Portfolio Manager, Arthur Karas, discusses the strong start for markets this week, driven by Naspers/Prosus, as well as reports of Tesla buying a stake in Glencore and the rush for clean energy minerals.
Thanks for listening! Follow us on Linkedin.
Bruce Whitfield 00:06
Not a bad day on our markets, a positive close, it was less than half a percent, but up is up. Financials and local retail came under pressure, food manufacturer too in Tiger Brands was down, but BHP Group, Glencore, positive. Naspers and Prosus and the mighty Barloworld positive on the day as well. Let's see how Arthur Karas, the Portfolio Manager of MacroSolutions at the Old Mutual Investment Group saw it today. What was your assessment of today's market activity, Arthur?
Arthur Karas 00:35
Well, it was a good day to end actually quite a strong month. So, we're up close to 5% for the month, which is a really good performance for the month. We had a really strong performance from the Naspers/Prosus companies on the back of really a terrible month for them. So, notwithstanding the strong performance, like 7% up from Prosus or Naspers for the day. They're still down like about 16% for the month, but today we started off with both a good day performance from Tencent in Hong Kong, and then also a very positive report from one of the broker analysts who's been calling the stock quite well. I think both of those things led to a strong bounce from Naspers.
Bruce Whitfield 01:24
Was it also sort of a change of tune toward China since the weekend? Just there seems to have also been a more positive outlook on China coming through in some markets.
Arthur Karas 01:33
I think China has really been hit hard. I think last week, we had a really disappointing outcome for business from the leadership, congress, there was very little said about the property crisis, very little said or anything at all about easing the Covid regulations. And that's really probably the big thing that business is looking forward to. Once the Covid regulations get lifted there, people start moving around, see a bit more business activity. I think that will be the signal that China is getting onto a better footing.
Bruce Whitfield 02:07
What do you make of reports that Elon Musk was having talks with Glencore, probably earlier this year, about Tesla taking a 20% stake in Glencore? It's astonishing. Financial Times reporting this, so it's a good solid bit of reportage. But Elon Musk has got more money than sense at the moment, he of course walked into Twitter over the weekend and has changed the rules of changing management and firing people left, right, and centre, but Elon Musk in Glencore, really? What's he looking for? Commodities, I suppose.
Arthur Karas 02:35
He's looking to lock in his access to the metals that he needs in order to be able to build his electric cars. So, I think globally, we've got shortages of things like cobalt, and some of the other rarer metals that go into cars. Longer term, we're concerned about the ability of the copper mining industry to be able to provide all the copper that we need for the energy transition. And those are things that Glencore is quite strong in, I think they've already got an agreement covering some metals. And I think this was maybe looking to cement that a bit further and be able to influence the direction of the company. I think, when they took a closer look, and they realised they would be buying a company that is making a very substantial amount of its current profits from coal, they realized that could be difficult to square up with the king energy appeal of Tesla.
Bruce Whitfield 03:33
Yeah, it's interesting. I mean, the rush for battery metals, and the rush for these sorts of commodities is actually quite intense. There's also a report this afternoon and the - he's a government minister from Indonesia, I forget his name and the job that he did, but he was certainly in the trade department in Indonesia. And I was chairing a panel at the World Economic Forum in Davos in April this year. And he was massively outspoken about how countries with commodities need to really look after themselves, the rest of the world doesn't look after them, look at vaccine apartheid, he was saying. And I see reports today suggesting that Indonesia is going to be looking to create a cartel, is similar to that of the OPEC cartel to try and sort of guarantee their prices on battery minerals. I mean, the world's getting increasingly protectionist, it would seem.
Arthur Karas 04:20
I think it's a consequence of what we've seen coming out of Covid, where companies realised that their global supply chains were much, much more vulnerable than what they imagined. I think, if anything, the conflict in Ukraine has heightened that and made you aware of the fact that you simply can't afford to have all of your metal or all of your inputs coming from one part of the world. And when it comes to copper, specifically, all of the new copper projects are in areas that are challenging from a political point of view. And... or they're in areas where there's simply not enough water to get the projects done. So, if you're going to want to build your electric cars, you want to secure that pipeline into the future. And a way to do that is to actually own a stake in the company and use that to cement your offtake agreement. So, we've seen that already with some of the smaller platinum projects in this country, where we've had - one example, a Chinese company come along, buy a stake in the company, they don't really want to mine platinum, but what they want to make sure of is if they can always lay their hands on the product.
Bruce Whitfield 05:27
Absolutely, be at the front of the queue because the queue is going to get longer and longer. Arthur Karas, interesting trends this evening. Thank you, Arthur, Portfolio Manager of MacroSolutions at the Old Mutual Investment Group.