WEBVTT 1 00:00:00.372 --> 00:00:05.916 You're listening to Strictly Business Podcast with Lindsay Williams. 2 00:00:05.917 --> 00:00:11.045 The offshore index of the JSC Securities Exchange has recently gone through 3 00:00:11.045 --> 00:00:13.045 100,000. 4 00:00:13.045 --> 00:00:17.623 Now, it's only a number, but it's nice to be able to say that your exchange has an 5 00:00:17.623 --> 00:00:19.623 index which is 100,000. 6 00:00:19.623 --> 00:00:19.670 And that wasn't the case five years ago. 7 00:00:19.748 --> 00:00:20.811 We'll come to that in a second. 8 00:00:21.170 --> 00:00:26.764 But with me to talk about it is Hannes van den Berg, co-head of SA Equity and 9 00:00:26.764 --> 00:00:28.764 Multi-Asset at 10 00:00:28.764 --> 00:00:30.764 91NK. 11 00:00:30.764 --> 00:00:35.484 As I said, Hannes, it's only a number, but 48,000 was only a number and 50,000 was 12 00:00:35.484 --> 00:00:37.484 only a number. 13 00:00:37.484 --> 00:00:41.769 And those numbers were April 2020, 48,000 the all share in April 14 00:00:42.308 --> 00:00:46.168 2020. So five and a bit years more than doubled. 15 00:00:46.230 --> 00:00:47.262 Quite a performance. 16 00:00:48.418 --> 00:00:50.058 Yeah, you're right, Lindsay. 17 00:00:50.480 --> 00:00:51.215 It's only a number. 18 00:00:51.277 --> 00:00:57.730 But, you know, in a world where often people feel we don't have a lot to 19 00:00:57.730 --> 00:00:59.730 celebrate, We just hear about... 20 00:00:59.730 --> 00:01:05.258 wars and tariffs and trade wars and in South Africa is the government of national 21 00:01:05.258 --> 00:01:07.258 unity holding or not now when we 22 00:01:07.258 --> 00:01:12.024 get to something that you can sort of say is a bit of a landmark on getting to 23 00:01:12.024 --> 00:01:14.024 100,000 it's it's something to celebrate and you're absolutely 24 00:01:14.024 --> 00:01:17.656 right five odd years ago when we were in the middle of COVID March and April 2020 25 00:01:17.656 --> 00:01:19.656 the 26 00:01:19.656 --> 00:01:24.641 J All Share or the All Share Index which by the way has been going for 138 years so 27 00:01:24.641 --> 00:01:26.641 it's an index that's been going the JSE 28 00:01:26.641 --> 00:01:28.641 has been going for quite a while. 29 00:01:28.641 --> 00:01:30.578 We managed to get from below 40,000 to above 100,000. 30 00:01:30.796 --> 00:01:36.320 If you look further back 20 years ago, our index, so in 2005, our index was at 31 00:01:36.320 --> 00:01:38.320 12,000. 32 00:01:38.320 --> 00:01:40.437 So from 12,000 to 100,000, quite phenomenal. 33 00:01:40.476 --> 00:01:42.054 I mean, I went to look at some of the stats. 34 00:01:42.476 --> 00:01:47.288 If you invested in a 91 equity fund, or I guess in the benchmark, if you want to 35 00:01:47.288 --> 00:01:47.474 call it that, 36 00:01:47.742 --> 00:01:51.648 the benchmark from 1997, that's as far back as I could get data. 37 00:01:52.765 --> 00:01:58.090 you are up about 14% per year on year from 1997 so 14% 38 00:01:58.191 --> 00:02:01.332 returns if you were invested in the fund you would have had 17% 39 00:02:01.816 --> 00:02:08.699 return but hats off to the people who were involved and over the years have been 40 00:02:08.699 --> 00:02:10.699 helping to manage the 41 00:02:10.699 --> 00:02:12.699 money. 42 00:02:12.699 --> 00:02:14.488 People look at South Africa and they say we don't get good returns we have to go 43 00:02:14.488 --> 00:02:16.488 outside and we have to go offshore But 44 00:02:16.488 --> 00:02:20.456 17% returns year on year for a period from 1997 to today, 45 00:02:20.457 --> 00:02:22.237 it's something that we should celebrate. 46 00:02:22.713 --> 00:02:28.440 You'd battle to find another index that has returned what you've just talked 47 00:02:28.440 --> 00:02:30.440 about, 14%, 17%. 48 00:02:30.440 --> 00:02:32.440 These are phenomenal numbers. 49 00:02:32.440 --> 00:02:34.440 Here's my scenario now. 50 00:02:34.440 --> 00:02:36.440 I like scenarios. 51 00:02:36.440 --> 00:02:38.440 I like to paint these little fantasy pictures. 52 00:02:38.440 --> 00:02:40.440 You're an investor. 53 00:02:40.440 --> 00:02:42.174 You've just made a load of money out of tech or something, and you decide you want 54 00:02:42.174 --> 00:02:44.174 to build a portfolio. 55 00:02:44.174 --> 00:02:48.089 Before you go to your wealth manager or your advisor, you say, I'm going to have a 56 00:02:48.089 --> 00:02:50.089 look myself, do a little bit of research myself. 57 00:02:50.089 --> 00:02:53.355 When you look at all the indices around the world, both emerging market and 58 00:02:53.355 --> 00:02:55.355 developed market, 59 00:02:55.355 --> 00:02:59.667 and you go to the emerging markets and you see the best performer is the all-share 60 00:02:59.667 --> 00:03:01.667 index of the JSE over a five-year period. 61 00:03:01.667 --> 00:03:03.667 It's more than doubled. 62 00:03:03.667 --> 00:03:07.026 So you don't know anything about South Africa and you think to yourself, goodness 63 00:03:07.026 --> 00:03:09.026 me, this must be an economy that's doing well. 64 00:03:09.026 --> 00:03:09.526 Therefore, the all-share index is doing well. 65 00:03:09.870 --> 00:03:11.245 But this, of course, is not. 66 00:03:11.420 --> 00:03:12.120 the case. 67 00:03:12.120 --> 00:03:14.600 The All Shared Index is not the economy, Hannes. 68 00:03:15.899 --> 00:03:18.462 Yeah, there's many ways in which I can answer this question. 69 00:03:18.743 --> 00:03:24.446 I guess, philosophically, if you stand back, the South African economy delivering 70 00:03:24.446 --> 00:03:26.446 GDP growth, 71 00:03:26.446 --> 00:03:29.516 it's around 1%, and we all wanted to go beyond 2% GDP growth on a year-by-year 72 00:03:29.516 --> 00:03:31.516 basis, 73 00:03:31.516 --> 00:03:32.704 doesn't reflect the reality on the ground. 74 00:03:32.782 --> 00:03:37.469 I mean, we've got a fairly skew wallet, consumer wallet, unfortunately, in South 75 00:03:37.469 --> 00:03:37.623 Africa. 76 00:03:38.219 --> 00:03:41.110 There's lots of people that are still operating in the informal sector. 77 00:03:41.849 --> 00:03:45.012 you have to ask yourself how much of that gets captured in data. 78 00:03:45.013 --> 00:03:49.777 I mean, our unemployment rate is mid-30s, 35%, 36% when last I looked. 79 00:03:49.816 --> 00:03:54.137 And those numbers don't look great in a global context. 80 00:03:54.138 --> 00:04:01.121 So if you then extrapolate that to the earnings profiles that we're seeing from 81 00:04:01.121 --> 00:04:03.121 some of these privately listed companies on the JSE, 82 00:04:03.121 --> 00:04:07.949 companies are delivering 10% and beyond earnings growth in an economy that's only 83 00:04:07.949 --> 00:04:09.949 got a 2% GDP growth rate. 84 00:04:09.949 --> 00:04:11.949 Then you ask yourself, well, something's wrong here. 85 00:04:11.949 --> 00:04:13.949 Something's not right. 86 00:04:13.949 --> 00:04:17.475 adding up is the stats wrong or or the earnings wrong but we don't give i think 87 00:04:17.475 --> 00:04:19.475 the management teams in south africa the financial 88 00:04:19.475 --> 00:04:24.381 services companies the consumer companies the retailers the food producers the 89 00:04:24.381 --> 00:04:26.381 mining companies i don't think we always give the management teams 90 00:04:26.381 --> 00:04:31.733 that the quality of the business has enough credit we've got good management 91 00:04:31.733 --> 00:04:33.733 teams in south africa and if you compare our private sector our 92 00:04:33.733 --> 00:04:38.733 listed structure and the compliance and the authorities that look after these 93 00:04:38.733 --> 00:04:40.733 listed companies you know relative to the rest of the world we've got some 94 00:04:40.733 --> 00:04:42.733 of the highest standards. 95 00:04:42.733 --> 00:04:44.733 the world. 96 00:04:44.733 --> 00:04:46.733 So you're right, good earnings growth. 97 00:04:46.733 --> 00:04:48.437 And then another way to answer your question is nobody's really enjoying this 98 00:04:48.437 --> 00:04:50.437 as much as they should, 99 00:04:50.437 --> 00:04:54.601 because globally, the S&P 500, we're talking about the Magnificent Seven and 100 00:04:54.601 --> 00:04:56.601 the other 493 companies. 101 00:04:56.601 --> 00:04:58.601 It's been quite a narrow rally. 102 00:04:58.601 --> 00:05:00.803 As you highlighted, global indices are also making all-time highs. 103 00:05:00.823 --> 00:05:07.268 And now, year-to-date in South Africa, our indices, our all-share index is making an 104 00:05:07.268 --> 00:05:09.268 all-time high, mainly because of resources. 105 00:05:09.268 --> 00:05:11.713 So we're also seeing quite a narrow rally in South Africa, with, you can argue, 106 00:05:11.776 --> 00:05:17.323 gold and platinum companies driving quite a lot of the upside that we've seen 107 00:05:17.323 --> 00:05:19.323 year-to-date. 108 00:05:19.323 --> 00:05:21.323 It's not a broad-based rally. 109 00:05:21.323 --> 00:05:25.117 focused on one particular sector at the moment, Hannes, and it's a sector that you 110 00:05:25.117 --> 00:05:27.117 and I are quite fond of. 111 00:05:27.117 --> 00:05:28.300 Can you tell us more about why the JSC has gone to 100,000? 112 00:05:30.183 --> 00:05:36.863 Yeah, I think I'll add that just now that, you know, the resources index, Anglo Gold, 113 00:05:36.863 --> 00:05:38.863 Goldfields, 114 00:05:38.863 --> 00:05:43.410 Harmony, Impala, Platinum, Northam, Volterra, Sabania, those stocks have 115 00:05:43.410 --> 00:05:45.410 doubled year to date. 116 00:05:45.410 --> 00:05:48.457 The momentum behind the gold price and more recently behind the palladium and 117 00:05:48.457 --> 00:05:50.457 platinum prices. 118 00:05:50.457 --> 00:05:52.882 have caused incredible upgrades to the earnings profiles of these companies. 119 00:05:53.342 --> 00:05:54.245 I think post-Mr. 120 00:05:54.284 --> 00:06:01.171 Trump winning the election in the United States and President Trump coming in on 121 00:06:01.171 --> 00:06:03.171 Liberation Day, introducing his tariffs, 122 00:06:03.171 --> 00:06:06.741 there's been a big, beautiful bull that was debated, the deficit, the budget 123 00:06:06.741 --> 00:06:08.741 deficit in the U.S. 124 00:06:08.741 --> 00:06:12.585 All those concerns, trade and tariffs, uncertainty, has pushed a lot of people 125 00:06:12.585 --> 00:06:14.585 outside of the U.S. 126 00:06:14.585 --> 00:06:16.585 dollar, outside of the U.S. 127 00:06:16.585 --> 00:06:18.585 treasuries. 128 00:06:18.585 --> 00:06:20.585 into gold as a physical safe haven. 129 00:06:20.585 --> 00:06:24.007 So the gold price has gone to levels which 12 months ago I would not have expected to 130 00:06:24.007 --> 00:06:26.007 see at $3,300, $3,400. 131 00:06:26.007 --> 00:06:31.312 And that means that these gold companies, from a revenue and earnings perspective, 132 00:06:31.312 --> 00:06:33.312 are seeing a lot of momentum on their income statements. 133 00:06:33.312 --> 00:06:36.218 Similarly, more recently, what we've seen is with the gold price rallying in the 134 00:06:36.218 --> 00:06:38.218 jewelry market, 135 00:06:38.218 --> 00:06:40.187 some people are switching into platinum because the gold price has rallied so 136 00:06:40.187 --> 00:06:40.357 strongly. 137 00:06:40.484 --> 00:06:41.184 And if you look at... 138 00:06:41.623 --> 00:06:44.207 consumer behavior in China and Asia specifically. 139 00:06:44.265 --> 00:06:48.929 Lots of consumers are buying platinum bars and going into platinum jewelry. 140 00:06:49.050 --> 00:06:53.257 So that has caused the delta in demand, as we refer to it, 141 00:06:54.218 --> 00:06:56.195 to cause a short squeeze in some of those commodities. 142 00:06:56.461 --> 00:06:58.961 And therefore, the platinum counters are following. 143 00:06:58.976 --> 00:07:04.492 So if you factor in the fact that the resources index, 144 00:07:05.101 --> 00:07:12.097 which is roughly about a quarter of our index, is up 60% for the year, that 145 00:07:12.097 --> 00:07:14.097 quarter of 60% gives you 15, 146 00:07:14.097 --> 00:07:17.522 16% return and then add NASPERS and process and British American tobacco and 147 00:07:17.522 --> 00:07:19.522 the returns here today on top of that, 148 00:07:19.522 --> 00:07:20.006 that gets you to the strong rally we've had here today. 149 00:07:20.826 --> 00:07:27.795 Could you do a magnificent seven style exercise on the JSC securities exchange 150 00:07:27.795 --> 00:07:29.795 and take out the resources index or the top performers 151 00:07:29.795 --> 00:07:31.170 in the resources index, the top performers elsewhere, i.e. 152 00:07:31.233 --> 00:07:34.904 NASPERS, process, maybe reach them on something? 153 00:07:34.920 --> 00:07:35.620 I don't know. 154 00:07:35.654 --> 00:07:39.342 I don't know what the big ones are these days but if you took them out 155 00:07:39.635 --> 00:07:43.438 Would you have a similar situation as you have in the United States, 156 00:07:43.479 --> 00:07:47.423 whereas it's not as broad-based as the index tells you it is? 157 00:07:48.567 --> 00:07:49.747 The short answer there is yes. 158 00:07:50.950 --> 00:07:52.325 It is a very narrow rally. 159 00:07:52.747 --> 00:07:58.559 If you look at our consumer index, our retailers, they are still down 20% the 160 00:07:58.559 --> 00:08:00.559 index year-to-date. 161 00:08:00.559 --> 00:08:02.434 So for the last, let's say, six, seven months, our banks' index is flat. 162 00:08:02.497 --> 00:08:05.841 There's no return that's come from the banks' index. 163 00:08:06.606 --> 00:08:08.138 And that's, I guess, globally. 164 00:08:08.431 --> 00:08:15.374 as well as in South Africa, what investors are now trying, and we as fund managers 165 00:08:15.374 --> 00:08:17.374 are trying to get our heads around, does this broaden out? 166 00:08:17.374 --> 00:08:17.514 Is there enough growth left? 167 00:08:17.515 --> 00:08:24.217 Is growth resilient through all the tariffs, trade wars, uncertainty, which 168 00:08:24.217 --> 00:08:26.217 potentially causes a bit of a growth slowdown? 169 00:08:26.217 --> 00:08:29.358 We're not in a recession, Cam, so we don't think we're going to go to zero or below 170 00:08:29.358 --> 00:08:31.358 GDP growth. 171 00:08:31.358 --> 00:08:33.452 Yes, there might be a quarter or two where growth is slower than what we wanted it to 172 00:08:33.452 --> 00:08:33.965 be. 173 00:08:33.965 --> 00:08:35.561 Our view is that we have below-trend growth. 174 00:08:36.063 --> 00:08:41.228 for the remainder of the year and that growth starts to pick up again into 2026. 175 00:08:41.247 --> 00:08:47.696 So that means that we're looking to see does this broaden out into the other 493 176 00:08:47.696 --> 00:08:49.696 stocks in the US? 177 00:08:49.696 --> 00:08:54.642 Does this growth and investment profile broaden out into Europe, into Asia and 178 00:08:54.642 --> 00:08:56.642 more specifically China and also in South Africa? 179 00:08:56.642 --> 00:08:58.017 If our retail index and our banks index have not shown any... 180 00:08:59.103 --> 00:09:01.045 great contribution to positive returns. 181 00:09:01.665 --> 00:09:08.274 Does the interest rate cutting cycle, the lower fuel prices, given where the oil 182 00:09:08.274 --> 00:09:10.274 price is currently sitting, the stronger RAND, the better terms of trade, 183 00:09:10.274 --> 00:09:13.157 because we're exporting these platinum, palladium, and gold commodities at much 184 00:09:13.157 --> 00:09:15.157 better prices, 185 00:09:15.157 --> 00:09:16.907 and we've got the benefit of importing oil at a much lower price. 186 00:09:16.908 --> 00:09:19.938 So our terms of trade is helping to push the RAND stronger. 187 00:09:20.188 --> 00:09:24.985 And more recently, the 3% inflation target debate, which is out there in South 188 00:09:24.985 --> 00:09:25.201 Africa, 189 00:09:25.201 --> 00:09:27.297 is also driving a potential lower... 190 00:09:27.723 --> 00:09:29.826 interest rate cycle over the medium to long term. 191 00:09:30.246 --> 00:09:34.130 So do those benefits start to show up on the consumer side? 192 00:09:34.330 --> 00:09:39.595 And do we see the rally broadening out to our insurance companies, our banks and our 193 00:09:39.595 --> 00:09:39.695 retailers? 194 00:09:39.931 --> 00:09:42.197 And all of that, I guess, depends on confidence. 195 00:09:42.939 --> 00:09:47.181 And we need to drive GDP growth and job creation in our country for that to come 196 00:09:47.181 --> 00:09:47.506 through. 197 00:09:48.211 --> 00:09:53.017 Is it possible that the, in my simplistic mind, and you've alluded to it to a 198 00:09:53.017 --> 00:09:55.017 certain extent, 199 00:09:55.017 --> 00:09:58.904 that more money comes into the South African economy via these taxes that, for 200 00:09:58.904 --> 00:09:58.979 example, 201 00:09:59.060 --> 00:10:04.544 a platinum producer will pay and will pay a lot more because they're doing so well. 202 00:10:04.966 --> 00:10:07.857 Therefore, that money is going to be used for projects. 203 00:10:07.935 --> 00:10:11.357 Maybe it'd be an infrastructure project by the government or something like that. 204 00:10:11.700 --> 00:10:17.216 And then in years to come, and it won't be straight away, but in years to come, Local 205 00:10:17.216 --> 00:10:19.216 stocks, SA Inc. 206 00:10:19.216 --> 00:10:21.216 stocks. 207 00:10:21.216 --> 00:10:24.601 will benefit because of GDP growth that has hopefully come from the extra money 208 00:10:24.601 --> 00:10:24.743 coming 209 00:10:24.743 --> 00:10:25.441 into the fiscus. 210 00:10:25.625 --> 00:10:26.547 Is that too simple? 211 00:10:27.523 --> 00:10:29.687 Yeah, I think that's a very good way of thinking about it. 212 00:10:30.086 --> 00:10:35.976 As I mentioned, higher commodity prices means that these corporates will probably 213 00:10:35.976 --> 00:10:37.976 be paying more 214 00:10:37.976 --> 00:10:38.898 taxes than they paid last year and maybe even the year before. 215 00:10:39.351 --> 00:10:43.867 I mean, those commodities, the platinum prices went what we call into the cost 216 00:10:43.867 --> 00:10:45.867 curve, so the margins. 217 00:10:45.867 --> 00:10:47.274 essentially got eliminated for some of those producers. 218 00:10:47.355 --> 00:10:53.103 With these price increases, their profitability goes up and they are quite 219 00:10:53.103 --> 00:10:55.103 big contributors to our fiscus, 220 00:10:55.103 --> 00:10:57.103 as you rightly mentioned. 221 00:10:57.103 --> 00:11:00.110 We've just gone through quite a big political debate about a 50 basis point of 222 00:11:00.110 --> 00:11:02.110 that increase, 223 00:11:02.110 --> 00:11:02.735 which went forwards and backwards for a number of months. 224 00:11:03.048 --> 00:11:07.735 But the numbers that we're now potentially going to get from these corporates are big 225 00:11:07.735 --> 00:11:07.857 numbers. 226 00:11:07.857 --> 00:11:10.751 They can potentially be quite big contributors to our fiscus. 227 00:11:10.845 --> 00:11:17.542 What I think is also interesting, just to highlight as well, Lindsay, is A lot of 228 00:11:17.542 --> 00:11:19.542 global allocators are now sitting and thinking, 229 00:11:19.542 --> 00:11:24.389 do I remain in the US or do I think that the political regime and potential growth 230 00:11:24.389 --> 00:11:26.389 slowdown 231 00:11:26.389 --> 00:11:31.194 because of all these tariffs and trade wars means that I should look wider and 232 00:11:31.194 --> 00:11:33.194 also potentially into emerging markets to allocate my 233 00:11:33.194 --> 00:11:35.194 capital towards? 234 00:11:35.194 --> 00:11:39.007 I mean, we've actually in the last two months had six big global pension fund and 235 00:11:39.007 --> 00:11:41.007 allocators 236 00:11:41.007 --> 00:11:43.007 contacting us. 237 00:11:43.007 --> 00:11:45.481 to dust off our slides on why the case for South African equities is good for a 238 00:11:45.481 --> 00:11:45.701 foreigner. 239 00:11:45.719 --> 00:11:48.317 And remember, they also look at it in dollar terms. 240 00:11:48.318 --> 00:11:52.262 So with a weaker dollar and our emerging market currencies going stronger, 241 00:11:52.481 --> 00:11:58.723 that suddenly becomes a tailwind where previously it potentially was a headwind 242 00:11:58.723 --> 00:12:00.723 because of the better fiscus, because of the weaker dollar. 243 00:12:00.723 --> 00:12:02.630 I mean, there's global arguments and local arguments why the RAND is doing what it's 244 00:12:02.630 --> 00:12:02.939 doing. 245 00:12:03.177 --> 00:12:08.802 And they are coming to us and they're saying, please can we again understand the 246 00:12:08.802 --> 00:12:10.802 case for investing in South African equities? 247 00:12:10.802 --> 00:12:12.750 obviously these Allocators have got quite a big decision to make. 248 00:12:12.769 --> 00:12:18.033 As one of them said to me just a few weeks ago, he has to decide whether he sells 249 00:12:18.517 --> 00:12:23.642 Microsoft, NVIDIA, Apple and Amazon and buy some SA Inc. 250 00:12:23.799 --> 00:12:25.900 stocks or resources stocks in South Africa. 251 00:12:26.260 --> 00:12:27.900 That's quite my eyes opened when he said that. 252 00:12:27.947 --> 00:12:32.525 That's quite a difficult decision to make at this stage, given the narrowness of 253 00:12:32.525 --> 00:12:34.525 market rallies. 254 00:12:34.525 --> 00:12:35.994 But these guys are coming and they want to understand. 255 00:12:36.383 --> 00:12:41.387 what's happened in South Africa from a political perspective, a fiscal 256 00:12:41.387 --> 00:12:43.387 perspective, as you mentioned, a growth perspective. 257 00:12:43.387 --> 00:12:48.137 And again, these companies are generating, because we've got good quality management 258 00:12:48.137 --> 00:12:50.137 teams, decent earnings growth profiles, 259 00:12:50.137 --> 00:12:53.332 which looks quite attractive at a very attractive valuation or price as well for 260 00:12:53.332 --> 00:12:55.332 some of these global allocators. 261 00:12:55.332 --> 00:12:56.911 It's very interesting that you say these allocators have suddenly contacted you. 262 00:12:56.942 --> 00:13:00.770 I mean, are you saying that because of our conversation or are you saying it because 263 00:13:00.786 --> 00:13:03.989 it's an unusual occurrence or you haven't had those allocators? 264 00:13:04.243 --> 00:13:08.227 in the last couple of years coming to you, and suddenly it's become a phenomenon. 265 00:13:08.668 --> 00:13:15.012 We haven't had calls from these global allocators, global pension funds in years, 266 00:13:15.012 --> 00:13:17.012 Lindsay. 267 00:13:17.012 --> 00:13:20.254 So to suddenly through our 91 client group, where we are based in certain 268 00:13:20.254 --> 00:13:22.254 countries, 269 00:13:22.254 --> 00:13:26.801 obviously engaging where these allocators are asking questions about emerging 270 00:13:26.801 --> 00:13:28.801 markets, firstly, and then secondly, inside emerging markets, 271 00:13:28.801 --> 00:13:31.582 they obviously got these screens and their databases that they run, and then they 272 00:13:31.582 --> 00:13:33.582 filter that in certain ways. 273 00:13:33.582 --> 00:13:37.298 My gut feel is that they're filtering that on a valuation basis and they're saying, 274 00:13:37.298 --> 00:13:39.298 well, I can see some cheap destinations and 275 00:13:39.298 --> 00:13:41.298 South Africa is probably one of them. 276 00:13:41.298 --> 00:13:44.587 I mean, given where our bond yields were 12% at one stage, that's rallied nicely to 277 00:13:44.587 --> 00:13:46.587 10%. 278 00:13:46.587 --> 00:13:48.103 Our banks are trading at single digit forward PE multiples. 279 00:13:48.509 --> 00:13:53.775 They obviously, according to those screens, have said we need to make a few 280 00:13:53.775 --> 00:13:55.775 calls and do a bit more work, don't kick the tires. 281 00:13:55.775 --> 00:13:59.931 And for the first time in years, these client group people are calling us up and 282 00:13:59.931 --> 00:14:01.931 say, please, can we have your latest pitch back? 283 00:14:01.931 --> 00:14:03.102 for what is the case for South African equities. 284 00:14:03.103 --> 00:14:03.922 And that's refreshing. 285 00:14:04.524 --> 00:14:05.224 It is refreshing. 286 00:14:05.224 --> 00:14:12.129 And it's also very encouraging because if the money that comes into the Fiscus that 287 00:14:12.129 --> 00:14:14.129 we hope will come into the Fiscus does create 288 00:14:14.129 --> 00:14:20.223 a growth in the medium and longer term, then you've got a load of companies that 289 00:14:20.223 --> 00:14:22.223 are run by these super management teams 290 00:14:22.223 --> 00:14:24.223 that you spoke of earlier. 291 00:14:24.223 --> 00:14:26.223 They're lean companies now. 292 00:14:26.223 --> 00:14:28.223 Their costs have been cut to the bone. 293 00:14:28.223 --> 00:14:30.223 They've been rationalized. 294 00:14:30.223 --> 00:14:32.223 And when the good times come, they're ready to take advantage of it. 295 00:14:32.223 --> 00:14:35.380 Some are already doing quite well outside of the Resources Index, SA Inc. 296 00:14:35.681 --> 00:14:39.079 And I know you're keen and you've got a few of those in your portfolios. 297 00:14:39.642 --> 00:14:44.782 Hannes, can you tell us, you know, the ones that have done quite well from a 91 298 00:14:44.782 --> 00:14:46.782 perspective? 299 00:14:46.782 --> 00:14:50.064 Yeah, we've been big supporters of stocks like Capitec for a while now. 300 00:14:50.685 --> 00:14:55.892 I mean, we've often said that the aggressive and the good earnings growth 301 00:14:55.892 --> 00:14:57.892 profile of 20% 302 00:14:57.892 --> 00:15:00.454 earnings growth from one year to the next deserves the premium that you have to pay 303 00:15:00.454 --> 00:15:02.454 for Capitec. 304 00:15:02.454 --> 00:15:05.728 And as you mentioned, the management teams are broadening out the drivers of that 305 00:15:05.728 --> 00:15:07.728 earnings growth 306 00:15:07.728 --> 00:15:12.806 specifically for Capitec into the business banking sector and also capturing more and 307 00:15:12.806 --> 00:15:14.806 more of the informal market into the banking system. 308 00:15:14.806 --> 00:15:15.123 We quite like First Rand as well. 309 00:15:15.142 --> 00:15:20.689 We feel that First Rand is trading at a discount relative to the quality business 310 00:15:20.689 --> 00:15:22.689 that it's been in the past. 311 00:15:22.689 --> 00:15:27.736 In the insurance space, we quite like Discovery, a business that's also 312 00:15:27.736 --> 00:15:29.736 diversified itself in South Africa and abroad, 313 00:15:29.736 --> 00:15:32.439 but specifically in South Africa, starting to deliver on some of the insurance and 314 00:15:32.439 --> 00:15:34.439 other strategies. 315 00:15:34.439 --> 00:15:37.580 And Discovery Bank, a few years ago, I wasn't sure about all the capital that 316 00:15:37.580 --> 00:15:39.580 they allocated towards building that bank, 317 00:15:39.580 --> 00:15:40.048 and that seems to be going better than expected for them. 318 00:15:40.673 --> 00:15:42.470 And on the consumer space. 319 00:15:42.861 --> 00:15:44.063 We quite like Tiger Brands. 320 00:15:44.122 --> 00:15:50.270 We feel that the turnaround strategy that the new CEO and management have 321 00:15:50.270 --> 00:15:52.270 implemented there is starting to bear fruit. 322 00:15:52.270 --> 00:15:54.371 It's a company that lost its way, unfortunately, over the previous decade. 323 00:15:54.817 --> 00:15:57.817 Went into Africa, did a U-turn in Africa, had to come back, 324 00:15:58.254 --> 00:16:01.879 sort of lost capital on trying to do that diversification strategy. 325 00:16:01.880 --> 00:16:05.957 It had too many SKUs, as we refer to it, trying to sell too many premium products. 326 00:16:05.958 --> 00:16:10.051 So the strategy about bringing in more value, they got that wrong. 327 00:16:10.052 --> 00:16:11.051 and the private label. 328 00:16:11.565 --> 00:16:14.986 segment of retail took some market share away from Tiger Brands. 329 00:16:14.987 --> 00:16:20.568 So they're repositioning themselves there and also repositioning themselves in the 330 00:16:20.568 --> 00:16:22.568 bread market and improving their margin. 331 00:16:22.568 --> 00:16:23.685 So Tiger Brands is one that we have built quite a big position in. 332 00:16:23.709 --> 00:16:27.170 And then in general retail, we like Fashini and discretionary retail space. 333 00:16:27.443 --> 00:16:30.349 We still like Pepcor, also driving double digit. 334 00:16:30.396 --> 00:16:36.928 I mean, the earnings CAGR, the earnings growth for the next three years are 13 to 335 00:16:36.928 --> 00:16:38.928 15 percent for some of those retailers like Pepcor. 336 00:16:38.928 --> 00:16:40.928 And you're buying them at a very attractive. 337 00:16:40.928 --> 00:16:42.928 So we've got some of those in the portfolio. 338 00:16:42.928 --> 00:16:43.454 We've got 20% of the portfolio exposed to gold and platinum. 339 00:16:44.056 --> 00:16:47.997 So we have got a nice position there where, as I said, there's a lot of 340 00:16:47.997 --> 00:16:49.997 momentum behind it. 341 00:16:49.997 --> 00:16:53.396 And then Tencent and NASPA are still doing very well with the new CEO at NASPA who's 342 00:16:53.396 --> 00:16:53.776 very 343 00:16:53.776 --> 00:16:56.576 much focused on delivering strategy and free cash flow. 344 00:16:56.669 --> 00:16:58.544 We're starting to see some of that come through. 345 00:16:59.451 --> 00:17:05.482 On top of good Tencent returns, you're starting to see the Rump assets starting 346 00:17:05.482 --> 00:17:07.482 to go into positive free cash flow territory, 347 00:17:07.482 --> 00:17:09.482 which is good for us to see. 348 00:17:09.482 --> 00:17:13.381 Okay, so you've got plenty on your plate, and hopefully more will come to you as 349 00:17:13.381 --> 00:17:15.381 well, because I know you like earnings revisions. 350 00:17:15.381 --> 00:17:15.788 I wonder how long it'll take before SA Inc. 351 00:17:15.889 --> 00:17:20.108 starts to see those earnings revisions coming in because of what's happening 352 00:17:20.108 --> 00:17:22.108 elsewhere, Hannes. 353 00:17:22.108 --> 00:17:22.170 I've been saying for a while now, Lindsay, 354 00:17:22.249 --> 00:17:29.241 that we reached a cyclical low in GDP growth in South Africa in 2023 and the 355 00:17:29.241 --> 00:17:29.317 initial part 356 00:17:29.317 --> 00:17:31.006 of 2024. 357 00:17:31.007 --> 00:17:34.209 And we've also had a cyclical high in inflation and interest rates. 358 00:17:34.225 --> 00:17:39.977 the cycles peaked in interest rates and inflation then and bottomed out, I think, 359 00:17:39.977 --> 00:17:41.977 in GDP. 360 00:17:41.977 --> 00:17:46.883 I mean, our GDP growth, if we just cast our eyes back to where we were 18 months 361 00:17:46.883 --> 00:17:48.883 ago in the middle of load shedding, lady 362 00:17:48.883 --> 00:17:52.797 R concerned about port delivery, a big logistical mess that all these companies 363 00:17:52.797 --> 00:17:54.797 had to deal with and going into 364 00:17:54.797 --> 00:17:56.610 Christmas periods without having the appropriate stock on the floor in some of 365 00:17:56.610 --> 00:17:56.795 the shops. 366 00:17:57.235 --> 00:18:01.844 Fast forward to where we are now, the lights have stayed on for quite a number 367 00:18:01.844 --> 00:18:03.844 of weeks now. 368 00:18:03.844 --> 00:18:04.469 The electricity availability factor is a lot higher. 369 00:18:04.563 --> 00:18:11.541 We We've reached that improvement in GDP growth, and some people are upgrading 370 00:18:11.541 --> 00:18:13.541 their GDP growth expectations for next year. 371 00:18:13.541 --> 00:18:17.642 Stronger RAND, inflation had added two handles on it, so below the 3%, the lower 372 00:18:17.642 --> 00:18:19.642 end of the band, 373 00:18:19.642 --> 00:18:20.486 and that's why we're having this 3% inflation target debate. 374 00:18:20.487 --> 00:18:24.650 The Reserve Bank sees an opportunity to move our inflation targets lower. 375 00:18:25.041 --> 00:18:31.712 So I've been saying that from 2023-2024, and I still say that we are at an 376 00:18:31.712 --> 00:18:33.712 improving GDP growth cycle. 377 00:18:33.712 --> 00:18:36.370 And we look forward to maybe an additional one or two interest rate cuts in South 378 00:18:36.370 --> 00:18:36.568 Africa. 379 00:18:36.730 --> 00:18:42.112 And the delayed impact of that is starting to filter through the economy as the 380 00:18:42.112 --> 00:18:44.112 environment for the consumers is improving. 381 00:18:44.112 --> 00:18:44.980 In five years' time, it'll be 2030. 382 00:18:45.081 --> 00:18:48.456 So given what's happened between 2020 and 2025, i.e. 383 00:18:48.457 --> 00:18:55.269 the all-share doubling when we speak in 2030, Jonas, it'll be 200,000 the 384 00:18:55.269 --> 00:18:55.470 all-share. 385 00:18:56.347 --> 00:18:58.175 I hope we can still cheers to... 386 00:18:58.726 --> 00:18:59.548 another five years. 387 00:18:59.589 --> 00:19:02.637 I look forward to doing that when we get to 2030. 388 00:19:02.638 --> 00:19:03.622 It's difficult to say. 389 00:19:04.448 --> 00:19:07.571 Our returns are going to move from now to then. 390 00:19:07.892 --> 00:19:11.173 What I can tell you is there's definitely a valuation underpin. 391 00:19:11.236 --> 00:19:15.642 We, as you said, don't buy stocks because we think they're cheap and they're going 392 00:19:15.642 --> 00:19:17.642 to have a value unlock. 393 00:19:17.642 --> 00:19:18.118 But value in our minds are supportive. 394 00:19:18.423 --> 00:19:20.001 What we focus on is the earnings growth. 395 00:19:20.423 --> 00:19:24.782 And over the next year or two, our view is that the earnings growth is going to be 396 00:19:24.782 --> 00:19:26.782 double digits. 397 00:19:26.782 --> 00:19:28.626 The JSC tends to give you around about a 4% dividend yield. 398 00:19:29.032 --> 00:19:31.876 Some of the banks are currently giving you an 8% and a 9% dividend. 399 00:19:32.517 --> 00:19:33.439 So you just buy a bank. 400 00:19:33.908 --> 00:19:37.572 such as APSA today, you're going to get a money market return just from the 401 00:19:37.572 --> 00:19:37.731 dividend. 402 00:19:37.851 --> 00:19:41.374 You're going to get all the earnings growth and potential re-rating in the 403 00:19:41.374 --> 00:19:43.374 valuation for free. 404 00:19:43.374 --> 00:19:45.956 So I think from here for the next five years, our focus will remain on earnings 405 00:19:45.956 --> 00:19:46.180 growth. 406 00:19:46.180 --> 00:19:51.167 We like companies where the earnings growth profiles are underestimated and 407 00:19:51.167 --> 00:19:53.167 therefore getting upgraded or improving. 408 00:19:53.167 --> 00:19:55.605 We like to avoid those where the earnings profiles are deteriorating or getting 409 00:19:55.605 --> 00:19:57.605 downgraded. 410 00:19:57.605 --> 00:19:58.917 So if we stick to that philosophy, it's worked quite well for us. 411 00:19:59.420 --> 00:20:03.001 since 1991 in the 91 Equity Fund when that fund launched. 412 00:20:03.020 --> 00:20:05.600 So these funds have been going for over 30 years. 413 00:20:06.042 --> 00:20:08.725 And that philosophy and process has worked well. 414 00:20:08.726 --> 00:20:09.444 We stick to that. 415 00:20:09.725 --> 00:20:16.546 And hopefully we can continue to get the earnings growth profile and the dividend 416 00:20:16.546 --> 00:20:18.546 and free cash flow yields right and invest in the right companies to 417 00:20:18.546 --> 00:20:21.327 hopefully in five years' time speak again and maybe discuss another milestone at 418 00:20:21.327 --> 00:20:21.387 that stage. 419 00:20:22.046 --> 00:20:25.046 Yes, maybe one or two other milestones as well, Hannes. 420 00:20:25.405 --> 00:20:26.764 Thank you so much for your time. 421 00:20:26.811 --> 00:20:27.686 Great analysis. 422 00:20:27.733 --> 00:20:28.671 Hannes van den Berghe. 423 00:20:28.968 --> 00:20:32.632 is co-head of SA Equity and Multi-Asset at 91 in Cape Town. 424 00:20:33.872 --> 00:20:40.821 The views and opinions expressed in these podcasts are those of Lindsay Williams and 425 00:20:40.821 --> 00:20:42.821 various contributors and do not reflect the policy, 426 00:20:42.821 --> 00:20:45.368 position, or opinion of any other agency, organisation, employer, 427 00:20:45.680 --> 00:20:49.555 or company associated with StrictlyBusinessPodcast.com. 428 00:20:50.009 --> 00:20:56.977 Assumptions made on the analyses are not reflective of the position of any other 429 00:20:56.977 --> 00:20:58.977 entity other than the speaker or the author. 430 00:20:58.977 --> 00:21:02.434 And since we are critically thinking human beings, these views are always subject to 431 00:21:02.434 --> 00:21:02.552 change, 432 00:21:02.712 --> 00:21:05.274 revision and rethinking at any time. 433 00:21:05.579 --> 00:21:08.001 Please do not hold us to them in perpetuity.