THE DAILY BRIEF MARKETUPDATE FRIDAY,17JULY2020 NAMIBIA STOCK EXCHANGE - CAPRICORN ASSET MANAGEMENT

The Daily Brief

Market Update                                               Friday, 17 July 2020

Namibia Stock Exchange
What happened on stock exchanges worldwide in February and March of this year, waited until July
to happen on the Namibian Stock Exchange. For instance, the JSE All Share Index fell by 34% from
mid-February to Mid-March, with similar moves on other exchanges as the Covid related lockdowns
decimated economies. Listed companies’ profitability was hit heavily as well as their ability to pay
dividends to shareholders. Many firms from banks to property companies have indicated that they
will forego paying dividends in order to protect cash flows and balance sheets.

Namibia will not escape the economic carnage wrought by lockdowns. Just like the majority of
businesses in Namibia, the firms listed on the local board are expected to be under severe pressure
with regard to profitability as well as ability to pay dividends. This is what is now being reflected in
their share prices. Due to the illiquid nature of the stocks, it just took a while for the adjustment to
happen.

Let’s take a simplified example. A firm makes a profit of 200cps (N$2.00). If investors are prepared
to pay a PE (price to earnings ratio) of 10, then the share price is 2000cps (N$20.00). Say the same
firm pays a dividend of 100cps. If investors accept a dividend yield of 5% the dividend also results in
a share price of 2000cps (N$20.00). Now, if Covid related lockdowns result in profit per share to fall
to 100cps, at the same PE of 10, the share should trade at 1000cps (N$10.00) which is 50% down. If
the dividend is also halved, the result is the same. The question then becomes whether these
impairments of profits and dividends are permanent or not. If not, then one could view this share at
1000cps (N$10.00) to be very pessimistically priced and therefore a buying opportunity.

We suspect that what happened on the NSX on Thursday is that one big portfolio liquidated its
holdings almost at any cost. There were only a small number of trades amounting to
N$122m. Again, given illiquidity, this means that share prices were severely compressed in order to
entice a buyer or buyers.

Looking at the chart above, one can see that the JSE recovered almost all its losses after
March. CAM Equity Funds do not hold any locally listed shares in them. They track the South Africa
equity market in the form of the Top40 Capped SWIX Index.

Global Markets
Asian shares eked out gains and U.S. stock futures bounced back on Friday as hopes of more
government spending around the globe suppressed concerns about rising new coronavirus case
numbers and worsening tensions between Washington and Beijing.

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.5%, paring a quarter of its 2%
losses the previous day, while Japan's Nikkei was almost flat. In China, the CSI300 index climbed
1.1%, clawing back some of Thursday's 4.8% slide and shrugging off news that Washington is
considering banning travel to the United States by all members of the Chinese Communist Party.

Market watchers said investors are counting on U.S. policymakers to adopt more stimulus measures
as the world's largest economy struggles to contain the epidemic, with some existing programmes to
support businesses set to expire within weeks. "The sustainability of this rebound will be
determined to a large degree by whether another fiscal deal is reached," said ANZ bank analysts in
Sydney in a note. U.S. Congress is set to begin debating such a package next week, as several states
in the country's south and west implement fresh lockdown measures to curb the virus.

"You would think such sharp rises in infections would normally lead to fall in stock prices but at the
moment, that was being offset by strong hopes for vaccines," said Tomo Kinoshita, global market
strategist at Invesco in Tokyo. "But we now see higher risk of a market correction, considering the
improvement in hard economic data we have seen over the past couple of months is likely to halt,"
he said.

While retail sales for June released on Thursday beat market expectations, real-time measures of
retail foot traffic and employee working hours and shifts have flatlined after steady growth since
April. The U.S. labour market remained in dire condition. There were 32 million people receiving
unemployment checks under all programmes in the last week of June, down from the prior week but
still the second-highest on record.

Meanwhile U.S. stock futures rose 0.2% in Asia, recouping some Thursday's losses when the S&P500
dropped 0.34% as investors locked in gains from rallies in high-flying tech shares ahead of earnings
later this month. Kicking off technology sector results, Netflix skidded 9.0% after the bell as the

company posted slower subscriber growth than Wall Street's high expectations and forecast a
further slowdown in the pace of expansion in the current quarter.

In currencies, the euro was off the four-week high it touched earlier this week, but stayed firm as
European Union leaders meet on Friday to seek to overcome differences over a proposed stimulus
package to kickstart economic growth stifled by the coronavirus. On the table at a summit starting
later in the day - their first in-person talks around a table since the pandemic - are the EU's 2021-27
budget and a new recovery fund worth 750 billion euros ($854 billion), which would mark a major
step towards fiscal integration in Europe. While Dutch opposition and the threat of a Hungarian
veto weigh on chances for a deal, investors are pinning hopes on it being a question of when, rather
than if, a deal is struck. "Whether they will come to an agreement today, or by the end of this
month, or by later this year is anybody's guess. But there is a swell of hopes that you have seen at
the start of the euro trading," said Masaru Ishibashi, joint general manager of trading at Sumitomo
Mitsui Bank.

The euro fetched $1.1386, unchanged on the day. The yen was flat at 107.50 per dollar. In
commodities trading, oil prices were little changed with Brent down 0.25% at $43.26 per barrel and
U.S. crude down 0.22% at $40.84.

Domestic Markets
South Africa's rand weakened on Thursday, pausing a recent rally to one-month highs as
disappointing Chinese consumption data dampened investor hopes of a quick economic recovery
from the COVID-19 pandemic.

At 1500 GMT, the rand was 0.3% weaker at 16.6500 per dollar, compared with the previous session's
best of 16.5075.

Wednesday's rally, across most emerging market assets, was spurred by progress in finding a COVID-
19 vaccine by U.S. firm Moderna, whose experimental shot showed it was safe and provoked
immune responses in all 45 healthy volunteers.

But China's unexpected drop in retail sales - for a fifth straight month - saw some investors rush back
to safe-haven assets. "Investors seemed to put more weight on the consumption data and have
pulled out of riskier assets," said Hussein Sayed, chief markets strategist at FXTM.

The rand has been at the mercy of global sentiment for the past few weeks, pulling away from the
key 17.00 technical level despite South Africa's creaking economy and strained finances. "The global
environment is increasingly supportive of the rand as risk-on (investment) is fuelled by positive
economic surprises in China and developed markets," said Kim Silberman, a currency economist at
RMB, in a note. "However, due to domestic fiscal risks, we expect USD/ZAR to trade above fair
value, around a mid-point of 17.00 over the next few months, rallying to below 16.50 on positive
global surprises and selling off towards 17.50 in response to global uncertainty."

On Thursday, South Africa's government committed to secure funds for the overhaul of struggling
state-owned South African Airways (SAA), which requires at least 10 billion rand ($600 million). SAA
is among a group of state firms in need of additional state bailouts, with the pandemic adding to
existing problems.

Stocks were mostly unchanged after deteriorating U.S.-China relations dampened global risk
appetite. The FTSE/JSE All Share Index declined 0.25% to 55,808 points, while the FTSE/JSE Top 40
Companies Index ended down 0.47% at 51,363 points. Retailer TFG Limited fell 4.9% to 69.27 rand

after it priced its rights issue at 41% discount. Bonds were firmer, with the yield on the benchmark
2030 government issue down 2.5 basis points to 9.35%.

Source: Thomson Reuters

Corona Tracker

Market Overview

Notes to the table:
    The money market rates are TB rates
    “BMK” = Benchmark
    “NCPI” = Namibian inflation rate
    “Difference” = change in basis points
    Current spot = value at the time of writing
    NSX is a Bloomberg calculated Index

Important Note:
This is not a solicitation to trade and CAM will not necessarily trade at the yields and/or prices
quoted above. The information is sourced from the data vendor as indicated. The levels of and
changes in the yields need to be interpreted with caution due to the illiquid nature of the domestic
bond market.

                                                                                     Source: Bloomberg

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Disclaimer
The information contained in this note is the property of Capricorn Asset Management (CAM). The
information contained herein has been obtained from sources which and persons whom the writer
believe to be reliable but is not guaranteed for accuracy, completeness or otherwise. Opinions and
estimates constitute the writer’s judgement as of the date of this material and are subject to change
without notice. This note is provided for informational purposes only and may not be reproduced in
any way without the explicit permission of CAM.