Category Archives: Current Market

The Discount to Tencent

It is commonplace for investment holding companies to trade at a discount to the value of their underlying assets. This discount is usually around 20% to 30% depending on the assets held. Efforts are often made to “unlock” this value into the hands of shareholders by “unbundling” the assets directly into the hands of those shareholders. Private investors can sometimes score a windfall by buying into an investment holding company which is trading at a significant discount and then benefiting from their efforts to release or unlock the value.

Naspers (NPN) has been increasingly undervalued in terms of its underlying assets for many years. For example, it has been recently estimated that the company’s shares are now trading at a 42% discount to the value of its indirect 31% holding of Tencent – the Chinese internet and social media giant. That discount has widened sharply in recent months as the Tencent share price on the Shenzhen stock exchange in China has risen by almost 30%. Read More

2020 Prediction

Predicting what will happen on the JSE in 2020 is immensely difficult. There are many variables, each of which is complex in its own right. However, some things appear reasonably clear to us. They are:

  • The dominant prediction for 2020 is that Wall Street will continue on its upward journey with the S&P500 breaking a series of new highs during the year. In this process it will go through at least one major correction – which is already probably overdue – and that will represent a buying opportunity. This prediction is based on our perception that the US economy will continue to grow strongly and with it the world economy. This growth is driven by the massive quantitative easing and monetary policy stimulation of the past decade. We do not see any significant recession occurring in the US or elsewhere during 2020. If anything, the pace of economic growth will probably become more widespread and stronger. The great bull market, now in its tenth year, is showing no signs of slowing down. Bearish commentators are consistently being proven wrong to the point where few are willing to stake their reputation on calling the top.

S&P500 Index 2009 to 2020 – Chart by ShareFriend Pro

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Quo Vadis?

As the year draws to a close, we should consider what is likely to happen next year on world markets. Undoubtedly, world markets will continue to follow what happens on Wall Street so we will confine our discussion to this market.

Once the traditional fear of October month was behind us, the S&P500 began making a series of new record highs. This is not unusual. Over the festive season it is quite normal for there to be a “relief rally”. If the market did not crash in October, it is extremely unlikely to crash over the year end. The thoughts of investors turn to the new year and the promise which it holds. Consider the chart:

S&P500 Index June to December 2019 – Chart by ShareFriend Pro

You will notice that the current upward trend is accelerated. From breaking above the previous record high of 3025 (made on 26-7-19) this index has risen by 166 points or 5,4% in less than 2 months. The 5,4% to reach that level of 3025 took almost 7 months to achieve. This acceleration indicates a growing confidence in the future of the US economy. However, as a word of caution, nothing in the markets moves in a straight line – so you should expect some sort of correction in the fairly near future. Read More

The Confidential Report – December 2019


The strong upside break of the S&P500 index above its previous cyclical high at 3025 shows that the potential for a “triple top” formation is now behind us – together with October month. Consider the chart:

S&P500 Index January 2018 to December 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

There had been some concerns among investors that the rising triple top (with tops in Jan 2018, September 2018 and July 2019 shown above with the red circles) would predicate a new bear trend potentially from October 2019. October is traditionally a scary month for investors following the collapses of 1929 and 1987.

We never had that opinion. We always thought that the underlying power of the booming US economy would drive share prices higher in a continuation of the great bull market which began in March 2009. The S&P has powered ahead and is more than 4% above the last of the tops in a strong new upward trend. On average, the S&P has gained about 1,7% in December month. While markets tend to have lower volumes because of the holiday season, once October is past there is usually a relief rally through to January of the new year. Read More

Remgro/RMB Unbundling

South Africa is the land of monopolies. Historically, under the National Party, South Africa was cut off from the rest of the world and isolated from international competition. This led to the development of massive local monopolies such as that of SA Breweries and Anglo American (which at one stage controlled more than 50% of the blue chip companies on the JSE). Many of those monopolies consisted of enormous conglomerates of companies tied into structures which usually left them trading at considerably lower prices than the value of the share which they owned.

In the new South Africa, there has been a trend towards breaking up those structures and releasing shareholder value. One of the most recent examples has been Naspers which first unbundled Multichoice into the hands of its shareholders and then restructured with the formation and listing of Prosus on the Euronext in Amsterdam.

It is a well-known fact that investment holding companies traditionally trade at a discount to the value of their underlying assets. This discount can be anything from 10% to 40% depending on the company. One of the ways to “unlock” this value is for the holding company to unbundle the shares of a subsidiary or a large holding into the hands of its own shareholders.

Thus, if company “A” owns a 40% interest in company “B” it can distribute that holding of company “B” shares to its own shareholders and then it steps out of the picture and the structure is simplified. This often has the effect of increasing the prices of both companies’ shares on the JSE. Read More

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