SIMON BROWN: I’m chatting now with Kea Nonyana. He was one of a couple of folks last year who said, ‘This is the year of energy’. That was before the Ukraine war. It was on February 24 when that broke out. My best reference for keeping an eye on energy is [an] ETF in the US. Its code is XLE, an energy ETF. It was up about 33% last year. In a year where not much was green, that one was very green.
Kea, good morning. I appreciate the early morning time, as always. We loved your energy call for last year, so no pressure. Where are you looking this year? Is it still an energy story, or perhaps you are shifting focus as the interest rate and the inflation landscape are kind of changing?
KEA NONYANA: You know, Simon, I think thematic investing over the past three years since 2020 has shown itself to be an alpha generator for portfolios. I think that’s the theme that’s going to continue, and the theme this year will be China. Let me tell you why.
Looking at the MSCI, more broadly specifically Japan, it was up about 11.1% in January, the ETF. And continuously looking at what has been driving global stock markets in the last 90 days of 2022, you started to see that the commodity prices were still pushing quite rightly stronger, and China is starting to recover.
I think in the first month of the year you will see a slight sell-off in Chinese-related stocks, but the theme will continue into 2023.
SIMON BROWN: I like your point there around ‘thematic’. That was very much the point you made last year as well. Certainly we talked on some individual stocks, and Renergen was one of them. That’s a favourite of yours and mine. But it is that theme, and it in some ways is maybe harder. You’ve got to pick the theme. In some ways it’s then kind of easier because, once you’ve identified the theme, there are the ETFs. You can pick. On the local exchange there are a couple, from Sygnia and Satrix. Of course, if you head over to New York or somewhere, there’ll be dozens of them, and you can kind of pick the ETF and just ride the wave from that.
KEA NONYANA: Yes. I think that’s the easiest way to go and explore your theme, without understanding the broader stock market. And I think when you start going into stock-specific things that you like, it becomes a lot more confusing. But there’s still a broader range of stocks across the world, from the US to Europe, even to Asia specific, that you can explore this theme with.
SIMON BROWN: And of course one of them is Tencent, which we get on the JSE via Naspers and Prosus, which lifts our Top 40 already.
And the China story. We saw post the elective conference when XI Jinping got his third term he very aggressively moved away from the zero-Covid policy that [had] obviously resulted in rampant Covid in China, even by Chinese accounts. Quite a number of deaths there. But it does say that they’re going to be back. We’re going to start to see some GDP growth coming through. Xi Jinping kind of waved his big stick back in ’21 and scared everyone.
The sense is that’s kind of behind us, and China is now looking forward, and looking for some growth. The IMF is certainly saying that they’re going to be back and growing this year.
KEA NONYANA: That’s true. I think one thing we do realise about China is that once Xi Jinping takes a decision, he kind of runs with it. And I think right now, as in the last quarter of 2022, one thing we’ve started to realise is the fact that the Chinese economy was ailing. And because of a global job marketplace and a very tight labour market, you start to see the non-competitiveness of China if they are not working. I think it’s starting to affect the economy, and it’s something that the Communist Party is quite aware of – that the economy [cannot] take on any more headwinds, and that they are going to allow the economy to open up.
SIMON BROWN: You make a great point then. It’s what I always remind folks – China is essentially a command economy. When Xi Jinping says, ‘We are going to do X’, this isn’t like President Ramaphosa or Biden or the PM in the UK. It kind of happens. It’s going to move forward. It might be bumpy, and it might be painful, but don’t underestimate the ability of Xi Jinping to say, ‘This is how it’ll happen’.
KEA NONYANA: I think that is very true, Simon, and it is what’s going to be driving the market this year.
SIMON BROWN: I just pulled up the IMF [report] for China. For last year they’re looking at 3% GDP. For this year, 2023, they’re looking for 5.2%, and then 4.5% in 2024. I think they are very bullish. In South Africa they’re expecting us to do 1.2% this year. The Reserve Bank says 0.3%. We shall see.
Independent analyst Kea Nonyana, I really appreciate the time. Last year it was energy; this year he’s talking China.
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