Episode Transcript
The Finance Ghost: Welcome to episode 252 of Magic Markets. We come to you after the G20 in South Africa. Very interesting. I actually travelled up to Joburg last week and got to see the one or two pavements that they fixed – I'm just kidding. It was actually lovely to see so many nice pictures online of the G20 and how good it all looked at the end of the day.
If nothing else, at least South Africa is a country of global relevance. I wrote that in Ghost Mail somewhere this week where I said I'm grateful to have been born into a country that actually has these opportunities, because you could be born into middle-of-nowhere type countries where, realistically, your prospects are not super exciting.
South Africa may have its problems, but it is relevant, Moe. Or at least we think it's relevant. Do you think it's relevant while you sit there in Canada, if you just wear your global hat instead of your South African hat?
Mohammed Nalla: Oh, that's gonna be a hard one, Ghost. I know we're talking G20, we're talking a whole bunch of stuff on the show. Is South Africa relevant? I think, yes! And I must say, just wearing a global hat as well, I was quite impressed by what happened with the G20 this week. South Africa, standing its ground against the face of the US, just saying, "We're not participating. We don't really want to be part of this entire narrative around global multilateralism."
South Africa has really thrived in a global multilateral framework, and I think the framing of this G20 – I see that as a win for South Africa, in terms of preserving its relevance. Not just as a sovereign nation, but also in terms of South Africa's relevance as a springboard into the rest of the African continent. South Africa’s relevance when it comes to matters like climate finance, clean energy. So, there was a lot behind the scenes at the G20.
If you want, I can just jump into what some of my key takeaways were on that. But overall, I think it's a lot more than the song and dance and flying fighter jets over Sandton and maybe fixing one or two roads. There were actually some key takeaways. And, as with any of these big events globally, you have to separate the political speak, the ‘fluff’, from what the actual on-the-ground impacts are that investors and citizens can actually look forward to. So Ghost, I don't know if you want me to just jump straight into that?
The Finance Ghost: Moe, you’re our macro pro here. I'm just a guy who reads SENS and reads company announcements and looks at some numbers. You’re our man on all matters geopolitics and everything else. So hit us. Tell us what happened.
Mohammed Nalla: So, I think if we're looking at climate change and just effectively financing for clean energy, that kind of initiative globally. That's taken a big step back globally, with the US's current stance on clean energy. The US doubling down on fossil fuels. And I think that was one of the core agenda items that President Ramaphosa wanted to get across the line.
What I found was quite interesting as well is that he actually had that statement, that declaration, come through. It wasn't just a chairman's statement, it was actually a declaration of leaders. The subtle nuance behind that is that a declaration of leaders means consensus amongst the attendees versus just a chairman's statement that goes out there. So again, realise what that means from a political capital perspective on a global stage for South Africa. I saw that as a solid win.
But let's get into some of the nuts and bolts, because a lot of the emphasis there was on this climate transition finance. Now, I don't have to tell you (or, pretty much, many of our listeners), South Africa really needs clean energy. We've got problems at Eskom with regards to base load, and that's where I think South Africa has also delivered the goods. They've punched well above their weight. It's not the government necessarily, it's a lot of private capacity that's come on stream there. But the fact of the matter is if you want to do this at scale, you actually need to solidify what the financing behind that looks like. And that's what I think they tried to do with the G20.
Remember, what goes into this discussion is: how do multilateral organisations – the IMF, for example, other development banks globally – how do they view these projects? And I think just getting it across the line as a win, saying “we're focusing on this”, is really quite beneficial for South Africa. Because people looking at these types of projects down in South Africa and then the broader African continent, will probably find the international audience, even if you exclude the US, you'll find them a lot more receptive.
Now, what does that mean from an investment opportunity perspective? Just pay attention to renewables. I mean, the US, that's out of the question. But if you look at Europe, if you look at Asia, if you look at South Africa – the need to ramp some of that up and then tie that into solidified committed financing is still quite high, and I think that was one of the key takeaways and wins from this G20 summit.
Another one though, that I do want to stress on, is that South Africa is a very resource-rich economy. And again, our ability to capitalise on that is constrained by energy; it's constrained by logistics. I’m not going to go through that list. But the win that I want to take away from this G20 is that you had players like Canada at the G20 – our Prime Minister was there, Mark Carney, and he was part of the discussions – and a lot of the discussion centred not just around resource extraction, but more importantly, around beneficiation at source.
Now, this benefits not just South Africa. It's going to benefit a whole bunch of other economies out there on the African continent and beyond. But think of how important this is for the South African mining industry, but then more importantly, for the downstream development of beneficiation. I know it's a sore point, some people say you don't have to beneficiate at source, but I think anything that can add a growth supercharger to the South African economy should be viewed as a positive. And so that was one of the other key takeaways for me.
I think, wrapping up the discussion on the G20: good for South Africa, good for multilateralism globally, maybe not so good for the US.
The Finance Ghost: Now, I wanted to ask you two other things. So I'll ask you the first one now. Again, you're seeing Canadian / North American news flow, which is always very interesting. It's a very different lens to what I'm seeing in South Africa. What was the Canadian view on the American approach to the G20? I'm really, really curious.
Mohammed Nalla: Oh, that's a great question. I'll tell you why I say it's a great question. We had an election fairly recently, so our Prime Minister's been at the job for less than a year and people either love or hate him. Now, for those that don't follow Canada, our Prime Minister's currently Mark Carney. And if that name sounds familiar to you, it's because he was the Governor of the Bank of Canada, then he went across to the UK and he was the Governor of the Bank of England. So, he comes with solid street cred when it comes to policy circles. Thereafter, he had a foray into private markets. He was behind Brookfield, which is a very large investor in renewables.
And so, if you look at the news flow in Canada, you're going to get the detractors that say, "Oh, look, it's Mark Carney, he's flying around the world. Why is he doing this? Why isn't he doing what's right for Canada?" But the fact of the matter is that he is actually doing what's right for Canada, because Canada (like South Africa) is a nation that thrives on multilateralism.
Speaking to all of these world leaders at a summit like this helps a leader solidify investment pledges and co-operation. And again, remember with Canada and South Africa specifically, there's another fairly strong tie-up in that Canada has fairly strong capital markets. We've got pension funds that are really large. The Canada Pension Plan, which is effectively the government pension plan, is sitting on over $500 billion worth of assets that they do deploy, not just in Canada but globally. So there's an opportunity for Canadian capital to seek investments abroad, but then also the opportunity for our Prime Minister to go out there and find deals for investors who are willing to invest in Canada.
And that strong tie-up I was speaking about, that comes through in the mining space. Again, Canada does have a fairly substantial mining industry, and so I would see some opportunities possibly arising from a tie-up there.
Remember Anglo American? That's a company that was listed in South Africa – still is, but they're moving their primary listing to London and they're moving their headquarters to Canada. So again, pay attention to what's happening behind the scenes with regards to that macro flow.
The Finance Ghost: And then the other question I wanted to ask you. It feels like the European charm offensive towards South Africa continues in some respects, and vice versa. Obviously, loads of history there, some of which is not so good. Maybe some left over guilt. A love of our wine, they certainly like our mountain, we share a time zone – and of course, we're not America, which makes us great for Europeans!
So would that be another fair assessment? That it just feels like South Africa is pretty popular with the likes of Europe? In truth, it feels like we're popular with most countries actually, outside of the US?
Mohammed Nalla: Yeah, I think that's fair. Remember, from a European perspective, Europe needs to broaden its trade relations, much like Canada. I think there was this over-reliance on the US, and with the US acting as a belligerent in many cases globally, these economies, these regions are looking at diversifying two things. One is a market for their goods that they produce, as well as diversifying where they can source those goods from. And again, South Africa exports a lot of goods to the Eurozone. So again, that's a strong trade tie-up.
But I read something interesting, looking at Europe specifically, and that was looking at defence spending and what the fiscal multiplier on defence spending in the US versus Europe is. Because we've seen stocks like Rheinmetall in Germany doing phenomenally well. And what was interesting is, because of the backlog that you've seen in defence spending globally, the fiscal multiplier – the growth that you get in the rest of the economy – that you get from defence spending in Europe is actually significantly higher than you're getting in the US, where arguably defence spending has been running so hot for so long that it's pretty well baked.
So, wrapping that all up, I think South Africa is popular with a lot of these global countries, simply because South Africa is seen as a fairly pragmatic, balanced player out there. Yes, sometimes we pick a side in a global battle that some people, even in South Africa, might not be happy with, but I think South Africa plays this geopolitical game very well. And again, that's helping entrench that global relevance. Remember, we're not necessarily the largest economy in Africa anymore, so we've got to find what our relevance is and what our value add is to these global multilateral discussions.
The Finance Ghost: And with all the focus on South Africa from a geopolitical perspective and everything else, of course, we have plenty to talk about in the US too. We've had some big results recently. I mean, we just covered off NVIDIA in Magic Markets Premium. That sits right at the heart of the whole AI boom and all the discussions around whether it's a bubble or not.
For our subscribers, you can go and check that out. We did some very cool charts on NVIDIA. Some absolutely wild financial statistics about the growth in that thing over the past few years. Even if you go into those charts knowing how big and important NVIDIA actually is, it's still astonishing to go and run those numbers and see what has actually happened out there.
And of course, that means that AI remains as topical as ever. The geopolitics keep changing, as you pointed out when we recorded NVIDIA, now when Trump might be changing his tune a little bit about supplying some stuff to China – will he, won't he? I mean, honestly, who knows?
Some big stuff out there, Moe. What are you seeing from a sort of macro perspective and an overarching perspective around this huge topic of AI?
Mohammed Nalla: Ghost, that is the multi-trillion dollar question, right? I think what we want to try and achieve with this discussion on the show – and again, we're never going to get into the full detail thereof – but we need to try and separate what is hype versus what is reality.
And, you know, when you look at companies like NVIDIA, you can obviously look at the underlying company results. You've got NVIDIA, you've got Taiwan Semiconductor Company (TSMC), you've got ASML; the list is quite long. The concerns there are around valuation.
So, how do we separate out hype versus merit? And so, what I've been looking into is what some of the macro data prints or indicators out there are that we can look at to try and see whether there's actually hype or if this is a theme that actually has some legs.
And first and foremost, you get data prints in the US – yes, when they are producing them, when the government's not shutting down – that actually look at private fixed investment. And below that, if you actually drill down, it shows you intellectual property products. Now, if you're looking at that, that is a data print. You can go and check that out on FRED – that's a fantastic data resource, the Federal Reserve of St. Louis and you can go and find a whole bunch of data prints on there. So, this would be one of those that I would look at. And when you look at the data, you can actually see that corporates are not cutting back on their spending. They're still ramping up on IP and on R&D spend. So, I would say this kind of ticks the box to say maybe that's merit, rather than hype.
Then, another data point you could go and have a look at is what global cloud infrastructure spend is doing. Again, you're not going to necessarily find easy data points on this, but you want to look at that and that could give you some sort of indication. I mentioned companies like TSMC, ASML. You can go and have a look at what they're seeing in terms of just capex commitments. And again, it goes beyond commitments. It goes in terms of what the pipeline looks like. And the problem here is that, if you're looking at companies like NVIDIA, that pipeline's very strong. They're saying demand is off the charts, but what does that actually mean longer term, in terms of the use case?
This is something we've always said, Ghost - yes, AI is fantastic, it's a great mega-theme, but does it actually deliver productivity gains? And on this one here, the reason I raise it is if you go and start mapping against things like business labour productivity in the US – and again, I look at the US because that's where we have pretty decent data when it is produced – you're probably going to find it across a whole range of metrics. Here, I would say it's a tentative yes, maybe there's some merit here. But it's not yet a slam-dunk, because if you look at business productivity, it is actually rising, it is actually ticking up, but so are unit labour costs. And so, I would say this particular one, if you're looking at productivity gains, the jury's out on that.
Ghost, I don't know if you want to maybe jump in here, but what is your view on the absolute productivity gains that we can maybe see today versus what we might see in another 12 to 24 months’ time?
The Finance Ghost: I mean, it still remains - I speak to people and then they quote some really cool examples of big companies using AI, then I have my own experience where I feel like ChatGPT has gotten worse, honestly, in the last month. I don't know. And it's not just me who feels that way. I look online and there are people saying, "Where's the progress in this thing?" And then they'll quote other models and say, "Oh, this one's much better." But then you never really know what the incentive is there. What are they actually talking about?
So, it's actually so incredibly hard to say. I mean, that's the problem, right? That is the whole issue. Oracle was beating the drum about how the big growth is coming and ‘inference’ this and it's going to be massive – it's the hype festival of the year. And when we – I think we did Oracle in Magic Markets Premium? Yeah, we did, and we’ve certainly spoken about it a lot, you and I. Our concern was just, “No, like this thing looks way, way too overcooked.” And sure enough, Moe, I'm not sure if you've looked at the Oracle share price. Have you seen how far that thing is…?
Mohammed Nalla: I'm nodding and chuckling. I'm nodding and chuckling the whole time.
The Finance Ghost: Over 40% off the 52-week highs. Over 40%!
Mohammed Nalla: And that's why I'm chuckling, right? We covered this in Magic Markets Premium. We raised the fact that there was a lot of smoke and mirrors happening behind that latest set of Oracle numbers. I think we got that one right, Ghost, because on the technicals, on the fundamentals, we were very concerned. And from when we covered Oracle to today, that stock is down in the solid double digits. In fact, it's gone from being one of the best performers in this, let's call it ‘AI theme’, to being pretty much middle of the pack. That's a fall from grace that just cautions why you've got to just be very sensitive around the hype trade.
Now, I want to wrap on two key points and then I'm going to do what I love always doing, just looking at the performance of some of these shares.
But before I get there, the other indicator that you want to look at is what's happening in private markets and with venture capital (VC). Because this is not obvious to you, right? But a lot of the hype that's coming through in terms of the AI theme doesn't just sit in the big listed names. It sits in all of these new players that come to market and they tell you they've got the next best model. And a lot of the time, I would say this is where you're probably the most sensitive to the hype.
So, if you are an investor out there and you're chasing AI-type themed deals in that VC space or in the private markets, I'd be concerned. I'd also be concerned if I were invested in a listed company that was chasing some of these private companies and then looking to take them out, because this is where you're going to see that the excess, the funding growth that's been in that space just around AI, has been up. I read a stat that it's up around 80% on a year-on-year basis. And that's absolutely staggering. So, if you layer that on top of valuation concerns on the big listed companies, where arguably you have a good line of sight, I think that's where I would be really sensitive around the possibility for a hype trade.
Now, Ghost, I'm going to wrap on what the actual share price performance has done. And here, we can do this on a year-to-date basis, because we're pretty much done with the year. As I was indicating, Oracle was the darling early on, and if you go back to around September – that was just prior to their last earnings call – that stock was up almost 100%. Do you want to take a flier? Don't cheat, don't look at the chart. What has it come down to? It's still up for the year-to-date basis, but what are we sitting on right now? From positive 100%, where are we sitting?
The Finance Ghost: Yeah, I mean, it must still be up, but it has come off so high off that 52-week high. I don't know, probably teens returns. 10% to 30%, somewhere there?
Mohammed Nalla: That's pretty good. We're at around 20% today, as we're speaking. And remember, that was a stock that was…
The Finance Ghost: Not a bad guess.
Mohammed Nalla: That was not a bad guess at all. That was actually phenomenal. But this is just showing you where that hype was kind of overbaked. And I haven't included Palantir. I know that's a stock you like to look at, I'm not going to look at Palantir. I'm just going to look at the more traditional names.
The one that's actually come through very strongly from that point in time, when Oracle collapsed to where we are today, has actually been Alphabet (or Google, as a lot of people know them). And more recently, you know, lots of – I saw, I think it was Salesforce, Marc Benioff. He was saying, "I've used Gemini after having used Open AI for a long time (ChatGPT), and Gemini's fantastic." This was today or yesterday, I saw a tweet that went out. That’s contributing to a lot of positive news flow coming through on Gemini very recently.
So, Google's gone from being kind of middle of the pack, kind of run up 30%. It's now accelerated. It's now the best performer on a year-to-date basis in the subset I'm looking at, up 66%. So, that's the number one position.
The number two position coming through there, do you want to hazard a guess, Ghost?
The Finance Ghost: No, no, I got my one guess right. I'm not guessing anything else. Let's not ruin my streak.
Mohammed Nalla: I'll run through all of this, I'm not going to ruin your streak. That's NVIDIA. NVIDIA's up around 30%. And again, 30%, but remember, this is the largest company out there on the US market. So, pay attention, that's also down quite a bit from its peaks we had. It was up around 50% earlier this year. It's now come down so it's only up around 30%, but still pretty respectable. And then the rest of the pack just not looking that attractive.
If you look at Meta. If you look at stocks like Amazon. If you look at, you know, let's throw Microsoft – I know that's a favourite of yours. Microsoft, amongst those three I've just mentioned, up around 13.5% on a year-to-date basis. That's not fantastic. And that's telling you that some of that froth has already started to leak out of some of the bigger names. The other two I mentioned there, like I say, if you're looking at a stock like Amazon – that's low-single digits - quite disappointing - coming through on Amazon.
And so Ghost, wrapping this all up at the end of the day, I don't have the answer in terms of, “Are we in a hype bubble or is there some merit underlying this?” The truth is probably somewhere in between those two. I've seen some productivity gains coming through from AI, but at the same time, on this very show, we've highlighted just how terrible it can be.
I'll give you an example. My daughter was searching for when Canada sets its clocks back on Daylight Saving Time, that kind of thing, and it said, "Oh, it's going to happen on this particular day and date." It got the date wrong! It got the day right, but it got the date wrong. How do you get something as basic as a date wrong? And, I might add, that was Google!
So, even though Google Gemini is now currently the darling and they’re “so much better than ChatGPT”, just pay attention out there. I think the use case is there, but we are still very early on in terms of truly learning what the productivity gains are and how we can actually not just monetise that, but use it most effectively to supercharge human performance rather than just relying on the machines.
The Finance Ghost: My parting comment will be on the company that you wanted to gloss over there, Moe, the Lord of the Rings-named Palantir Technologies, because I think that year-to-date chart can't be ignored. 117% year-to-date!
I don't know what the secret is there. I think being close to Trump helps. Alex Karp, their fairly crazy and wild CEO, was recently quoted in the press as being ‘geographically monogamous’, which means he has relationships with different people in different parts of the world. So, rather interesting and colourful character with a rather interesting and colourful share price.
It sounds like a corporate strategy, being geographically monogamous. You basically just conquer one region at a time, find your person and then move on to the next one. But it seems to be working for him. It seems to be working for them.
Will it keep working for all of these AI names? Honestly, I don't know. It feels like next year's got to be the year, Moe. It's got to be the year of the correction, surely? Surely 2026 is the year?
Mohammed Nalla: Ghost, there's an old saying in markets, which is that only monkeys pick tops and bottoms, right? So, I don't want to be the monkey in this one. Palantir, the reason I gloss over it is I just don't like some of the work that they do. I don't like Alex Karp too much, and, quite frankly, I don't understand enough about what they do as a business. Like, I kind of get the broad strokes, but it's too much of a black box for me. So, that's the reason I'm actually looking away from it. It's not because, “Hey, you know what, I'm grumpy. I didn't get the 100-and-whatever percent performance that's come through.” It's just not a company that I'm going to be trading in or investing in anytime soon, for other reasons. But, that's a great performance and well done to Alex Karp and his team.
Whether the party can keep on going, I'll say just a bell of caution. And I'm going to ring that very loudly. A couple of months ago, you could have said the same thing about Oracle. Oracle looked fantastic and they looked unbeatable, and oh, boy, has that actually come off. But, you know, I guess that's what makes markets interesting?
Ghost, I think that's where we've got to leave it this week, unless you have anything else to add in there?
We want to hear your views, as our listeners. Let us know what you thought of the discussion on the G20, on AI in general. And if you're not a subscriber, go and check out Magic Markets Premium. We've just covered NVIDIA, but there is a library of over 200 stocks that we've covered globally there that you can access, all for just R99 a month. We think it's the best value you can actually get out there in terms of DIY research. So, go and check it out.
And we hope you've enjoyed the show. Let us know what you thought on social media. It's @MagicMarketsPod, @FinanceGhost and @MohammedNalla all on X, or go and find us on LinkedIn, pop us a note on there.
Until next week, same time, same place. Thanks, and cheers.
The Finance Ghost: Ciao.
