By Shmuel Simpson
The past week saw Chinese stocks rise by 20-30% following the Chinese government’s announcement of measures to stimulate the economy.
This caused much excitement in the market, although some investors are sceptical about whether this rally will continue and translate to real economic growth or if it is just another flash in the pan.
It didn’t take much to boost the stocks; most investors were underweight on Chinese stocks due to an under-performing economy, high interest rates and a housing market slowdown, which was reflecting in Chinese equities as stocks were trading at relatively low margins.
It is no surprise that stock prices jumped significantly.
Stock of the week: Tencent
The PPS Managed Fund has had relatively high exposure to Chinese stocks before the government intervention and was well positioned to benefit from the rally. One of our favourite Chinese stocks is Tencent.
The company has seen significant growth over the past few months, and we have been optimistic of the fundamentals of the business, especially their ability to compound interest.
Management has done a fantastic job in managing the company, especially with capital allocation.
Looking ahead, we will continue to focus on companies where we have confidence in their ability to grow and will keep holding Naspers and Tencent.
Chinese rally boosts SA economy
SA stocks and the SA economy in general is very much exposed to China. Given the fact that there is a significant resource component of the SA economy, when China grows so does our resources sector, specifically iron ore and platinum.
The SA economy can almost be considered a ‘China proxy’, as China goes up, SA goes up.
It has been almost 100 days since the formation of the GNU (Government of National Unity), although it’s too soon to see the impact on the economy just yet, market sentiment has been positive due to lower interest rates, a stronger rand and lower oil prices.
Oil prices continue to drop
We have seen a significant drop in global oil prices over the past few weeks.
We believe this decline will continue due to the current surplus and the fact that Saudi Arabia has indicated that they are looking to increase supply in order to gain market share, even if it means lowering prices.
We expect the petrol price to decrease over the coming weeks, offering much-needed relief to consumers.
Richemont revival: Luxury stocks set to soar
As one of the largest markets for luxury goods and spending, the improvement in the Chinese economy could see companies such as Richemont benefit hugely in the coming weeks. We have often seen that when consumer sentiment improves, so does their spending power.
Shmuel Simpson is an analyst at 36ONE Asset Management, part of the PPS Managed Fund investment team.
BUSINESS REPORT
