I was watching the after hours release of the second quarter results for the FAANG stocks, excluding the N (Netflix), on Bloomberg at 22:30 on Thursday. These results covered the period during which Covid-19 caused most of its damage and a lot of businesses suffered permanent damage. But FAAG beat all the expectations, resulting in their share prices going up by as much as 6%. It is clear that their lofty valuations are supported by growing customer numbers and earnings.
If we just look at Facebook, where they have to endure endless attacks by regulators and even boycotts by advertisers, the share is up 20% year to date in US$. For a South African investor that will be almost 40% in SA rand. But wait, that is not all: if you look at Amazon, they are up almost 70% in US$. So even if they have a correction of say 10%, they are still way better wealth creators than any SA company.
Talking about SA companies, a concerning fact is that there has been an almost 40% drop in number of listed companies on the JSE over the last decade (graph below). This makes the investment pool very small and thus more risky. As we have said before, this has a positive and negative side. On the positive side the companies that do survive have much less competition and can give you stellar returns, but if you invest in one that does not, you lose a lot.
Another positive/negative event in SA is the R71 billion loan from the IMF. If all goes well, the money will reach the right places, but skepticism runs high and as Zapiro’s recent cartoon highlights, the corrupt and ruthless government officials might just take it all for themselves again.