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SA banks: resilient performance

South African banks’ recent pre-close updates painted a largely consistent picture of resilient operating performance despite a more volatile global backdrop. Loan and deposit growth remained positive, supported by continued activity in corporate and commercial banking, while non-interest revenue (fees, transactions and trading income) generally outperformed lending as lower interest rates compressed margins.

Standard Bank highlighted strong franchise momentum, balance-sheet growth, and robust client activity across its South African and African operations, while FirstRand reported good underlying growth and returns. In light of tightening regulatory conditions and the need to increase its provisions for the UK redress scheme, FirstRand has confirmed its intention to sell its UK business.

Nedbank also pointed to steady business activity, improving domestic fundamentals and disciplined execution, supported by progress on structural reforms and improved sovereign ratings. However, its growth and returns lagged those reported by Standard Bank and FirstRand.

The market responded positively to solid volume growth, healthy fee-income trends, contained credit losses and continued operational discipline. Standard Bank’s diversified African footprint, strong transactional franchise and lower impairments were viewed favourably, while Nedbank’s cost control and consistent execution also attracted positive commentary. Margin pressure remained the key concern across the sector as policy rates declined in several African markets.

Absa’s update received a more muted response, with revenue growth lagging expense growth, weaker net interest margins in its African operations and greater reliance on lower credit losses to support earnings, prompting analysts to reduce earnings forecasts.

Attention now turns to the sustainability of earnings growth as the benefit from lower impairments begins to normalise, with all the major banks reporting half-year results in August 2026.

Semiconductors: bubble bursting, or runway ahead?

The spectacular rise in semiconductor shares over the past few years has naturally drawn comparisons with previous technology bubbles. Whenever an industry attracts significant capital, delivers outsized returns and dominates market headlines, investors should question whether expectations have become too optimistic.

While some areas of the artificial intelligence (AI) ecosystem may have been overhyped and are now undergoing a healthy correction, we believe it is premature to conclude that semiconductors were in a bubble or that the investment cycle has run its course.

Unlike many past technology manias, the current cycle is being supported by real-world demand, with token usage increasing many times over during the past year. Major technology companies continue to commit hundreds of billions of US dollars to AI infrastructure, while businesses across industries are only beginning to integrate AI into their products and workflows, mostly generating high returns on capital.

Importantly, AI adoption remains at an early stage. The industry is moving beyond chatbots towards AI agents, with each advance requiring significantly greater computing power, storage and networking capacity. This is creating further demand for advanced semiconductors.

As long-term investors, our focus remains on intrinsic value rather than short-term market sentiment. We will continue to assess whether market expectations are appropriately reflected in share prices and will actively manage position sizes according to our view of the long-term value of these businesses relative to prevailing market prices.

Prosus: Tencent still underpins investment case

Prosus delivered a strong set of results for the year ended March 2026, supported by continued momentum across its ecommerce portfolio and robust earnings growth from Tencent. Ecommerce revenue increased 12%, while adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 44% to US$1.3 billion (in local currency and excluding activity from mergers and acquisitions), highlighting the improving profitability of the business.

The disappointing part is the outlook. Management expects ecommerce profitability and free cash flow to remain broadly flat in the 2027 financial year. The business is increasing investment in food delivery, particularly in Brazil where competition from new Chinese entrants is intensifying. It is also focused on improving the performance of the recently acquired Just Eat Takeaway business in Europe.

Although much of the market’s attention remains on Prosus’ ecommerce operations, Tencent continues to underpin the investment case. It accounts for almost 80% of Prosus’ listed net asset value and contributed US$8.1 billion of the group’s US$8.3 billion in core earnings during the year.

Following the recent weakness in the Tencent share price, we believe the stock offers attractive upside potential. In our view, concerns around its investment related to AI spending are overstated. Tencent has a long track record of disciplined capital allocation and is well positioned to benefit from the growth of AI. As AI evolves towards agent-based applications, companies with large user ecosystems and proprietary data assets, such as Tencent, should be among the principal beneficiaries.

Richemont continues to shine

Richemont’s first-quarter trading update was exceptional, with sales growth of 20% at constant currency and 17% on a reported basis, materially ahead of market expectations. Importantly, the quality of the growth was just as impressive. The Jewellery Maisons division, which includes Cartier and Van Cleef & Arpels, delivered sales growth of 24%, comfortably exceeding expectations and reaffirming Richemont’s position as the global leader in branded jewellery.

What stood out was that growth appears increasingly volume-driven rather than price-led. Annual price increases are estimated at around 6%, implying roughly 16–17% growth from higher volumes and product mix. In a luxury environment where many brands continue to rely heavily on pricing, this points to exceptionally strong underlying demand and further market share gains.

The performance was broad-based geographically. Sales in the Americas rose 27%, while Japan grew 36%, supported by both domestic demand and tourist spending. Asia Pacific increased 21%, with China, Hong Kong and Macau all returning to double-digit growth. Given that the region recorded flat sales a year ago, this goes some way towards easing the longstanding concerns that have weighed on the luxury sector.

There were positive signs beyond jewellery as well. Specialist Watchmakers returned to sales growth of 8%, marking a welcome improvement after a prolonged period of weakness. Meanwhile, the group’s net cash position increased to €9.1 billion, underlining the exceptional cash generation of the business. Richemont continues to demonstrate why it is regarded as one of the highest-quality companies in the global luxury sector.

Yum China: capturing share in a growing market

Yum China is the largest restaurant company in China, operating the KFC, Pizza Hut and Taco Bell brands. The company has expanded rapidly, growing from 9 200 stores in 2019 to more than 18 000 today. We believe it remains well positioned to continue gaining market share in China’s vast US$800 billion food service market, supported by advantages such as its fully digitalised supply chain, which helps ensure both the availability and quality of its ingredients.

The opportunity remains significant. Only 20% of restaurant spending in China takes place through chain restaurants, compared with around 60% in the US, and hundreds of Chinese cities still do not have a single KFC or Pizza Hut. Management is targeting 30 000 stores by 2030, supported by highly attractive store economics, with new KFC outlets recouping their initial investment in as little as two years.

Alongside this expansion, the business is becoming more profitable, with restaurant margins expected to improve as Pizza Hut’s performance strengthens. Management has also committed to returning all free cash flow to shareholders, targeting US$900 million to US$1.0 billion per year in 2027 and 2028. In June, Yum China acquired full ownership of the Pizza Hut business in China for US$1.2 billion, underlining its confidence in the brand’s long-term potential.

Trading on just 14.5 times forward earnings and offering a free cash flow yield of close to 7%, we believe Yum China represents an attractive opportunity to invest in one of China’s clearest long-term structural growth stories.