How the markets are adjusting to the pandemic; and Twitter vs Google

SIMON BROWN: I’m chatting with Gary Booysen from Rand Swiss. Gary, I appreciate your time today. You apparently are locked down in Zurich while things are happening in markets. I want to touch on that.

You’re an old hand, a trader. We’re all old hands at pandemic. We are now approaching almost two years of it. The new variant has created, I suppose, heightened uncertainty. Just as my sense was the market was kind of getting to the point where we were kind of comfortable, we thought things were going to all be okay, now suddenly we are reminded that there is a pandemic out there. How do you and your team play this new uncertainty?

GARY BOOYSEN: Thanks, Simon. Looking at the pandemic, it’s interesting. We’ve said repeatedly that I don’t think a pandemic announcement is necessarily going to send the market spiralling into the lows that we saw in early 2020. The idea of this is now something that the market understands and, because markets price in known information I don’t think you’re going to see the level of sell-off.

It does seem, though, that markets have got a little bit ahead of themselves. As you say, the pandemic still around. It is still having a real-world impact, as many people are feeling, as travel plans are forced to be changed. But it does seem it’s not so much the Omicron variant that’s causing the sell-off, but maybe this market was looking for a reason to sell off, and the Omicron variant has given it a good reason to.

We’ve been a little bit cautious. Stocks have looked a little bit extended. People are kind of buying into the idea that we’re going to have a Christmas rally and everything is going to be fine; but markets did look a little bit extended. We were buying aggressively for clients who were supposed to be in equity. They had a tactical asset allocation to equity – that October dip period.

But we [took] our foot off the pedal in November, looking for a little more weakness. I think the idea that you are definitely going to get a rally into December, when you’ve got a slightly more hawkish US Fed, you’ve got, I suppose, real-world concerns of how governments are reacting to this latest announcement around Omicron – and that’s really key.

For all indications – I’m not a virologist, and don’t take this as gospel – but it does look like this variant is going to be less fierce – to use the term that the WHO used – but more contagious. That means that it might not necessarily be as dangerous, but that the way that governments are reacting is going to impact supply chains. It is going to impact the real-world economy, and markets I think are just taking their foot off the gas now.

For us, the concern isn’t so much around the supply-chain disruptions. I think businesses are learning how to deal with a world that is in and out of lockdowns.

It’s far more to do with the inflation that’s coming into the system and the removal of that very ultra-loose monetary policy, and how that’s going to affect stocks and your asset- or at least your centre allocation.

So for us the idea of going buying into these very high-priced tech stocks instead of kind of the more value plays, more traditional plays, things like banks that will benefit from a tightening interest-rate cycle – I think that where the value is at the moment.

SIMON BROWN: I take your point on that. The market is expensive by all measures. Well, certainly big parts of it – the tech space and, yes, some opportunity coming through here and no centre rally. As I was actually chatting on the weekend, saying really, can we rally strongly from here?

I want to quickly touch on Twitter, Jack Dorsey announcing he’s stepping down, pretty much effective immediately. He was only half a CEO because he was also of course doing Square, which is the other company.

Twitter is a platform I love. It has almost 200 million monetisable users on there. Is there an investment case for it, however? It’s one thing having users, but is it something you’ve been allocating to, or [are there] perhaps other social media that you’ve preferred?

Read: Jack Dorsey steps down as Twitter CEO

GARY BOOYSEN: Twitter’s an interesting company and I agree, a fantastic platform. The problem is, if you’re looking at it as an investment, it’s been more difficult to monetise its client base than other big platforms like Google and Facebook. One of the reasons for that is just the amount of information they collect on, as you call it, … their monetisable daily active users. Because they don’t have that pool, that lake of information that the Facebooks and the Googles have, I think they have just struggled to appeal to advertisers in the same way that Facebook and Google have.

That’s not to say that they’re not growing aggressively. If you look at their revenue profile, they are managing to grow extremely well, but then it comes back to the valuation argument. If you look at Twitter compared to something like Facebook, Twitter is a lot more expensive – the market pricing – and there’s a lot more growth in Twitter. We haven’t been a buyer of Twitter. Our preferred, if you want to call it, social media platform star has been Google, even though yes, it’s search. But all of them are generating revenue via the advertising model.

We’ve held Facebook in the past, and we’ve cut it from the portfolios. So we have really doubled down on Google. At one point it was sitting at about 8% of our global equity portfolios, and it really has been the right move.

So if you look at it over the last five years, Twitter has done around 141%, so it has beaten the S&P 500. But Facebook has done 181%, Google up 271%.

So Google has been the clear winner in the space. I think it’s clear, even if you look at the institutional coverage of the likes of Google, it’s just such a well-supported stock. Everyone has this thing on a buy – and for good reason – whereas Twitter again is facing, the difficulty of monetising those users with less information. It has also all the regulatory and political pressures, and obviously banning Donald Trump, there are law suits that they’re facing. In their Q3 numbers also, they took a financial impact from a lawsuit based on misleading engagement metrics. A platform business is a difficult business to run. If you get it right there’s huge upside, but it is a very, very difficult space, it’s a very competitive space.

One of the things that we’ve been looking at is how Mark Zuckerberg uses Facebook. It’s all about kind of turning that dial between how much you want to monetise the platform and how much you want to provide customer engagement.

I think Twitter with Jack Dorsey and how he has always focused on the user experience almost at the expense of the investors, which creates an awesome product for customers, but leaves shareholders wanting a little bit more.

SIMON BROWN: I love your point. It might’ve beaten S&P, but Google, as you give the example, beat it hands down. I suppose the point is going to be let’s watch this new CEO – can he perhaps find some other monetisation? They’ve got Twitter Blue, not available to us in South Africa, but a subscription service, and maybe that changes metrics. But for now not a preferred [one].

Gary Boysen from Rand Swiss, I always appreciate the early morning time.