The recent significant market events related to Steinhoff International Holdings and its subsidiaries have been widely reported in the media and we would like to share our views as well as the views of the various asset managers who manage your portfolios.
Who are Steinhoff?
Steinhoff is a key international furniture manufacturer and retailer and is a large constituent of the FTSE/JSE capped shareholder weighted index (capped SWIX), comprising 2.2% of the index. Most South African investors have some exposure to Steinhoff and recent events are therefore likely to have a limited impact on their portfolio.
What has happened at Steinhoff?
On Tuesday December 5th, Steinhoff announced an investigation into accounting irregularities and CEO, Mark Jooste, resigned with immediate effect. New information has since surfaced of gross accounting irregularities and PWC have been approached to conduct an independent investigation. The share price has fallen by 82% from a closing price of R55.60 on Friday December 1st to a closing price of R10 on Thursday December 7th.
Views of the recent selloff
After having discussions with the various asset managers who manage our client’s portfolios, the general consensus is that there is still uncertainty surrounding the outcome of the investigation and there is no way to establish the extent of the irregularities. Importantly, the allegations do not affect the business’ operational asset base and ability to operate, and it is therefore the view that is futile to sell at these levels, which would result in permanent capital loss to investors. The asset managers will therefore continue to hold Steinhoff at this point in time, and continue to closely monitor the situation.
The Importance of diversification
The unforeseen and unprecedented events surrounding Steinhoff once again show how important it is to have a diversified portfolio and not to have all your capital invested in one stock or one asset manager. There are numerous top asset managers who have exposure to Steinhoff, however if you have a diversified portfolio comprising of various asset managers, the effect of such an event will not be as detrimental to the portfolio. At Optima, we continue to recommend a diversified portfolio and focus on long term capital growth, therefore the short term impact on clients’ portfolios should not be meaningful in the long term.