|
Audio Version
|
The phenomenal rise of the Naspers share price over the last three years from R1300 to R2900 (+123%) or on average 31% per annum, raises two serious questions:
1) Its weighting in the JSE All Share Index has increased from 7% to 17%;
and
2) With its meteoric rise, is the share not very expensive and very risky?
Concerning the first issue, Naspers has been the major support of the JSE over the last three years. Over this period to June 2017 the JSE is up 1%. Stripping out Naspers, the JSE would have declined by some 9%. Over this period, the Naspers’ weighting in the JSE All Share increased from 7% to 17%. This increased weighting poses a whole new risk to investor’s portfolios.
Today a neutral weighting means that a sixth of your portfolio is reliant on one share, which discards the important principle of diversification and way over exposes you substantially to one investment that brings in significant risk to your portfolio. A direct example would be investing in the JSE Top 40 ETF.
A recent article from Coronation states: ‘Passive investing (ETFs) is particularly ineffective in emerging markets such as South Africa, because our market is so highly concentrated.’ Naspers contributing to this. ‘One of the biggest selling points of passive investing is that you remove stock-specific risk and simply get the return of the market.’
In emerging markets (incl. SA), often investors end up with much more single-stock risk, and they do so without a skilled investment professional held accountable for the appropriateness of that weighting.
Over the last ten years the Naspers share price has risen 34% per annum from R160. This is largely attributable to its 33% investment in Tencent, a Chinese social media company, whose share price has gone from HK$7 to HK$310 (48% p.a.) over the last ten years.
Naspers’ P/E is 33, almost double the JSE’s of 17 (when stripping-out Naspers), which on a simple basis indicates it’s a lot more expensive than the aggregate JSE. Digging deeper, Naspers’ biggest investment is Hong Kong listed Tencent (its 33% investment is now larger than Naspers’ market capitalisation)and has a P/E of 54, which is very high, and needs to be compared with other major social media companies such as Facebook (P/E 43) and Alphabet (Google) (P/E 35).
These highly priced (expensive) tech shares are a cause for concern for global market valuations. A recent article from Allan Gray (Orbis) looks at the technology sector. Click here.
Conclusion
Investonline’s recommended portfolios have benefited well from Naspers’ success and have had the appropriate risk related weightings. In constructing an investment portfolio, one needs to ensure that the risks of an expensive share (such as Naspers) is properly diversified. Certainly, a 17% weighting (as per a JSE ETF) in today’s market, in a portfolio would be way too risky and irresponsible.