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Please Sir, I Want Some More Time

Market Scorecard



Brexit happening by the end of this month looks highly unlikely after a vote in the UK parliament last night. The House of Commons voted not to leave the EU until there is a deal in place. Although a palatable deal doesn't even look remotely possible at this stage. From here it looks like Theresa May will ask the EU for a long-term delay, until the UK can come up with a deal that works for everyone.

Effectively Brexit may never happen because trying to find a deal that works for everyone, is like trying to find the loch ness monster. There are people who claim to have seen 'Nessy', just like there were UK politicians that said leaving the EU would be easy, that the UK would get all the upside of being part of the EU, without any of the downsides. The Great British Pound surged last night now that crashing out of the EU has been taken off the table.

Yesterday the JSE All-share closed up 0.23%, the S&P 500 closed up 0.69%, and the Nasdaq closed up 0.69%.




Our 10c Worth


One thing, from Paul

Here at Vestact, we are keen investors in high-tech healthcare companies. Our view is that people are getting older and richer and even keener to stay alive and this is how they will spend all that money. Economists at the Federal Centers for Medicare and Medicaid Services estimate that Americans forked out $3.65 trillion on healthcare in 2018. That's a big number, and is 4.4% higher than in 2017, a rate that is still growing faster than the broader economy.

An example of the sort of new spending is the announcement by consumer genomics giant 23andMe of a new genetic test that will tell customers how their DNA affects their chances of developing type 2 diabetes, a disease projected to affect two-fifths of America's population of adults in their lifetime.



Diabetes is a probably more a function of environmental factors than genetics, but some people are more at risk than others and 23andMe built the test using genetic data from more than 2.5 million of its customers who agreed to participate in the research. The new test compares your DNA with over 1,000 genetic markers and comes up with your polygenic diabetes risk score, which is adjusted for age, gender and ethnicity.

Once you know you are more at risk than most, you can change your ways. Eat right, and buy some Nikes! 23andMe's new report will be available online on Monday for no additional cost to most of its existing customers, as well as any new customers who pay $199 for a wide-ranging test and send in a saliva sample. Remember, the company uses lots and lots of Illumina sequencing machines to run these tests (Vestact recommended stocks, trades at $308.27).






Byron's Beats

Yesterday it was officially announced that MTN backed Jumia has filed for an IPO in New York. The IPO could value the company at a solid $1.6bn. That puts it in line with Dischem, Resilient and Tsogo Sun. In case you forgot, Jumia is an online retailer with over 4 million users, predominantly in Nigeria.

Why in New York and not the JSE you may ask? The NYSE has the liquidity and the appetite for these types of businesses. After many successful tech IPO's in the last 10 years, US investors are not scared to put money into a company that made a loss of R2.7bn last year.

As you may have noticed, the JSE has been very unforgiving and sceptical of late. Understandably so. As the gateway to Africa, I'd say this is a missed opportunity for the JSE.

At the end of December, MTN owned 31.28% of Jumia which values their stake at R7.15bn. That is juicy. MTN has already indicated that they plan on selling the stake to pay off debts. Considering MTN's already hefty exposure to Nigeria, as well as Nigeria's propensity to turn ugly on its private sector I'd say cashing out is a good idea.






Michael's Musings

Business Insiders' Chart of the Day, showed the comparison between the Dow and the S&P 500 over the last few days. Generally, the two indexes move in sync because they are both composed of large multinational companies, where overall market sentiment is the predominant short term driving factor of price movement. In the graph below you can see a substantial divergence between the two indexes.



That divergence is all thanks to Boeing, which has the biggest weighting in the Dow at around 10%, the second biggest weighting is United Health with only 6.7%. This highlights the different mechanisms used in determining the weightings of these two indexes. In the case of the Dow, the weighting comes from the company's stock price, a higher stock price leads to a higher weighting. In the case of the S&P 500, the weighting is based on market cap, where the bigger the company, the more influence it has on the index.

Another major difference between the two indexes is the number of shares in the index. For the Dow there are only 30 companies, where the S&P 500 follows 500 companies. If you look at the top of this email you will notice that we don't quote the movement in the Dow because we don't feel it is a representative index. For interest, here is the weightings of all 30 companies in the Dow - Index Component Weights of Stocks in the Dow Jones Industrial Average.






Bright's Banter

We all know Amazon as a one-stop shop for every good imaginable, to music and Amazon Prime Video. We tend to forget the business that spews cash for Amazon i.e. Amazon Web Services, the cloud infrastructure business is a true profit leader!

"Amazon Web Services provides on-demand cloud computing platforms to all customers on a paid subscription basis"; thank you Wikipedia. The business was launched in March 2006 by a team led by a corporate Viking by the name of Andy Jassy, one of Jeff Bezos' closest friends and some might say his Lieutenant.

In the 2018 financial year, Amazon's cloud business generated about $25.6 billion in revenues, with $7.2 billion in operating income, accounting for almost 60% of Amazon's operating profits.

The chart below shows how Amazon's first mover advantage has awarded them with 32% of the $80 billion Cloud market, boasting a mix of customers, including startups and small businesses, big blue-chip companies and the public sector. The client base is made up of cool companies like Netflix, Samsung, BMW, Spotify, NASA and even Vestact.

Infographic: Amazon Captures 32% of $80 Billion Cloud Market | Statista You will find more infographics at Statista




Linkfest, Lap it Up


This sounds like the future, once all the bugs have been worked out - Online voting: Now Estonia teaches the world a lesson in electronic elections.

The opportunity for Visa and Mastercard in Europe is huge!

Infographic: Where Cash is King in Europe | Statista You will find more infographics at Statista




Vestact Out and About








Signing off


The JSE All-share is lower this morning, and the Rand continues to weaken against major global currencies. Locally, there is manufacturing data out and mining production data. Tonight the UK will officially vote to extend the Brexit date, where the vote is expected to pass. When the UK does go back to the EU to ask for the extension, what conditions will the EU attach to it? Time will tell.

Sent to you by Team Vestact.


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