South Africa’s largest Fund manager the PIC, is overweight in the top 10 largest listed company by market capitalisation on the JSE, Naspers, which derives more than 67% of their income from a company registered in one of only 12 countries out of 195 that has never been considered a free country by international standards over the last 50 years.
The famous author, Ayn Rand (author of The Fountain Head, Atlas Shrugged, and various other classic books stated in 1950, “Once When you see that to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal, not in goods, but in Favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them but protect them against you... you may know that your society is doomed.”
China’s gaming regulator last week Friday published draft rules aimed at clamping down on practices that encourage players to spend more money or time in online games.
A sweeping set of curbs on in-game rewards for frequent logins and purchases stoked fears of another industry crackdown in the world’s biggest mobile gaming arena.
This is over and above issues the government has been implementing in this industry.
China has imposed restrictions on the games industry repeatedly in recent years, sharply limiting minors' playtime, banning live streaming for those under 16, and imposing stricter rules around the depictions of religion and gender.
This is important to note to assess whether the current price drop will extend or whether the price will recover as in the past after the 2021 implosion.
There are opposing views on this aspect.
The National Press and Publication Administrations released new draft rules that will ban a swath of common mechanisms in games, including daily log-in rewards, bonuses for first-time spenders, and incentives to spend repeatedly on a game. Publishers will also be prohibited from offering loot boxes to minors or allowing for in-game items to be auctioned or used as speculative assets.
Games will need to impose spending limits on players, while publishers will be required to run all their servers for Chinese games in China.
A lengthy game approval process for new releases has been an issue in China for several years.
For nine months of 2021 and 2022, there was a complete freeze on approvals, no doubt contributing to the Chinese games industry seeing decreasing consumer spending on games last year for the first time in two decades.
In 2021, Chinese regulators implemented a series of regulatory measures targeting the country's technology giants, primarily aimed at addressing concerns related to market dominance, data security, and anti-competitive practices. Some key events include:
Antitrust Investigations:
Chinese authorities initiated antitrust investigations against several prominent tech companies, including Alibaba Group Holding Ltd. and Tencent Holdings Ltd.
These investigations focused on allegations of monopolistic behavior and unfair business practices.
Data Security Measures:
Concerns about data security led to the introduction of regulations aimed at safeguarding personal information.
The Personal Information Protection Law (PIPL) came into effect in November 2021, imposing strict rules on the collection, storage, and use of personal data by tech companies.
Regulatory Scrutiny on Financial Services:
Regulators also turned their attention to the financial arms of tech giants, such as Ant Group, the fintech affiliate of Alibaba.
Ant Group's IPO was suspended, and regulatory changes were implemented to curb its expansion and strengthen oversight of online financial services.
Crackdown on Education Technology:
The Chinese government introduced measures to control the private education sector, impacting companies offering after-school tutoring and educational services.
Restrictions included limits on tutoring hours, bans on for-profit tutoring in core school subjects, and increased scrutiny of foreign investment in the sector.
Increased Scrutiny on Tech Listings:
Authorities imposed stricter regulations on tech companies seeking to list on foreign stock exchanges, adding requirements for cybersecurity reviews and data protection assessments.
These actions were part of the Chinese government's broader efforts to regulate its tech industry more tightly, balancing technological innovation with concerns over market concentration, data security, and social impact.
The regulatory crackdown sent shockwaves through the tech sector, leading companies to adapt their strategies and operations to comply with the new regulations.
It could become an interesting point of debate of where South Africa stands relative to communist China on the above issues.
The question is whether China is a leader in this regard or merely catching up to other countries in the world. For one let us look at education.
A study by Impact SA in 2020 stated; “Depending on how successful the efforts of the schooling system and individual teachers are in catching up lost learning, below-expected Grade 12 outcomes lasting to at least 2022, and possibly as far as 2031, could be experienced.”
We often see the Government intervening in the running of previously Model C schools in SA, the latest attempt to take control of these schools away from the school Boards that are running a more efficient school system than those of government-run schools.
Regarding increased regulatory controls over financial services, we are no strangers to many stricter controls.
However, the restrictions on screen time viewing and games played by children seem to have gone out of line in China.
The country had to implement restricted access during weekdays and after-hours login methods included face recognition to prevent children using their parent’s IDs to log in during night times.
Naspers Limited is a global consumer Internet company.
Through Prosus, the company operates and invests globally in markets with long-term growth potential, building consumer Internet companies that empower people and enrich communities.
Shares in Prosus (Amsterdam-listed business) had been hit hard by the Chinese authorities’ 2021 regulatory attack on the country’s technology giants, including Tencent, Prosus’s largest investment.
Naspers Regional Sales
A Commission of inquiry into allegations of impropriety regarding The Public Investment Corporation was appointed by the President of the Republic of South Africa on 17 October 2018, under section 84(2) (f) of the Constitution.
Despite its findings and the ongoing questions there remain some unexplainable decisions by the investment manager.
One of which is its “over exposure” on any relative benchmark to the Naspers investment.
The Public Investment Corporation (SOC) Ltd holding of Naspers shares (33,100,894) is an astonishingly high percentage, 17,95% for a value of R6,067,000,000.
This exceptionally high exposure is questionable and is out of line with the weighting in the Top 40 Index which only contains 11,76% Naspers shares.
The question now is where to from here with the Naspers/Tencent/Prosus share price?
Market Screener.com state that their analyst consensus is that Naspers is a Buy.
According to CNN news: “the 47 analysts offering 12-month price forecasts for Tencent Holdings Ltd have a median target of 55.75, with a high estimate of 64.98 and a low estimate of 37.18.
The median estimate represents a +52.87% increase from the last price of 36.47.” according to Simply Wall Street “Now 25% undervalued after recent price drop.
They summarize the stock as follows: Over the last 90 days, the stock is down 13%.
The fair value is estimated to be HK$365, Revenue has grown by 6.8% over the last 3 years. Earnings per share has grown by 7.2%.
For the next 3 years, revenue is forecast to grow by 9.7% per annum.
Earnings are also forecast to grow by 5.5% per annum over the same period.
Back to Ayn Rand, our largest investment in this country needs approval from someone who produces nothing to produce something.
Our society is endangered.
Corrie Kruger is an Independent Analyst.
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