Coronation Fund Managers increased its exposure to Naspers and Prosus during a volatile first quarter as global technology stocks came under pressure amid investor concerns about AI.
The fund manager said the sell‑off created opportunities rather than new risks, particularly in large technology groups with strong market positions. Coronation manages assets worth R746bn.
Naspers and Prosus, Coronation’s largest holding, had a difficult quarter. Naspers shares fell about 13% in the first three months of the year, underperforming the JSE all share index, while Prosus recorded a similar decline in offshore markets.
The weakness was mainly driven by Tencent, the company’s biggest underlying asset. Tencent was caught up in a broader global sell‑off of technology stocks as investors reassessed how AI could affect margins and business models.
In its first‑quarter commentary, Coronation said markets had struggled to identify winners and losers in the shift towards AI, leading to widespread selling of established technology leaders, including Tencent.
Despite this, Coronation believes AI is more likely to strengthen, rather than weaken, Tencent’s position. The fund manager argues that companies with scale, capital and access to large datasets are best placed to benefit from AI and that Tencent remains dominant in China’s online economy.
The key driver is its unmatched portfolio of banking operations across the African continent
— Coronation
Tencent operates WeChat, payments, gaming, cloud services and digital advertising. Coronation said the group’s access to large volumes of data is a key advantage in developing and monetising AI tools.
Given this view and the widening discount at which Naspers and Prosus trade relative to their underlying assets, Coronation added to its holding in both companies. Prosus has also been increasing its focus on active investing, with AI at the centre of its strategy, and invests significantly in AI each year.
Outside of technology, Coronation benefited from its large holding in Glencore. The miner was one of the few diversified resource stocks to gain during the market turbulence in March, supported by its exposure to energy markets.
Coronation said as discount rates rose with rising inflation expectations, market valuations dropped, especially for “long-dated, loss-making stocks where the implied discount rate mattered most. Companies with any exposure to energy went in the opposite direction, rising on the expectation of higher prices and profits for the foreseeable future.”
The fund’s second‑largest holding, Standard Bank, also delivered strong results, with Coronation expecting solid earnings growth in the years ahead.
“The key driver is its unmatched portfolio of banking operations across the African continent,” Coronation said.
“Standard Bank has been investing in Africa for more than 30 years, and this is evident in the strength and breadth of their African business, which is well entrenched with many global customers who utilise their unmatched reach to bank their operations in Africa.
“This is being used as their base from which to penetrate further into the unbanked on the continent.”
We are more concerned today than we were at the beginning of the year about the health of the South African consumer and the nascent economic turnaround in the country
— Coronation
The fund manager remains cautious on consumer‑focused stocks in South Africa. Expected interest rate cuts have not materialised, while higher fuel and food prices are putting pressure on household budgets.
Coronation said rising inflation risks could prompt a more hawkish stance from the Reserve Bank later in the year.
“We are more concerned today than we were at the beginning of the year about the health of the South African consumer and the nascent economic turnaround in the country,” Coronation said.
“Unfortunately, the interest rate cuts we had hoped would propel further growth never materialised, and with the added external shock of rising fuel and food prices, we expect the hawkish [Bank] to look to hike interest rates later in the year, adding further pressure to a consumer that is having to pay meaningfully more to fill up their car or for their taxi fare.”
As a result, Coronation has lowered its expectations for consumer‑facing companies and is avoiding stocks that depend heavily on a consumer recovery. Instead, it prefers more defensive names such as Shoprite, Pepkor and Dis‑Chem.
Shoprite and Pepkor continue to outperform competitors as they expand beyond their core businesses. Pepkor is growing across retail, online, logistics, credit, insurance and financial services, while Shoprite is expanding its nongrocery offerings, including pharmacy, pets and clothing.
Dis-Chem is broadening its services as it positions itself as an integrated healthcare provider offering a one-stop shop that includes clinics, doctors, consultations, medical insurance and medical aid gap cover.
The company recently started a retrenchment consultation process as part of a head office restructuring aimed at improving competitiveness and long‑term growth.
Looking ahead, Coronation expects higher energy prices to persist for several months, even if geopolitical tensions ease. This could keep inflation higher than previously expected, weighing on consumer demand but supporting companies with pricing power.
Business Times
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