The South Africa Market today 04/08/2021

The South African Markets in Focus
 
Chinese regulatory and crack down on Chinese companies
In recent week Chinese regulators have cracked down on the tech sector and this has caused the tech stocks to have the biggest monthly drop since it was constituted. In recent times Jack Ma’s Ant group was denied its IPO which was set to be the biggest IPO in the region. Since the denial of the IPO there has been other occurrences and statement that have showed that the education, Gaming and Chip are being targeted by the government. In this regard this has caused a lot of volatility in Tencent which has found its way to our market because Naspers and Prosus who own 29% of Tencent are the biggest constituents in our index accounting for about 20% of the benchmark TOP 40 index. Stocks get cheap and when they get cheap, they provide market participants with opportunities to get into the market. In this regard my experience has taught me that regulatory risk is a risk one can't predict or even price. The extent of this crackdown will be the determinant in how earnings accretive Tencent will be in the future.

I do not believe that the fundamental business and the earnings drivers have changed for the business’s which are in sectors experiencing the clamp down, but I am of the belief that for as long as there is regulatory uncertainty there will be volatility in the Chinese stocks and therefore volatility in the Top 40 Index.
 

Telkom Group results
TKG:SJ reported an incredible set of results with a revenue growth number of 3.5% to end June and and most this revenue was driven by Mobile business growth. Telkom has noted there is some pressure on consumers as more clients are choosing to switch from contracts to prepaid as disposable income and economic deterioration takes hold of consumers. The company remains operationally efficient with great cost containment. The stock is still in a consolidation phase since reaching highs in June, but the valuation is still very attractive with a 1 year forward EPS of 6.89. The stock is primed for great performance.