Global diversity for the win

 

“That does not mean that there are no investment opportunities, it means two things however for companies with a completely emerging market business, a) the valuations are likely to be subdued on a weakening growth outlook and b) they are more likely to pay up for opportunities elsewhere, and by that I mean offshore. Companies who in large part have diversified their asset bases are likely to attract higher multiples from the local market, who are searching for higher growth opportunities.”


 

To market to market to buy a fat pig. Whilst the Proteas were trying with all their might to stave off another defeat in the test series in India, in an epic blockathon, the global markets were less dour at face value. Test cricket has a lot in common with investing, it takes a lot of time to execute your plan, there is an enormous amount of planning involved in the first place. It is just as much about tiring the opponent out as it is a test of your own mental stamina. In many instances you feel like you are up against it, it is going to be too tough to be in, you sure as heck don’t want to get out though. As they say, and batsmen will tell you this, they only get one chance, whilst bowlers get multiple chances. Not sure, fielders drop catches. I often say that the baseball analogy that Warren Buffett uses is more suited to cricket, it goes like this:

The stock market is a no-called-strike game. You don’t have to swing at everything-you can wait for your pitch. The problem when you are a money manager is that your fans keep yelling, ‘Swing, you bum!’

 

See? In cricket you can wait for the ball to come to you, i.e. the bowler to bowl to you, rather than trying to score off each and every single ball. My cricket coach and headmaster was a Geoff Boycott style fan (he would have loved yesterday), he often used to say to the opening batsman, of which I was one for a couple of years, the best shot is no shot at all.

You don’t have to swing at everything, in the same way that there will be many companies that you never own that you wished you did. Like PSG, or Capitec or any other such business. Like SABMiller when they were worth a whole lot less, like Old Mutual at the bottom of the financial crisis, why did you not buy that, what is wrong with you? And getting a start is important, no matter what your age. If you are not saving, nobody else is going to do it for you. In other words, if you are not committing more to your long term savings, nobody else is going to do that for you. It is simply like that. Again, the cricket analogy is apt here, each and every person utilising investment platforms is looking for the same thing, how they go about it is another story entirely, take Shivnarine Chanderpaul, nothing pretty about that style, darn effective though, he averages 51 plus in a losing team more often than not.

Enough about cricket, I do realise that it definitely is not everyones cup of tea (and cucumber sandwiches). Markets locally regained some of the losses from the sell off here on Friday, stocks up around a percent and one-fifth here in Jozi, Jozi, the Rand was testing new all time lows to the US dollar, it was hardly prettier to the Euro nor to the Pound. I am afraid that we are stuck in a situation where the perception of emerging markets has soured badly. At the end of the session our market was just below the 50 thousand point market, over 5000 points away from the all time highs now, the end of the year has certainly been tougher than the beginning.

That does not mean that there are no investment opportunities, it means two things however for companies with a completely emerging market business, a) the valuations are likely to be subdued on a weakening growth outlook and b) they are more likely to pay up for opportunities elsewhere, and by that I mean offshore. Companies who in large part have diversified their asset bases are likely to attract higher multiples from the local market, who are searching for higher growth opportunities. So, one will have to continue to look for and invest in diversified global business with a more than even growth rate. Easier said than done, right?

Across the oceans and far away in New York, New York, stocks came off the boil after the marvellous rally Friday, ending comfortably down across all three major indices. The nerds of NASDAQ sank nearly four-fifths of a percent, the S&P 500 sank 0.7 percent whilst blue chips lost two-thirds of a percent. The oil price was caned again, sinking to a seven year low last evening. That is excellent for consumers, provided of course that they are buying in dollars, not like us, right? Oil prices are traded as low as 37.77 Dollars a barrel, some suggesting that the lows could test numbers not seen since the early part of the last decade. Ouch for balancing budgets in some parts of the world, great for Joe Consumer. The reason is clearly OPEC’s inability to turn off any taps at any quarters, instead the “drill baby, drill” Sarah Palin mantra comes to mind. And to think that she has more sanity than Trump. Sigh …..

There was another deal brewing, a Luxembourg based group by the name of JAB Holding was busy offering a monster premium for Keurig Green Mountain Inc., wanting to buy the firm for 13.9 billion Dollars. Now the group is becoming serious in the coffee world, having acquired D.E. Master Blenders (Douwe Egberts) in October 2013 for over 10 billion Dollars and Mondelez International Inc.’s coffee unit in May of 2014 for somewhere close to 5 billion Dollars.

Now the company is close to a usual European setup here, there are three highly skilled professionals running the business for four heirs, each of the Reimann offspring are worth four billion Dollars plus, according to Bloomberg. They moved from Germany to Austria, swapped their nationalities and hey presto, cheaper taxes in Austria. Good work, plus, they speak the same language. One of the investors in JAB Holdings is a known entity, Alejandro Santo Domingo, a shareholder over at SABMiller (and #winning on the current deal) is an investor in some of these coffee deals. I like these deals, it means that the coffee space is more interesting, more people willing to pay big premiums on premium coffee. We continue to stay long Starbucks, our most preferred global coffee investment.


 

Linkfest, lap it up

I doubt this project will get out of the planning phase, I hope that it does though – The World’s First Underwater Tennis Court Could Cost $2.5 Billion.

With high growth in China there have been environmental draw downs. The question to ask though, is it worth it? Will the environmental damage be temporary as China gets richer and will they get greener? – Beijing Issues Air Pollution Red Alert for the First Time. The other big problem is the health issues that will arise in the population due to the pollution.

Here is a look at how different sectors have performed for this year. Generally we think that mega companies just plod along with limited share price growth given the huge base. This year that has not been the case – Mega Cap Stocks Driving Market Returns. The blogger also has a look at the returns of value and growth stocks this year, it is no surprise that growth stocks have outperformed by 10%.

Thanks to competition, renewable energy costs are plummeting. Two things are happening in the renewable energy space, the products are getting cheaper and the products are producing more electricity. The result is that on a per Watt basis, solar and wind are starting to be real alternatives – How Solar and Wind Got So Cheap, So Fast


 

Home again, home again, jiggety-jog. Stocks across Asia are down sharply, Japan down over a percent, in Hong Kong markets are down over one and two-thirds of a percent. Stock futures across in the US are also pointing to a lower opening, no doubt European markets and ourselves in this time zone will start lower too. Part of the reason is another set of smoggy looking Chinese numbers, their trade numbers for November suggested that their trade with the rest of world continued to shrink. The country still runs a pretty mean monthly trade surplus of over 50 billion Dollars, I am guessing the envy of many.


 

Sent to you by Sasha and Michael on behalf of team Vestact.

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