The gains by Naspers and Richemont, the second- and third-largest stocks on the JSE, respectively, lift SA’s main bourse. Picture: BLOOMBERG
The gains by Naspers and Richemont, the second- and third-largest stocks on the JSE, respectively, lift SA’s main bourse. Picture: BLOOMBERG

The combined valuations of JSE heavyweights Naspers and Richemont soared by more than R100bn on Wednesday after a major global index provider decided not to punish stocks with dual share structures.

Technology investor Naspers gained as much as 9.4% and luxury goods company Richemont added 4.4% partly thanks to MSCI’s announcement that it would not amend its benchmark indices to exclude or reduce the weightings of companies that give certain investors higher voting rights than others.

The gains by Naspers and Richemont, the second- and third-largest stocks on the JSE, respectively, lifted SA’s main bourse as much as 3.2% on Wednesday as global stock markets rebounded. In Asia, the Nikkei 225 index gained 2.2% and the Hang Seng rose 1.6%.

Naspers and Richemont both have dual class share structures, whereby unlisted shares have more voting rights than listed ones.

While these control structures have faced opposition from activist shareholders, they are relatively common and some companies claim to use them to shield themselves from hostile takeovers.

MSCI said its decision followed an 18-month consultation period "which highlighted the divide in opinions among international institutional investors" about control structures.

Vestact portfolio manager Michael Treherne said that given Naspers’s heavy weighting on the JSE, many shareholders accessed the stock through emerging-market indices. This was because their exposure to Naspers via the top 40 index had to be capped.

"If they had to drop out of the index, it would be a big hit in the short run for the Naspers share price. That threat is now removed," Treherne said.

Naspers also benefited from a resurgence of its main asset, Tencent, in Hong Kong. Tencent, which has lost more than a third of its value so far in 2018, closed 5.9% higher.

While the vast majority of analysts tracked by Bloomberg still recommend that investors buy Naspers and Tencent, some are less optimistic.

Nedbank’s corporate and investment banking unit said in a research note this week it expected slower growth in Asia partly because of a stronger dollar and rising interest rates in the US.

"Hence our long-term outlook suggests an underweight position in SA equities with exposure to Asia, particularly to Naspers, but also resource stocks," the bank said.

PSG Wealth is also among the handful of pessimists.

The wealth manager said this week it recommended that investors had no exposure to Tencent whatsoever.

"We believe a high growth rate has already been priced into the valuation and that Tencent is fairly valued," PSG Wealth said.

Tencent was trading at a hefty premium to some of its international peers and the market was too bullish about its revenue growth.

"We feel that the current market expectation for revenue growth is optimistic given the slower macroeconomic environment and the potential impact of regulation.

"Despite the recent downgrade to earnings estimates and expected net margin, we believe current earnings estimates are at risk," PSG Wealth said.