of the banking system. As central banks loosen or tighten monetary policy and commercial banks loosen or tighten lending standards; loans, advances and mortgages tend to increase or decrease. If money supply is growing, then money in that currency is experiencing inflation, and prices – somewhere in the economy – are impacted.

While CPI inflation was contained after the GFC, monetary inflation was strong, and this had consequences. New money must find expression. It could find expression in consumer prices, lifting the CPI basket, but it could find expression elsewhere.

After the GFC, monetary inflation found its way into equity prices, house prices and bond prices.

Asset price inflation is the primary explanation for the much-vaunted divergence between the real economy and financial markets.

Why didn’t we see strong CPI inflation? A combination of reasonably weak consumer credit growth, technological innovation supressing consumer prices, global trade – which allows consumers to receive competitive global prices – and confidence that a currency would continue to hold its value were the main reasons.

Looking forward, I don’t have all the answers, but we can ask ourselves a few simple questions to deduce the risks and opportunities for 2021 and beyond. Is there monetary inflation? Yes, massive amounts, particularly in the US, which is the world’s biggest economy and biggest financial market (see graph).

Where will all the global monetary inflation find expression?

Authorities are specifically trying to force consumers and business to spend, rather than to save, because they hope this will lift the economy out of recession. This is a badly thought-out policy. Central banks are lowering interest rates to new record lows, ploughing funding into financial markets, and fiscal authorities are implementing direct fiscal transfers to consumers. These policies have an unequivocally negative impact on the value of cash.

This is a critical conclusion because it affects our understanding

THE FEDERAL RESERVE AND US TREASURY HAVE CAUSED A HUGE INCREASE IN US MONEY SUPPLY GROWTH

10 9 8 7 %

6 5 4 3 2 1 1980

1985

1990

1995

2000

US dollar M2 money supply growth

2005

2010

2015

2020

5-year percentage change annualised SOURCE: Alexander Forbes Investments

of everything else in financial markets. If the value of cash tends to decline, there is a possibility that the value of everything else rises relative to cash. At the minimum, it becomes less likely that prices will decline relative to cash. For example, when we price our house, we price it in rand or dollar or euro. If those currencies’ values fall, then there is a possibility that the price of our house increases, irrespective of whether the worth or value of the asset changes.

This logic provides a good framework to understand equity markets’ gains in 2020. Equity markets are not pricing a V-shaped recovery, as some might argue. Neither are equity markets looking ahead to a utopian future without the coronavirus. Rather, equities are pricing the impact of monetary inflation on asset prices – asset price inflation. Investors know that the monetary inflation will have an impact and they’re speculating that equities will be a beneficiary. Various financial markets have been the beneficiary of the extraordinary monetary inflation in 2020, including South African government bonds, global credit markets and precious metals.

Did the SA government become more creditworthy in 2020 to justify lower interest rates on bonds? Of course not. There’s just a lot of money in financial markets that needs to find a home and government bonds appear reasonably attractive, despite a remarkable deterioration in the SA government’s creditworthiness.

The rise in gold is particularly interesting. Gold has no yield. Gold merely acts as a storage vehicle for value over long periods of time. Its rise in 2020 is the marked characterisation of the theme of this article.

Focusing purely on the outlook for CPI inflation or deflation misses this crucial information below the surface. No matter the outlook for CPI inflation, monetary inflation and the deterioration in the value of cash are big themes in 2020. Those who merely debate the trajectory of CPI inflation or deflation are missing the point. ■ editorial@finweek.co.za

If the value of cash tends to decline, there is a possibility that the value of everything else rises relative to cash.

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finweek 24 September 2020

Rob Price is head of asset allocations at Alexander Forbes.

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cover story investment

WHERE ASSET M ARE SEEKING RE Offshore investments and money markets have been flooded as SA’s economic malaise continues.

Looking for higher returns leaves fund managers between Scylla and Charybdis – is the risk worth the uncertain returns, or should capital be parked at low yields for now? Brendan Peacock looks at how SA’s investment gurus are approaching the Covid-19 fallout.

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finweek 24 September 2020

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cover story investment

l

Photo: Gallo/Getty Images

MANAGERS ETURNS

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ike any business during one of the world’s most extreme lockdowns, South African asset and investment managers have had to contend with unprecedented and unexpected disruptions to operations because of the Covid-19 pandemic. Some of these adaptations will be temporary, but some will likely reshape the industry for many years to come.

The Covid-19 pandemic is proving to be one of the worst crises to confront the investment community, but SA fund managers believe the crisis merely serves to reinforce the investor biases that were already in place before lockdown.

In response to the pandemic, what South Africans have elected to do with their investments is to accelerate a fiveyear trend. The latest quarterly report from the Association for Savings and Investment SA (Asisa) shows that local investors have shunned high-equity or balanced funds to find more certainty and protection from volatility in money market and fixed-income funds. To date, decent yields have proven them right.

“We’ve seen meaningful growth in the market share of money market funds, from 15% to 18% in the last five years. This reflects investors trying to get creative to compensate for underperforming equity markets over the last five years. Locally, we’ve been fortunate to have relatively high interest rates and good yields, but this easy option is now disappearing as rates fall,” says Sangeeth Sewnath, deputy managing director of Ninety One. “The multi-asset income sector has grown from 6% market share to 10%, and global equities from 3.7% to 6% on the back of a significant global bull market for some time. What is really interesting is to see the sectors that have lost out, namely multi-asset low equity, which has seen outflows of R53bn in five years. The equity sector in general has declined from 16% to 10.5%. The multi-asset high-equity sector, which is balanced funds, dropped from 23% to 20%. It remains the largest overall, but has lost ground,” Sewnath says.

However, he says, these trends may begin to reverse now that interest rates have fallen – though probably too slowly.

finweek 24 September 2020

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“In the past eight previous financial crises, case that upper-income people – typically statistics show investors have come back the clients of collective investment into the equity market about a year after the schemes – mostly held onto their jobs crisis point. In SA, we can therefore expect and were unable to spend their disposable a flood of money back into the market in income, so channelled it through collective about March next year as people regain investments.” confidence. But that’s frightening – it Negativity around SA’s economic means many investors might have missed prospects has driven an increase in the rebound of 30% or more.” offshore allocations. Pieter Koekemoer, Tamryn Lamb, head of retail head of personal investments at distribution at Allan Gray, says the Coronation Fund Managers, says that investment team used one of the sharpest investors have developed a higher drops in market history and negative conviction that anything global is better market sentiment as an opportunity for than the domestic equity market – and so buying, but understands retail investors’ are cash and short-term debt positions. behaviour after three to five years of equity “That the rand sold off fairly aggressively, portfolios underperforming cash. mitigating the fall in value of offshore “As the domestic market crashed in equities, merely served as confirmation bias March and yields spiked dramatically, for many investors who are convinced SA we became active buyers – both in Inc is taking strain. We first began hearing quality names, which became commentators speaking of a debt “We believe the next meaningfully cheaper with no crisis, fiscal cliff and potential IMF six to difference in their long-term bailout in 2014, and the regular intrinsic value; and in increasing crises since then have merely our exposure to the longer end brought us closer to the end game. of the bond curve because We believe the next six to 12 of significant increases in months will define our course for months will define our course for the yields. Since then we’ve seen a the next decade,” says Koekemoer. next decade.” significant rebound. Cash rates With foreign investors came down both globally and dumping SA government bonds locally, and the local market despite their high yields by rose 25% to 30% to be almost flat on a comparison with other global alternatives, year-to-date basis. and structural reform seemingly “Investment management clients politically unpalatable, Koekemoer says have been tired of waiting for equities to local investors are hard-pressed to see outperform cash and bonds, which has domestic equities performing. been a five-year trend. In SA, a harder The problem, which may lead to the lockdown relative to the rest of the world “next big investor disappointment”, is has had a meaningful impact on some that the prospects for global equities are sectors, where companies are already going also not good beyond the current ‘big to market to raise capital. Some companies tech’ surge. “What were tailwinds for simply won’t survive,” she says. global equities, as a result of globalisation, Investors have craved certainty. “Since have become headwinds in the form 2018 nearly R350bn net flows have moved of isolationist politics and trade wars, into income and money market categories. collapsing corporate tax rates, inequality I can understand it as a response. The issues and climate change,” says problem is that it becomes very difficult to Koekemoer. “With these headwinds, I think time re-entry into equities.” we would be lucky to maintain anything Protea Capital Management CEO Jean close to the 4% or 5% global growth we’ve Pierre Verster says he believes lockdown seen trending.” is partly responsible for a surge of money Add to that the issue of falling domestic into collective investment schemes. “While interest rates, which will see investors lucky a lot of people in the middle- to lower class to eke out 6% in money market funds, and got hit and experienced negative effects of Koekemoer says investors are hard-pressed economic shutdown, you could make the to find alternatives. “There is an opportunity

Photos: Archive

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Tamryn Lamb Head of retail distribution at Allan Gray

Jean Pierre Verster CEO of Protea Capital Management

Pieter Koekemoer Head of personal investments at Coronation Fund Managers

www.fin24.com/finweek

cover story investment

“What is really interesting, is to see the sectors that have lost out, namely multi-asset low equity, which has seen outflows of R53bn in five years.”

changing valuations given the long-term impact of Covid-19 on businesses. We were discerning, upgrading quality where we could. Within all portfolios we’re trying to balance holding a percentage of higherquality rand-hedged local stocks with reasonable exposure to locally-oriented financial and consumer businesses trading at distressed valuations. We also mix in exposure to SA government bonds and the maximum weight we can take offshore.”

Verster says retail investor capital flows can be considered contrarian indicators.

“Astute investors should actually do the opposite. With the benefit of hindsight, it was not a bad idea to do what retail investors have done, but right now continuing to pile into money market and interest-bearing funds, or what seems like potentially overpriced global options, seems peculiar, given the outlook. It’s a real rock-and-hard-place scenario where investors are hamstrung for alternatives.”

For those who might dare to buck the trend, Verster illustrates just how tough the prospect of domestic equities seems. “A number of shares I thought were in good

positions and offering value before Covid-19 struck have almost hit the wall. Looking at examples, City Lodge has been forced into a highly dilutionary rights issue, decimating value for shareholders. Spur is in trouble, and Famous Brands is under significant pressure – badly hit by the local and UK lockdown restrictions. Sun International, Tsogo Sun Hotels and Tsogo Gaming, as well as their holding company, HCI, now look to be in precarious positions because of changed operating environments.

“The same goes for Comair, which – after delivering many consecutive years of profit – has wiped out its investors and gone into business rescue. Our mines, notwithstanding shutdowns, especially gold and platinum, have come out winners because the gold price is on a tear as a result of risk aversion and the PGM basket is back to record highs driven by rhodium and palladium on the back of a global trend toward greener energy,” says Verster.

He agrees this is quite possibly the most difficult investment decision-making environment he has encountered. “Since 2015 we have had to contend with a crisis

KINGJAMESJHB 3489

Allan Gray is an authorised financial services provider.

risk for moving to lower-risk investments. If investors overstay in their comfort position, they could end up being very disappointed.”

Lamb says when existing short-term debt reaches maturity and is replaced in portfolios by lower-yielding assets, investors will begin to feel the pinch.

“Without doubt investors have tried to take risk off the table, but they can’t really afford to for much longer.”

Retail investors will likely need to change strategy again if they are to not get caught out. “By and large investors have made the big calls right by opting for offshore equities and domestic fixed income, but the calls won’t be that easy now. Global equities in specific areas will still generate best returns – companies that are highly resilient with strong balance sheets will outperform. And at the longer end of the debt curve we are cautious but believe we can still hold out,” says Sewnath.

Lamb adds that on the domestic market, Allan Gray traded busily during the March market jitters. “We’ve had to be quite responsive and flexible and react to

cover story investment

where political factors outweigh economic factors, but the reason for each crisis is different. Essentially, the future is inherently uncertain, and the job of an investment manager is to make decisions under uncertain conditions.”

According to Sewnath, this is a great time to use a financial adviser. “It helps to analyse previous investment allocation decisions and to see what the outcomes were, particularly during

a crisis. Also, have you chosen the right manager? A crisis is a true test of sticking to a philosophy and a process. If your manager suddenly changes from being a deep value manager to investing in high-growth stocks, you know there’s a problem. Other red flags would be a raft of portfolio manager changes during the crisis or corporate action at the asset management company. As usual, our advice is to stay in the market and ride it

out – don’t miss the recovery.”

Lamb provides the final piece of advice: “Don’t be swayed by political fears about SA’s future. If you make an investment decision for the long term, there has to be a good case behind it.

Also, don’t react to rand movements. If you make decisions based on emotion, you’re not focused on when and how you’re investing offshore.” ■ editorial@finweek.co.za

From income streams to incoming streams

Photo: Archive

How have fund managers navigated providing their clients with service in a remote world? investment teams can basically sit anywhere and On a practical, operational front, local investment call on the resources they need. We took for granted managers and collective investment schemes that this integrated way of thinking would help us instantly lost face-to-face contact with clients, navigate these storms, but our performance during financial advisers, service providers and the pandemic has demonstrated it. It’s helped us management teams of companies in which understand the complexities of global trends and they invest on their clients’ behalf. As with most how they’ve affected our domestic market.” industries, the solution has been accelerating At Coronation Fund Managers, Pieter the rate of digital transformation within their Koekemoer, head of the personal investments organisations; not all began from an equal footing. business, says a distributed working model was Jean Pierre Verster, CEO of Protea Capital not in place before the pandemic hit, and though Management, says his team worked remotely even it created challenges, there is no going back to before lockdown, which meant minimal disruption the old way of doing business. “What changed to daily operations. “As a whole the industry dramatically was that fund managers were forced needed to adapt, and one visible benefit has been to work from home and we had to adapt quickly. the adoption of videoconferencing via services like But our productivity has increased by 20% to 25% Zoom and Microsoft Teams, to make staying in and that means we will definitely employ a hybrid touch seamless. I think going forward we’ll see a lot model going forward. It’s important for people to be more of this with significantly less business travel together from time to time, but the days of everyone required. The same will apply to meetings with coming to the office all day, every day are gone.” company management.”

This presents challenges in building a Verster says where brokers used to host corporate culture, but Koekemoer says breakfasts and lunches to allow fund nobody is missing business travel. managers to sit around a table with “We essentially converted our formal executives to gain more insight into adviser report-back programme, strategy and operating models, these Conversations with Coronation, to engagements can accommodate virtual meetings, believing this would be many more people in the virtual a way to accommodate more people than realm. “I think most presentations and Sangeeth Sewnath we’d previously reached with arduous annual general meetings will offer a Deputy managing digital attendance option going forward, director at Ninety One presentations in ten cities five times a year, but we discovered that production quality though I would like to see AGMs is important to keep viewers engaged. This has become more of a level playing field in terms of meant spending a lot of time on preparation because allowing those shareholders attending digitally to you’re basically producing a television show.” put questions to management.”

Sewnath says this is a universal issue. “Since Sangeeth Sewnath, deputy managing director lockdown clients have become a lot more adept at at Ninety One, says a deliberate strategy to build using technology, which has allowed us to speak a globally-integrated business has paid off. “Our

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to up to 6 000 people at a single roadshow. But going digital isn’t just about using the technology – it requires different talents. If you don’t think carefully about the information and presentation you’re putting forward, to be relevant and answer investors’ questions, it won’t work.”

Tamryn Lamb, head of retail distribution at Allan Gray, says there is a temptation to make long-term decisions because of Covid-19 disruption, but the industry is grappling with what should remain temporary adaptation. “We managed to get close to 100% of our staff working from home within weeks, and we’ve been pleased with how productive we’ve managed to be, including routing inbound client service centre telephony services and using a combination of Zoom, Teams and other platforms.

The hurdles were not nearly as high as we’d thought, but the real question is where to from here?”

She says a flexible remote working policy will be in place, but there’s a difference between lockdown restrictions and internal policy that makes sense.

“This industry still depends on an element of trust and human interaction, so we expect people will not change their habits completely.”

According to Koekemoer, gauging investor sentiment has been relatively easy through lockdown. “We see big spikes in client engagement about performance around quarterly reporting dates. Investors seemed to be quite numb when they received their March statements reflecting significant drops in capital. It was the first time any of us was dealing with a financial and societal crisis at the same time, which affected every aspect of our lives. But by the end of the second quarter in June, we saw moments of real anger, reflecting people’s frustration with lockdown. It will be interesting to see what happens at the end of September.” ■

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Gill Middleton 082 800 1547 gill@lionleadrealestate.co.za www.lionleadrealestate.co.za

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in depth economy

CAN SA SURVIVE THE CALLOUS

Photos: Gallo/Getty Images | alexanderforbes.co.za | intellidex.co.za | Archive

a

nct A growing body of research warns that South Africa is on the verge of becoming dysfu

will part from their billions in that environment.” larm bells are ringing as evidence mounts In a report released on 10 September, the that it may take years before South Africa Johannesburg-based political and economic bounces back from its deepest economic risk consultancy Eunomix made headlines with a contraction on record, with a recovery warning that without a meaningful change in its lagging well behind other countries hit both by economic policy trajectory, SA faced a “precipitous lockdowns to curb the spread of Covid-19, and the economic and political collapse” which would make toll which those measures have taken on global trade it a “failed state” by 2030. and growth.

“The pandemic is the last nail in the coffin of The real culprit is not the pandemic itself but the a strategic fiasco. The economy is unsustainably policy paralysis which, for more than a decade, has narrow and shallow. It rests on a small and declining blocked the private sector investment that could working population burdened by very high debt free the country from a debilitating low growth and taxes,” it warned. Eunomix pointed out that and rising debt trap, aptly described by finance cadre deployment, government procurement and minister Tito Mboweni in June as the “jaws of the widespread corruption had helped to cushion hippopotamus”. the ANC from the political consequences of Lack of consensus among the groups which economic failure. help formulate official policy – government, The conclusions drawn by Eunomix might business and labour – together with a long seem a bit overblown. But SA was identified list of regulatory hurdles, are widely seen as as one of three developing countries likely the reasons for the logjam. But scratch a bit to experience the harshest repercussions of deeper and it becomes clear that corruption, the pandemic in a Recovery Capacity Index more tactfully known as rent-seeking, is the compiled by UK-based global risk and consulting underlying problem. firm Verisk Maplecroft.

Corruption not only raises the cost of business In research released on 20 August, it warned and increases inefficiency, it affects the Cyril Ramaphosa that along with Brazil and India, SA was at a higher regulatory framework itself because groups President of South Africa risk of corruption and civil unrest than counterparts with conflicting interests battle for the outcome in the G20 group of developed nations and which will benefit them the most – leading to would struggle with the aftermath of Coviddelays, poor decisions and policy U-turns. This 19 long after wealthier peers had moved on. is not what SA needs as it battles to extricate “We are painstakingly “Corrupt, ineffective and unstable itself from a crippling recession which began putting things right. governments will be limited in their ability to last year. direct funding where it is most needed, failing “Corruption is a tax on the economy, it’s We have now reached to revive the economy even after the immediate a leakage in the fiscus which never comes crisis is dealt with,” it warned. Governance back. That’s just looking at it from a public a stage where the issues and weaker institutions were part of the finance point of view,” says Alexander Forbes executive chief economist Isaah Mhlanga. changes we all want to problem, it said.

In January, a Corruption Perceptions Index “But it also has an impact on investors who see will start to unfold.” released by global civil society organisation are looking at options to generate returns.”

Transparency International showed that SA Potential investors in SA had to consider still ranked among countries deemed to have a partnering with a government which had serious public sector corruption problem, even employees, or deployees of the ruling party, though it had advanced one notch from a previous who had been found to be corrupt, or where there was ranking two years before. the possibility of corruption without any measures to In a rare public briefing with the media on make sure that those behind it were brought to book, 9 September, President Cyril Ramaphosa he says. acknowledged the depth of public frustration “I don’t think that there is any private investor who

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finweek 24 September 2020

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in depth economy

S CURSE OF CORRUPTION?

gear. tional, but there are glimmers of hope as government finally starts shifting into higher with the lack of progress government has made in tackling corruption and implementing growthenhancing economic reforms since he took office in 2017.

“I know that there is a lot of scepticism. We were on a one-way ticket to total dysfunction. We have been able to correct some things. That is why I say history will absolve me,” he said.

Ramaphosa admitted that the government had to a large extent “run out of money” and that the private sector would have to play a key role and “put shoulder to wheel” with government to ensure that a recovery plan worked.

“We are painstakingly putting things right. We have now reached a stage where the changes we all want to see will start to unfold,” he added. In a reference to the years in which Jacob Zuma was president, Ramaphosa said that it had taken a decade to undermine the state’s capacity to deliver, and the damage could not be fixed quickly.

Peter Attard Montalto, head of capital markets research at Intellidex, says that while implementation was all that mattered, Ramaphosa’s shift from aloofness to engagement and the seriousness which he signalled was welcome and would help to both cut through political blockages and galvanise support for implementation.

“The problem, as we know, has never been plans but the removal of blockages that are capacity, ideological, rent extraction, and speed – this is what we still wait on even if there is a spark,” he says.

“Government has the power to change laws, regulators and regulations so it cannot hide behind them. This is the nub of reform at its most simple.”

Busi Mavuso, CEO of Business Leadership SA, said in a weekly note on 14 September that while she was encouraged by the president’s comments, it was concrete actions taken by government shortly afterwards which had built some trust within the business community.

Clear moves that signalled he would deliver included an announcement by Deputy President David Mabuza two days later that the fifth bid window of the government’s public procurement programme for renewable energy – delayed for years – would be concluded by December.

This will help address the lack of stable electricity @finweek

finweek

finweekmagazine

Isaah Mhlanga Executive chief economist at Alexander Forbes

Lulu Krugel Chief economist at PwC

Peter Attard Montalto Head of capital markets research at Intellidex

By Mariam Isa

supply from power utility Eskom, which is the most urgent area of reform for the economy. Rolling power cuts, or load-shedding, are already stifling its recovery and may reduce the value of economic output this year

by R50bn, according to the Council for Scientific and Industrial Research.

Another encouraging sign was Ramaphosa’s quick call for an investigation into a flight to Zimbabwe (see p.14) in which senior ANC officials flew on a government aircraft, in violation of the separation of party and state, Mavuso added.

Nazmeera Moola, head of SA Investments at Ninety One, says the government could immediately begin restoring investor confidence by making tangible progress on three of a lengthy backlog of reforms ahead of the next National Budget in February.

The first step would be to help stabilise the supply of electricity by accelerating private sector involvement in power generation and by restructuring Eskom to make the utility more efficient, less carbon intensive, and more able to address its R488bn debt burden – the main threat to the government’s finances.

Beyond that, she says government could prioritise two of a long list of initiatives, including resolving persistent visa issues for tourists and highly-skilled workers, accelerating infrastructure development, dramatically improving its online services, and auctioning spectrum after more than a decade of delays.

The urgency of reforms was rammed home by Mboweni in an editorial published by City Press on 13 September. Data for the second quarter suggested that the contraction in growth this year could be deeper than anticipated by Treasury and translate into further revenue shortfalls, he warned.

PwC chief economist Lulu Krugel says without badly-needed reforms, it could take as much as seven years for SA’s economic output, expected to contract by between 8% and 10% this year, to return to the levels of 2019. ■ editorial@finweek.co.za Mariam Isa is a freelance journalist who came to SA in 2000 as chief financial correspondent for Reuters news agency after working in the Middle East, the UK and Sweden, covering topics ranging from war to oil, as well as politics and economics. She joined Business Day as economics editor in 2007 and left in 2014 to write on a wider range of subjects for several publications in SA and in the UK.

finweek 24 September 2020

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on the money

>> Motoring: A lesson in class from Jaguar’s electric I-PACE p.40 >> Personal Finance: Expert advice on managing those big expenses with a Covid-reduced income p.42

CEO INTERVIEW

By Glenneis Kriel

Game repositions for the win

The Massmart subsidiary’s vice president, Andrew Stein, explains the turnaround strategy for this decades-old brand.

g

ame has gone from being one of Massmart’s steadiest performers to accounting for the listed company’s biggest losses over the past two years.

Andrew Stein, vice president of Game, talked to finweek about the chain store’s turnaround strategy.

Game celebrated its 50th anniversary this year. Tell us more about the company’s origin.

Alan Hellman and Jack Schaeffer started Game in Smith Street, Durban because they felt that shopping had become a boring and tedious exercise. They conceptualised retailing as a ‘game’ and created an in-store environment where customers could ‘play’.

Characterised by its shocking-pink livery, in-your-face advertising and unprecedented low pricing, the brand found instant success with local consumers, 38

finweek 24 September 2020

while visitors to Durban carried the brand awareness back to their home towns – to the extent that calling on Game became a ‘must do’ for those on a trip to Durban.

Tell use more about the development of the logo.

The iconic Game pink was settled upon, not necessarily because the founders had a specific love of the colour, but they were looking for a colour that would stand out.

It was a head turner in that era. That pink logo and branding remains in place to this day, easily identifiable across Game’s 150 stores throughout Africa.

How has the company’s marketing strategy changed over time?

In the 1970s, marketing was all about standing out, and Game used its iconic branding to ensure this was achieved.

We used TV as a marketing tool when it entered SA and positioned ourselves as

the rebels in retail, and the first retailer to introduce the mega-store concept.

In the 1980s, marketing became personal and we began to conduct consumer research. Our catchphrase “You Always Win at Game” was born, and we took advantage of radio, print and TV mediums to bring that message across.

An early marketing strategy, still followed today, was to put our leaflets and high-impact product catalogues into free community newspapers. One of our recent surveys revealed that 50% of our respondents still find out about deals from printed leaflets, despite the digitally-driven times we live in.

In 2019, Game worked on a brand refresh, resulting in the birth of a new catchphrase: “You’ve got Game”. The refresh is aimed at highlighting the fact that Game works to give its customers access to a better life and pays homage to the rebellious nature of the brand. www.fin24.com/finweek

on the money spotlight

Game was identified as a major contributor to the R1.3bn loss Massmart suffered last year and contributed over R416m of the R1.1bn loss suffered during the first half of 2020. What went wrong?

growth. We are excited about our future online prospects.

Tell us more about the turnaround strategy.

and poor performance of the company must have been stressful. How do you cope under all this stress?

Game’s problems did not Our research shows that come overnight, and we Game has high brand Game has historically been one of have been working on a appeal and that customers Massmart’s steady performers, but turnaround strategy for the in our target market are loyal, performance has declined over the past past nine to 12 months. Having hence the turnaround strategy few years, accumulating in a loss in 2019 a great team and the full support of Andrew Stein Vice president due to tough trading conditions, especially focuses on initiatives to improve Massmart and Walmart have really of Game efficiencies and reduce operational in the second half, which included loadhelped me to stay focused. costs. So far, we have participated shedding and consumer spending being Besides that, I have been in in Massmart’s Smart Spend process, under pressure. onerous positions in my career before, which included renegotiating store rentals Even though Game’s sales in SA which has prepared me for the position I and improving supplier terms. grew by 1.9% in 2019 on the back of am in today.

We have taken a hard look at increased foot traffic, declining sales in our customer value proposition and What do you do for relaxation?

DionWired contracted the total sales of merchandise assortment, resulting in I spend long hours at work, so switch Massdiscounters. We have had to close our exit from the fresh and frozen food off by spending time with my family. the unprofitable DionWired stores to turn categories, which never really took off, and Spending time with my children helps me Massdiscounters around. reintroduction of affordable clothing, in to reprioritise my values and remember How has Covid-19 affected the the form of our Stylessentials range. The what is important in life. range has been well-received and should company?

From the beginning of the national be available in all our stores by July 2021.

What are you currently reading? lockdown our priority has been to keep We have simultaneously reimagined I am reading the Harry Potter books our associates and customers safe, while the Game store of the future, which with my children, which has turned into giving customers the products they need. will be launched in Mall of Africa in something of a ritual even though I never Some of our top projects Midrand in October, showcasing really enjoyed the books when I was were to prepare our our potential with exciting younger. Besides that, I am reading The Even though Game’s associates to work from innovations such as click-andFour: The Hidden DNA of Amazon, Apple, sales in SA grew by home, remerchandising our collect, self-checkout till points Facebook and Google. stores to focus on essentials, and product vending machines, putting customers first by as well as new solution offerings What was the best business advice ensuring we have simple in Wellness and Baby and new you have ever received? in 2019 on the back of Sassa grant payouts – product categories.

You will not create any meaningful increased foot traffic, as these were needed We will be implementing change without taking risks. declining sales in DionWired contracted more than ever – and we two more of these stores within the total sales of extended our online offering this year, while we look to more What are your plans for Game over Massdiscounters. to thousands of essential opportunities to expand. the next three to five years? items in a matter of days.

Game has also converted We aim to reinvigorate growth within our We launched on Uber Eats in SA and to SAP after a multi-year journey, which business while we continue to reset the Kenya, delivering close to 10 000 orders will provide us with a modern IT platform cost base and best serve our customers. to date, as well as our first-ever WhatsApp to enable considerably improved retail Our recent crossover to SAP S/4HANA chatbot in SA and WhatsApp remote execution in our stores, specifically also gives us a strong digital foundation purchasing capability in Africa. assortment planning and execution. to truly create an omnichannel experience The lockdown has turned into a useful for our customers, leveraging digital for proving ground for Game Online, with our The Covid-19 lockdown, the accelerated growth. ■ e-commerce offering delivering triple-digit retrenchment of 1 800 employees editorial@finweek.co.za

Photos: Supplied I Gallo/Getty Images

1.9%

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finweek 24 September 2020

39

on the money motoring

By Glenda Williams

Back to the future: Electrifying ride

I

Jaguar’s electric SUV, the I-Pace, heralds in the future of luxury and impossibly fast EVs.

remember two things from my very first Jaguar experience as a young child. The Jaguar Mark ll I was travelling in was a beauty… and it backfired a lot.

Fast-forward to 2020 and to Jaguar’s sophisticated pure electric SUV, the I-Pace. It too is a knockout, but there is no backfiring. That’s because there is no combustion engine to tune incorrectly, nor an exhaust system to emit loud popping noises. Now I’m in a car that is silent, has two electric motors, a raft of lithium-ion battery cells and loads of tech.

It has been quite a leap coming from the basic cars of yesteryear that I learned to drive in. Those naturally-aspirated combustion engine vehicles were rudimentary; steering wheel, gears, clutch, brake, accelerator and handbrake were the only driving tools – a stark contrast to the abundance of technology in cars nowadays that pretty much save drivers from themselves. Trappings too were virtually unheard of; the lucky few had a built-in radio and the forerunner to the air conditioner – a fan blowing out hot air.

But those unpretentious cars had personality aplenty and were exciting

to drive. So, how excited could I get while being given the silent treatment from a sophisticated car with an electric powertrain? To find out, I spent time in the top-of-the-range Jaguar I-Pace EV 400 HSE all-wheel-drive.

Sleek, feline form

The I-Pace’s beauty, elegance and feline grace is the embodiment of Jaguar design.

While quite the paradox to describe a large SUV as sleek, this electric SUV’s form is just that; long wheelbase, swooping curved bonnet with short overhang, retractable flush door handles, low sloping roof and powerful rear haunches form a coupé-esque silhouette. It truly is a beautiful car.

Refined, conventional cockpit

Stepping into the I-Pace’s refined and luxurious cabin brings sophisticated simplicity and a conventional setup, the SUV’s green technology integrated seamlessly to present a traditional and driver-friendly interior. No rocket science stuff. It is very much a get-in-and-drive car.

Even the park, reverse, neutral and drive buttons that take the place of the gearbox

sit in familiar centre console territory.

This all-electric vehicle (EV) has all the trappings of a luxury SUV. Nicelysized touchscreen for infotainment and connectivity, perforated leather sports seats, leather steering wheel, and a plethora of driver assistance features like parking assist, adaptive cruise control with steering assist, high-speed emergency braking, 360° camera and blind spot assist.

There’s room aplenty to stretch the legs and despite a sloping roof, good rear headroom. Load space too is impressive, more than doubling with the rear seats down.

Silent but deadly serious

Sound is everything to an old-school driver; from engine noise indicating when to change gears, to the emotion evoked by the exhaust note. There is none of this in the I-Pace, just silence, broken only by the soft sigh of wind through the panoramic sunroof, music playing through the infotainment system, or the chirp of the navigation system.

Step on the accelerator and there’s no exhaust rumble, just a low purr (in dynamic

The I-Pace’s sleek, coupé-esque silhouette features low bonnet, sweeping roofline, dramatic curves and muscular haunches.

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finweek 24 September 2020

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on the money motoring

TESTED:

Photos: Supplied

Jaguar I-Pace EV 400 HSE AWD Powertrain: 2 x permanent magnet synchronous electric motors Power/Torque: 294kW/696Nm Transmission: Automatic single gear 0-100km/h: 4.8 secs Top speed: Limited to 200km/h Range (claimed): 470km Consumption (claimed): Up to 22kWh/100km Battery: 90kWh Safety: Six airbags Load space: 656 litres expandable to 1 453 litres CO2 emissions: Nil Warranty/Maintenance Plan: 5 years/ 100 000km Battery warranty: 8 years/160 000km Price: R2 031 100 (incl. VAT)

Jaguar’s signature rear haunches, sleek LED tail lights and squared-off rear end.

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mode) as the car bolts forward. the car braking when you take your foot Jaguar’s I-Pace is insanely fast, its off the accelerator. That not only slows sports-car-like acceleration launching the car, making conventional braking it from rest to 100km/h in a mere 4.8 often unnecessary; it also serves to seconds. And there’s no lag in an EV; regenerate energy, charging the battery response is immediate without even a and increasing range. Lighter or heavier nanosecond of delay. levels of regenerative braking can be set The car has immense power and in the I-Pace to suit driving conditions. torque and the g-forces (visible in the Range has always been the electric I-Pace’s Inbuilt G-meter) are intense. You vehicle’s nemesis. Jaguar claims the feel the pressure in your head as speed I-Pace can deliver 470km on a full charge builds rapidly. You feel it in your body (that’s speak for full tank) courtesy of being thrust back in the seat. the 90kWh battery that replaces the Handling is superb and it’s astonishingly fuel tank. That, however, comes with agile, sticking to the road. No slip. No drift. optimum EV driving conditions. Unlike a No wallowing. Not even when taking it fuel-powered vehicle that delivers better through Jaguar’s dynamic economy on the open road, driving “slalom” course at economy is superior in This electric SUV EV 60km/h. Perhaps 60km/h an urban environment when doesn’t sound fast, but is a class act with the regenerative braking here’s the rub – it’s a short that comes with that type a drive that can be of driving helps charge the course with mere metres to get up to speed before and boost range. In as exciting as you battery attacking the first of several all reality, open road driving is tightly-spaced beacons. more likely to provide a range want it to be.

Truth be told, not once of around 300km to 350km. during the many times Still, it’s a huge weaving through that improvement on the typical course did losing control even come to EV’s range. But it comes at a cost, that mind. I was that confident in the car’s grip 90kWh battery system comprising 40% and handling. The I-Pace’s surefootedness of the car’s price. is in large part due to its 50:50 frontYou treat this EV much as you would to-rear weight balance, all-wheel-drive your cellphone. Plug it into a 7.4kW home and active air suspension. And hefty charging unit in the evening and come 20-inch wheels. morning you have a full battery. A 60kW So, it is hugely impressive DC public network charging is even faster, in a dynamic driving setting, just 20 minutes for a range of 100km. but how does it perform The distinctive Jaguar I-Pace is the in mundane everyday recipient of many accolades, including situations on the road? the 2020 AutoTrader South African Car The I-Pace behaves of the Year award. Little wonder, given its with aplomb. This good looks and performance. It’s refined, technologicallyluxurious, boasts plenty of tech and looks proficient SUV is and feels much like a conventional car surefooted, steering despite its green credentials. All of this is is true and nicely bound to enhance its appeal, but it does weighted, and the air require a rather hefty chunk of change. suspension soaks up This electric SUV is a class act with road blemishes to deliver a drive that can be as exciting as you a wonderfully comfortable want it to be. While I miss the pulse and drive. Brute power makes soul that a combustion engine-powered overtaking effortless and car delivers, I guess I’ll just have to get stress-free. It’s the change in over myself because the shift to electric expected momentum when you cars is inevitable. We are still some way ease your foot off the throttle that off having EVs that are affordable for one needs to get used to. the masses, but when I’m dead, EVs will Electric vehicle driving is mostly probably be as conventional as today’s about regenerative braking – what is combustion-powered cars. ■ editorial@finweek.co.za termed one-pedal driving. It’s all about finweek 24 September 2020

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on the money personal finance

By Timothy Rangongo

Post-Covid financial spring-cleaning

Many South Africans’ financial affairs are under far more strain than a year ago. Experts provide some tips on how to manage those big expenses in the wake of the lockdown’s severe impact on household incomes.

s

pring has sprung and so has a virus that has not only permeated people’s health but personal finances too. An online survey of 1 000 adults from different regions in South Africa, conducted between 31 July to 3 August 2020

by TransUnion, indicates that the financial impact of the Covid-19 crisis on local consumers remains high.

The number of consumers saying their household income has been negatively impacted dropped to its lowest level (77%) since the first round of surveys in April, and much lower than the 84% peak observed in June. The respondents reported that job losses continue to increase, with 21% of financially-impacted consumers reporting that they have lost their jobs because of the pandemic, up from 10% in April.

The pandemic has affected and will most likely continue to affect household finances beyond 2020. As we embark on a much required financial spring-cleaning process, we look at how various financial priorities – from vehicle financing to the mortgage market, insurance The number of consumers and saving for retirement and emergencies – differ saying their household income this time around.

Vehicles

Vehicle sales in the first half of 2020 were severely impacted by the restrictions on operations due to the government-imposed lockdown. The halt to dealer sales in March and April impacted sales tremendously, says Lebogang Gaoaketse, WesBank’s head of marketing and communication.

“As a result, year-to-date sales for the first half of 2020 were 36.9% down on the same period last year,” he tells finweek.

New passenger car sales registered a substantial decline of 33.4% to 19 264 in June compared with 28 931 in June 2019, while the August 2020 new 42

finweek 24 September 2020

has been negatively impacted dropped to its lowest level

(77%)

since the first round of surveys in April, and much lower than the 84% peak observed in June.

passenger car sales at 19 545 units had registered a decline of 9 458 cars, or a fall of 32.6% compared with the 29 003 new cars sold in August last year, according to data from the National Association of Automobile Manufacturers of SA (Naamsa).

The association expects activity in the new vehicle market to remain low for the remainder of 2020 due to uncertainties relating to the economic fallout of the pandemic, and as consumers and businesses continue to adapt to short-term budget pressures.

Any vehicle purchase now should be a well-informed consideration, says Gaoaketse.

“There are some very enticing offers being made to encourage the purchase of new vehicles. Consumers have access to some of the most affordable loans thanks to exceptionally low interest rates. If a vehicle replacement is under consideration, it is an opportune time to consider it.”

While buying a new car is a wonderful experience driven by lots of emotion, he emphasises that it remains one of the most significant decisions in South Africans’ household budgets. WesBank advises consumers to remain mindful of their debt levels despite how attractive these deals seem. It urges consumers to fully understand the terms of respective finance offers and fully interrogate their affordability.

Many consumers should also consider the used-car market to combat affordability levels, says Gaoaketse. “It is prudent to consider service and maintenance plans, as well as warranties, when considering this approach and source these vehicles through reputable dealers.”

Insurance

As consumers continue to quantify the impact of the pandemic on their finances, some financial mistakes, such as cancelling insurance, should be avoided in these unprecedented times, warns Dhashni Naidoo, www.fin24.com/finweek

on the money personal finance

“As the lockdown has eased there has been a change in driving patterns, with our statistics showing that the number of people driving has increased to pre-lockdown levels.”

FNB consumer education programme manager.

“Insurance should not be used as a mechanism to free up cash,” she says. “Once a policy lapses or you cancel it, you expose yourself and your family to greater risk. It may also result in higher premiums when you take up insurance again in the future or you may be excluded from certain benefits. If necessary, rather contact your insurance provider to see if you can reduce your premiums, as opposed to not paying or cancelling your policy.”

The insurance industry is generally well-prepared for major loss events, including pandemics. Insurers have been responding to the widening Covid-19 outbreak on multiple fronts – including how they underwrite, their pricing and reserving, policy wordings, and reinsurance coverages.

Due to the lockdown restrictions, risk profiles have changed during this period. The expectation is also that new ways of working and living will result in risk profile changes in future, according to Attie Blaauw, head of personal lines underwriting at Santam.

Credit life insurance

Danie Matthee Chief executive of OUTsurance

Photos: Shutterstock I Supplied I Archive

Vehicle insurance

Santam refunded 20% of vehicle premiums paid during the month of April due to the reduced risk exposure during level 5 and 4 of the governmentimposed lockdown. Select clients who struggled to honour debit orders were supported for a period of two months, says Blaauw.

Danie Matthee, chief executive of OUTsurance, tells finweek that they were able to provide clients with a 15% discount on all motor and goods-intransit premiums on both their business and personal insurance in May 2020 and a further 10% discount on premiums for those clients who were still driving less than normal in June 2020.

“As the lockdown has eased there has been a change in driving patterns, with our statistics showing that the number of people driving has increased to pre-lockdown levels,” Matthee says.

Apart from providing clients with decreased shortterm insurance premiums, OUTsurance also reduced the claims excess amount payable for the period from April to end-June 2020. Clients could amend their cover to pay a lower premium, which could be switched back to the full cover at the same premium as before, according to Matthee.

“We further extended the period for nonpayments that would normally have resulted in a cancellation of cover,” he says. “These changes were implemented across the business.” @finweek

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Petrie Marx Product actuary at Sanlam Individual Life

Lebogang Gaoaketse Head of marketing and communication at WesBank

As consumers continue to weigh the impact of Covid-19 on their finances, many will also be considering options to protect themselves from financial difficulties, according to FNB. It kickstarted a new Covid-19-related digital application process to assist customers to process credit insurance when applicable, before finalising additional cash flow relief measures with each customer.

“Credit life (insurance) has been around for a long time and we went live with cover on loss of income on our products in August 2017. Since then, it has always been one of our primary considerations for customers who are in financial difficulty,” says Lee Bromfield, CEO of FNB Life.

If a customer is permanently employed and they become unemployed or are unable to earn an income due to contracting Covid-19 or due to measures put in place to prevent the spread of the virus, all their obligations under the credit agreement that become due and payable can be paid either for 12 months during the remaining repayment period of the credit agreement, or until they are able to find employment or earn an income, whichever is the shorter period.

“It’s important for customers to know what they are covered for to make informed financial decisions, especially in light of Covid-19,” says Bromfield.

Life insurance

SA life insurance products proved very resilient during the Covid-19 pandemic and stood up well in providing customers with the required protection, according to Petrie Marx, product actuary at Sanlam Individual Life.

“We are passionate about giving our customers solutions to their risk-protection needs, and those needs have not changed during the pandemic – so there is little reason to change the terms and conditions of our products,” he tells finweek.

OUTsurance has also not introduced any new terms and conditions of cover and claims because of Covid-19, according to Matthee. “We have set aside additional reserves in order to pay for higher claim volumes expected due to the virus. We are monitoring developments of the virus closely in order to gain a better understanding of the long-term impact on mortality.”

As there is still some uncertainty around the impact of Covid-19, Matthee says the insurer believes that it is premature at this stage to make any changes to their rating structure for new clients. finweek 24 September 2020

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on the money personal finance

“If you absolutely need to access savings, or need to stop contributing now, then have a clear plan, preferably written down, as to exactly how you are going to replenish those savings.”

The only change that Sanlam made on life insurance policies, which will only apply to new applications going forward, was done on sickness and income protection products with very short waiting periods, where future claims as a result of SARS-type outbreaks such as Covid-19 will be subject to a 30-day waiting period.

Although Covid-19 is a new disease that is not listed as a claimable event in insurance policies, Marx confirms that it remains fully covered if that is the cause of any of the claimable events.

Events such as this global pandemic result in a re-evaluation of priorities for many people. Matthee says they have seen an increase in demand for life insurance products over the last few months while Marx says the Covid-19 pandemic has again made us all aware of life’s risks and our own vulnerabilities, so the demand for life insurance products remained in place for them too.

“In certain segments of life insurance products there has been pressure on consumers to keep up payments; lapse rates remain a key watch item for us as the economic impact of the lockdown unfolds,” says Matthee.

In addition to unaffordability, another limiting factor, especially at first, according to Marx, was the ability of financial advisers to meet with customers. He says a lot of effort went into enabling intermediaries to interact with their customers on digital platforms to provide them with the necessary advice. OUTsurance expanded digital capabilities on their app to allow for easier selfservice by customers.

Siphamandla Mkhwanazi Senior economist at FNB

Samuel Seeff Chairman of the Seeff Property Group

Mortgage market

When the SA Reserve Bank’s Monetary Policy Committee voted to cut the country’s interest rate by a further 0.25 percentage points in July, it took the total reduction in 2020 to three percentage points, thereby lowering the repo rate to 3.5%. This reduced the prime and the base home loan rate to a further historic low of 7%.

After the rate cuts, FNB issued a statement, saying that it does not expect to see any meaningful property demand boost emanating from interest rate cutting specifically, but still believes it to be an important source of support for the property market.

“Rather than bolstering property demand, the key role of rate cuts at present will be in providing relief to current property owners … Cutting costs on property 44

finweek 24 September 2020

Andrew Davison Head of advice at Old Mutual Corporate Consultants

owner debt is thus crucial.”

Nevertheless, annual house price growth rebounded to 1.4% year-on-year in July, down from an upwardly-revised 0.7% in June and 0.6% in May, according to the latest FNB House Price Index.

FNB senior economist Siphamandla Mkhwanazi says the bounce-back in prices reflects the unexpectedly rapid recovery in market activity since the easing of lockdown restrictions. The volume of new mortgage applications rebounded beyond levels before the lockdown.

Demand picked up under level 3 of the national lockdown, predominantly in the price bands below R3m, according to Samuel Seeff, chairman of the Seeff Property Group. “Buyers who are committed and keen to take advantage of the historically low interest rate and favourable mortgage lending climate have wasted no time in moving ahead with their property transactions.”

Given the economic outlook, Seeff says he expects the favourable buying conditions to remain throughout the year. “The recession and decline of the inflation rate to a historic low means we could be looking forward to another 100 basis points shaved off the interest rate in all by year-end,” he says.

Currently, much of the retreat in supply comes from higher price categories, presumably as sellers reassess their decisions amid a challenging macroeconomic environment, according to Mkhwanazi. He says while home shoppers are looking for bargains, homeowners are weighing selling against refinancing (given the historically low interest rates), and this appears to be supporting prices.

Anecdotal evidence from FNB also shows rising demand for bigger properties (mainly freestanding homes), notably in less crowded second-tier cities.

It says the growth of working from home is creating demand for bigger homes, which can offer additional features such as home gyms, and conducive environments for home-schooling.

Retirement funds and saving

As financial pressure increases, cancelling a retirement fund might be an option. Pension and provident contributions shouldn’t be stopped if you are paid an income, as they are based on your salary, according to Rita Cool, a certified financial planner at Alexander Forbes. www.fin24.com/finweek

on the money quiz & crossword Test your general knowledge with our latest quiz, which will be available online via fin24.com/finweek from 21 September.

1. True or False? South African Airways (SAA) has been liquidated.

2. In its full-year financial results, South Africa’s biggest retail group, Shoprite, reported that sales increased by 6.4% to ■ R156 900 ■ R156 900 000 ■ R156 900 000 000

Photos: Shutterstock I Supplied I Archive

3. Name the director general of the World Trade Organization.

“If you are not receiving a salary, then no contributions will be deducted, and the lockdown shouldn’t affect your contributions. If your salary is reduced during the lockdown, your contributions will also be less because they are a percentage of your salary,” says Cool.

What makes matters worse is that many South Africans entered the lockdown with limited emergency savings, and what savings they did have were mostly in a retirement fund through their employer, says Andrew Davison, head of advice at Old Mutual Corporate Consultants.

He says that the impact of Covid-19 is genuinely unprecedented and that times like these require a different approach – one that carefully weighs up the pros and cons of using money set aside for retirement as an emergency fund or staying invested.

“After a downturn in markets, the prices of assets are at cheaper levels, meaning that cashing in locks in losses and ceasing contributions passes up the opportunity to buy in at attractive prices. In both cases, the investor gives up the chance to participate in any recovery, however uncertain that might seem,” says Davison.

“But if you absolutely need to access the savings, or need to stop contributing now, then have a clear plan, preferably written down, as to exactly how you are going to replenish those savings when your situation recovers.”

He says that debt is not the answer, but a wellconstructed emergency fund is. If you do not have an emergency fund in place, Davison recommends speaking to your financial adviser to ascertain which investments in your current portfolio could possibly be accessed to achieve the same result without compromising future goals and additional cost considerations.

Many people do not realise that when you notify your retirement fund of your retirement, it can take months for the first payment to reach the bank account. An emergency fund will come in handy during these times and provide a readily available form of income at no additional cost, he says.

Another way to save money, according to Davison, is for homeowners to put extra money into their bonds each month, which also reduces the amount of interest you owe on your bond, saving you money. ■ editorial@finweek.co.za @finweek

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4. True or False? The late South African human rights lawyer George Bizos obtained his BA and LLB degrees from the University of Cape Town.

5. How many terminals does South Africa’s busiest airport, O.R. Tambo International Airport, have?

■ Three ■ Six ■ Ten

6. True or False? South African household spending on restaurants and hotels plummeted by 99.9% in the second quarter of 2020.

7. Luxury giant LVMH Moët Hennessy Louis Vuitton backed out of a $16bn deal to buy which US jeweller that is famed for its duck egg blue boxes and diamond engagement rings?

8. True or False? South Africa’s state defence firm, Denel, has asked for a R1bn bailout from National Treasury.

9. Jane Fraser has been appointed as the first female CEO of which big Wall Street bank?

■ Goldman Sachs ■ JP Morgan ■ Citigroup 10.Which team recently won South Africa’s 2019-20 Premier Soccer League?

CRYPTIC CROSSWORD

ACROSS 1 8 9 11 12

See 17 An event delay (3) Greeting volunteers in the city, say (11) Relief about silver recycling (7) Many buried in a certain foreign battlefield (5) 13 Clever person, drug-free (2,4) 15 Cabinet next to the top table (6) 17 & 1 Arrange, we hear, to yank consortium out (5,9) 18 It’s perfect, you hear, to cap Scotsman (7) 20 Take over an Anglican estate (11) 22 Formerly not limited to one attempt only (3) 23 Called in time to make it look romantic (9)

NO 761 JD

DOWN 2 Canadian cheese is mostly healthy (3) 3 Can each ringworm (5) 4 Writer’s a long time in pictures (6) 5 Waste metal cut out of gold by the Spanish (7) 6 Release from club job (11) 7 Seedy mate on the lam (4-5) 10 Fellow speaking French (11) 11 Make assertion about young ladies abroad (9) 14 Medium pasty odd choice, errors and omissions excepted (7) 16 All smiles at this charity event? (3,3) 19 Using a base of eight at new location, no charge (5) 21 Letter to the Thessalonians (3)

Solution to Crossword NO 760JD ACROSS: 1 Debunk; 4 Traces; 9 Amateur sleuth; 10 Gainsay; 11 Ticks; 12 First; 14 Spews; 18 Ukase; 19 Austria; 21 Brisk movement; 22 Bang on; 23 Glossy

DOWN: 1 Draggy; 2 Beatification; 3 Needs; 5 Roll-top; 6 Churchwarden; 7 Schism; 8 Preys; 13 Speak to;

15 Hubbub; 16 Tarot; 17 Earthy; 20 Steal

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finweek 24 September 2020

45

Piker

On margin Why you should take a back seat

This issue’s isiZulu word is ushintshi.

Ushintshi is change – the difference between the price/cost and the amount tendered. It is a derivative of the English word ‘change’.

Ushintshi is the most difficult part of the trickiest branch of mathematics – taxi maths.

Taxi maths is not for the fainthearted, and dealing with ushintshi is for only the bravest of the brave. You don’t sit in front in a taxi if you do not have your story straight. It will not end well for you.

You could be a chartered accountant or have a doctorate in mathematics, but if you are not used to taxi maths, you will cry like a little baby.

You are a Nasa scientist? Good for you, now go sit at the back of the taxi and let Matshidiso deal with ushintshi.

We don’t want to be late for work.

I hear as a way of showing he was

still one of the people, even though he was hobnobbing with the likes of Naomi Campbell, that Madiba took a taxi and sat in the front but ended up crying over ushintshi.

If Grigori Perelman, who solved the Poincaré conjecture, were to come to SA on holiday he would refuse to go anywhere near a taxi or taxi rank; not because he fears for his life, but because he knows his credibility as a mathematician might take a knock it would never recover from.

Ushintshi is no joke. Just writing about it, I shiver. The stakes are so damn high.

Get taxi maths wrong and the taxi might end up offloading all of you in the middle of the freeway.

The only mathematical challenge that comes close is splitting the bill when hanging out with dodgy friends.

– Melusi’s #everydayzulu by Melusi Tshabalala This column of Melusi’s #everydayzulu originally appeared in the 12 September 2019 edition of finweek.

Verbatim

Michée @rico_barsz The “e” in “South Africa” stands for electricity.

Errol @errolbsk Nomvula Mokonyane volunteered to pick up the rand but is having extreme difficulty picking up the truth.

Andrew Ross @maddog_sa Pandas are living proof that you can be fat by just eating salad.

Myles Udland @MylesUdland Stocks crashed as high schoolers return to class and step back from Robinhood trading.

Samantha Marika @samanthamarika1 My professor is talking about how terrible capitalism is....

I kid you not...the professor is drinking Starbucks...

David Shapiro @davidshapiro61 Is the pooh about to hit the fan at Spur? Recent resignations of 2 senior directors and 2 non-execs point to trouble. Shares down 10% at multiyear low. Market cap R1.2bn. Wayne McCurrie says company just not the same since they removed garlic snails from the menu.

Ed O’Loughlin @edoloughlin My youngest hacked our Netflix parental code. She put light grease on the remote and got me to input the code when she wasn’t looking. Then she noted the numbers I’d pressed and went through the combinations later.

I’m both frightened and impressed.

“Do your best, history will do the rest.”

— Harry S. Truman, 33rd US President (1884 - 1972)

46

finweek 24 September 2020

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