Global and local equity markets – 3rd Quarter September 2021

Developed market equities (MSCI World), propelled by the 5.5% rand weakness over the quarter, outperformed both the global emerging market equities (MSCI Emerging Market) and the South African equity market (JSE Capped SWIX) in rand terms. In base currencies, all three equity markets were hard hit by the risk-off trade in September. Excluding the effect of the currency weakness, SA equities outperformed both developed and emerging market equities over the quarter.

The elevated level of investment market uncertainty over the past few months can be, in part attributed to the energy crisis in Europe, China’s Evergrande contagion, global supply chain disruption (i.e. electronic chip shortages), lacklustre global economic recovery, and tightening Chinese regulation.

To the extent that the Chinese regulatory changes have significantly impacted the gaming sector generally, and Tencent in particular, we experienced a meaningful ripple effect in the local equity market. This was due to the relatively large look-through impact that Tencent has on the local equity market index (through the exposure of Naspers and Prosus).

In August 2021, Naspers underwent a share-swap with Prosus which decreased Naspers’s holding in Prosus from 73% to 57% and increased Prosus’s holdings in Naspers from 5% to 45%. This was motivated by the unlock of value and the company’s desire to reduce the disproportionate weighting of the Naspers in the local equity market.

As a result of the share-swap, both Naspers and Prosus have had a material change to their weighting in the local equity market indices as illustrated below:

While this has abated the dominance of Naspers on the indices, the net impact that Tencent has on the local equity market has not substantially decreased.