How long can Naspers ride its Tencent tiger?

05 July 2015 - 02:00 By ANN CROTTY

Tencent's share price is holding up remarkably well in the face of something of a meltdown in the stock markets in mainland China. On Friday, the Shanghai Composite index fell 5.8%, bringing the drop since the peak on June 12 to a staggering 28%. Margin trading was behind the more than doubling in both the Shanghai and Shenzhen stock markets in the year to mid-June, but now jitters about the faltering Chinese economy appear to have reversed sentiment.And, unusually for China, government intervention to slow down the sell-off is not working, which means things could get an awful lot worse. To the extent that margin trading by small individual investors was behind the recent boom, a continued sell-off could trigger a landslide.Although the Hong Kong market, where Tencent is listed, benefited significantly from the bullish mainland sentiment earlier this year, the reversal of that sentiment does not seem to have hit Hong Kong equities yet, or certainly not Tencent. It is off its recent high but looks resilient for now.Unfortunately for all the hard-working management and employees at Naspers, what's been happening in the Chinese stock markets this week is far more significant for Naspers shareholders than the staff's contribution to the 2015 results, released a few days ago.Naspers is what it is because of its investment in Tencent. Tencent's outstanding profit performance has enabled Naspers to fund an extremely ambitious investment programme.story_article_left1Apart from Tencent and Naspers' monopoly pay-TV division, business analysts report that profitability in the group remains under pressure. The resilience of Tencent's share price and the perception of that company's fundamentally attractive business model continue to drive Naspers' share price performance.But if Chinese investor sentiment doesn't settle down soon, the Naspers share price will start to look nerve-rackingly peaky.Lewis StoresLewis released some details of its generous executive share incentive scheme this week, which sees the top executives picking up hefty awards. CEO Johan Enslin will be awarded shares with a current value of almost R20-million during the next few years if he achieves the performance targets set by his remuneration committee.If the European Union and the US monetary authorities continue to finance quantitative easing programmes, the market value at the time of the vesting could be significantly higher than R20-million. Of course, if investor sentiment turns against South African equities or if there is a further clampdown on unsecured lending, the market value of the shares at the time of vesting might be significantly lower. But the good thing for the executives involved in the scheme is that it's risk-free for them.That may be why a large portion of the Lewis shareholders voted against the share schemes at the recent general meeting called to get shareholder approval. Only 63% of the shareholders bothered to attend the meeting and 22% of that 63% voted against the schemes. Obviously there's a lot of unhappiness.Deutsche BankReports on Deutsche Bank's latest brush with authorities in Germany read like the corporate equivalent of an Asbo. That's the anti-social behaviour order that the UK police dole out to anyone over 10 years who's caught messing around in public - being drunk, writing graffiti (unless you are Banksy) and playing loud music are considered anti-social.Breaking or "breaching" an Asbo is a criminal offence and the perpetrator can be taken to court. The severity of the sentence will depend on the circumstances and the perpetrator's age.Fortunately for all the top brass at Deutsche Bank, Germany's biggest bank by a long shot, the financial regulators in that country are more lenient than the UK police. These guys are unlikely to see the insides of a jail.A report by the German authorities on the Libor scandal says Deutsche's senior management allegedly acted negligently over the fixing of Libor rates and that former joint-CEO Anshui Jain may have "knowingly made inaccurate statements" to Germany's central bank about it all. Deutsche recently paid $2.5-billion to the regulators to settle the Libor rigging allegations. There are also allegations it was involved in attempts to rig foreign exchange rates.Can anyone stop them?..

There’s never been a more important time to support independent media.

From World War 1 to present-day cosmopolitan South Africa and beyond, the Sunday Times has been a pillar in covering the stories that matter to you.

For just R80 you can become a premium member (digital access) and support a publication that has played an important political and social role in South Africa for over a century of Sundays. You can cancel anytime.

Already subscribed? Sign in below.



Questions or problems? Email helpdesk@timeslive.co.za or call 0860 52 52 00.