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The scheduled trade talks between the US and China over the weekend have been postponed indefinitely. These talks were meant to be a 6-month review since signing the phase one trade deal. Given that the meeting was more a check-in, having it delayed is not having much of an impact on the market. More than likely, phase two talks won't take place until after the US election. China is also being teed up as a punching bag by both presidential candidates. As long as the shots taken at China are just words and not actual actions, the market should mostly just ignore it. Over the weekend it was announced that our economy can open up further. If you are one of the fortunate people not to have a pay cut, and have been saving a ton of money by not driving to work, take that saving and go buy some nice wine and then book a weekend away. The speed of the rebound in the wine and tourism industry will have a direct relationship to the number of people who keep their jobs. Both of these industries have high fixed costs, which means they were bleeding money during the lockdown, and it means that they need a high level of sales just to break even. Remember that the economy is all interlinked, so if one area is struggling, it has a knock-on impact on other areas.
On Friday the JSE All-share closed down 0.60%, the S&P 500 closed down 0.02%, and the Nasdaq closed down 0.21%.
Bright's Banter
Woolies released a trading statement for the full-year ending on the 28th of June 2020. The food and clothing retailer expects earnings to fall quite significantly as the effects of the Covid-19 pandemic were fully felt between March to the end of June. Management believes that the effects of the pandemic will linger much longer into 2020.
The retailer said it expects earnings to fall around 60% to 70% for the full-year with more 'once-off' impairments. Management wasn't upbeat about what is to come either. Woolies impaired the carrying value of a number of store assets that will negatively impact earnings in this set of numbers.
We've seen that people tend to frequent retail outlets less during the pandemic but that is supplemented by a much larger basket size when they do go out shopping. The Woolies share price is down from the highs of R52 a share this year, to R33.87 - not a spectacular recovery from the April lows of R25.
One Thing, From Paul
I was chatting to a client earlier this year who was concerned about buying Netflix (NASDAQ:NFLX) shares, because they seemed to have too much competition. My reply to her was that Netflix was the prime mover in an industry that was booming, creating space for lots of successful operators. Growth in streaming video is exploding, particularly since the pandemic began. Take a look at the chart below, which is from Axios.
Netflix has around 200 million subscribers now. Almost three-quarters of American households have a subscription. There is still lots of space for it to grow outside the US, of course. They will get to 1 billion subscribers in due course.
Amazon (NASDAQ:AMZN) Prime is number two, although that service really is offered as a bundle with online shopping benefits. Disney has been a big mover in recent times, with its Disney+ streaming offering taking off fast. They said that they had 57.5 million paid subscribers worldwide at the end of June.
Apple (NASDAQ:AAPL) does not provide subscriber numbers for the Apple TV+ service. As Michael reported a few weeks back, lots of people signed up when the Tom Hanks WWII movie "Greyhound" was launched. I was one of those, and have since enjoyed a series called "The Morning Show".
Byron's Beats
Paul spoke about streaming numbers in his piece above. I am carrying on with that theme. Last week Bloomberg reported that Apple will be launching the first discounted video content bundle. Subscribers will pay $10 a month to get access to both Showtime and CBS. Normally those two services cost around $10 each.
This is big news. The race at the moment is for original content but no one has put their hand up as a content aggregator. That is because they are all hunting for subscribers and don't want to share content. Apple already has over 1 billion active devices. They have the numbers.
As Paul mentioned, Greyhound and The Morning Show have proven to be decent original shows, but if Apple manages to put other networks content together at a decent price, that could be their real streaming niche. They did it with music, if anyone can do it with streaming, it is Apple.
Michael's Musings
Last week Standard Bank released a report called 'The art of creating wealth', which documented trends among wealthy individuals on the African continent. There are a few trends where South Africa differs from our African counterparts.
Probably the most significant trend is that the bulk of our Dollar millionaires come from corporate careers instead of through entrepreneurship. In South Africa, 70% of millionaires come from corporate, where in Ghana 78% comes from entrepreneurship. The implication is that most South Africans who reach the milestone are already in the latter stages of life, so they have more time to spend with their money, and family.
South Africa has a well developed corporate sector, so it makes sense that many people get paid well. It would be nice though to see more people making 'big bucks' going through the entrepreneurship route. Based on the current statistics, if you are an intelligent and energetic youngster, you would choose a corporate career over starting your own business. In the long term, that is bad news for South African economic growth.
What interested me in the report was that South Africans are not fans of property. Millionaires in other African countries generally own multiple properties, including international properties. Maybe the poor performance of property values in South Africa is to blame or unfriendly property rights? With us not buying property, it has meant that we invest much more money into equities - good news for Vestact.
Signing Off
The week ahead holds a handful of companies releasing their earnings. There are China focused companies JD.com and Alibaba; US focused retailers Walmart (NYSE:WMT) and Home Depot (NYSE:HD); lastly Nvidia reports on Wednesday night. Locally, the earnings season officially kicks off this morning with Sasol (JO:SOLJ) reporting numbers and then BHP (NYSE:BHP) and Standard Bank (JO:SBKJ) later in the week. Asian markets are strongly up this morning thanks to the People's Bank of China boosting liquidity in the financial system. The Rand is a bit stronger than Friday, currently trading at $/R 17.36.
