Sequoia Capital Monthly Newsletter November 2021

MONTHLY NEWSLETTER NOVEMBER 2021 | ISSUE 34 FED Tightening SEQUOIA CAPITAL MANAGEMENT JB SMITH NEWSLETTER October shows a reversal of the previous month. Resource and Industrial stocks were up by 8.44% and 6.69% TABLE OF respectively. SA Inc. focused sectors like financials and listed CONTENTS property decline by 3.16% and 1.69%. The local bond market had a difficult month and yield a negative 0.54% and MD's Message - P. 1 negative 0.99% for the last 3 months. This is on the back on Financial Market Indicators P. 3 inflation and more importantly interest rate expectations. The market is trading on spot inflation (which is high) and is Economic Report- P. 4 finding it exceedingly difficult to price in the expectation that inflation will come down again towards the start of Q2 of Disclaimer- P. 6 2022 if for no reason other than base effects.

Instead, the market is extrapolating current high inflation rates into the future and concluding that we 2 EGAP I RETTELSWEN YLHTNOM need to aggressively chase inflation with rate hikes. If you apply a view that oil prices will decline as the European winter passes and those base effects will result in meaningfully slower inflation from about April 2022 onwards, then it is difficult to justify current bond pricing. Global markets rebounded strongly in October with the MSCI World Index up in US Dollars by 5.10%. On a regional basis in the US the S&P 500 was up 6.98% (USD) followed by the the MSCI Europe Index with 4.47% (USD). The MSCI Asia Index was down 0.40% on the back on growth concerns in China. The next couple of months will be dominated by talk around FED (US Federal Reserve Bank) tapering, inflation expectations and interest rates. One important aspect that needs to be clarified in investors’ minds are the misperception that an increase in interest rates is potentially harmful to equity markets. In the charts below be attempted to demonstrate the effect of previous interest rate hikes on equity markets. The charts below are curtesy of the Bank of America Merill Lynch. The above charts show the progress of equity markets in two distinct interest rate regimes: the FED rate hiking regime vs. the FED rate easing regime. Since 1988 the FED has hiked interest rates about 52 times, while it has cut interest rates about 57 times. +27(0)12 764 7235 | [email protected] | www.sequoiacapital.co.za Sequoia Capital Management is an authorised financial service provider, FSP 49393

There does not appear to be any credible empirical evidence proving that a FED rate hiking cycle is 3 EGAP I RETTELSWEN YLHTNOM decidedly negative for equities. Average equity market performance in the first 12-months after a rate hike has been +9.8%. Average equity market performance during the first 12-months following a rate cut has been –2%. Historically, equity market draw-downs appear to be more pronounced during rate-cutting cycles, than during rate-hiking cycles. The lowest drawdown during the rate hiking regimes was -10%, while the lowest draw down during rate cutting regimes was -25%. Selected Financial Market Indicators (in ZAR) +27(0)12 764 7235 | [email protected] | www.sequoiacapital.co.za Sequoia Capital Management is an authorised financial service provider, FSP 49393

ECONOMIC REPORT 4 EGAP I RETTELSWEN YLHTNOM Although fears of global inflation overshadow financial markets and economic policymakers, momentum in economic growth remains, as the world and individual countries are opening their economies given increased vaccination numbers. Despite the now official tampering of US liquidity in the market. Since the beginning of the Covid-19 pandemic, the Fed has been buying back $120 bn worth of bonds per month. The Fed decided on 3 November to scale down the purchasing of bonds to only $15 billion per month. Initially, after the announcement, the dollar weakened as share prices retreated but continued to rally as company earnings that are mostly far higher than expected dominated Wall Street. All three the main indices are trading at record levels as the US economy continue to rebound as the vaccine roll-out has allowed shops, restaurant, schools, and workplaces to reopen. Domestically pressure on the Rand remains as the currency depreciated by 3.3% against the US$, 3.4% against the Pound, and 2.3% against the Euro during October. The sharp increase in the oil price during the same month had caused the prices of fuel to increase to new record high levels. This will put pressure on the inflation rate in months to come. The World Economic Outlook report of October reported:\" The global economy is projected to grow 5.9% in 2021 and 4.9% in 2022, 0.1 percentage point lower for 2021 than in the July forecast. The downward revision for 2021 reflects a downgrade for advanced economies—in part due to supply disruptions—and for low-income developing countries, largely due to worsening pandemic dynamics. This is partially offset by stronger near-term prospects among some commodity-exporting emerging markets and developing economies. The rapid spread of Delta and the threat of new variants have increased uncertainty about how quickly the pandemic can be overcome. Policy choices have become more difficult, with limited room to maneuver.\" Nevertheless, the inflation outlook varies markedly. It has risen sharply in the US and some emerging market economies but remains relatively low in many other advanced economies, particularly in Europe. These inflationary pressures should eventually fade. Once bottlenecks are resolved, price increases in durable goods, such as cars, are likely to ease quickly as supply from the manufacturing sector rapidly picks up. Consumer price inflation in G20 countries is projected to peak towards the end of 2021 and slow throughout 2022. Although sizeable pay increases are happening in some sectors that are reopening such as transportation, leisure, and hospitality, overall wage pressure remains moderate. The inflation rate of South Africa increased from 4.9% in August 2021 to 5.0% in September 2021. The main contributors to the 5,0% annual inflation rate were food and non-alcoholic beverages (increasing by 6.6% year-on-year); housing and utilities (4.4%) and transport (10.0%). Transport with a total SOUTH AFRICA weight of 14.8% in the CPI basket contributed 1.4% to the 5.0% inflation rate in September. Given the sharp increase in fuel prices at the beginning of November, as well as the weaker Rand one can expect a sharp rise in the inflation rate in November and December and would put pressure on the Monetary Policy Committee decision on the repo rate during its next two meetings. The World Bank also followed the Reserve Bank is forecasting that the South African economy may grow at 5.2% in 2021. This would still be lower than the -6.4% rate recorded in 2020 and putting the economy on lower real levels than before the outbreak of Covid -19. +27(0)12 764 7235 | [email protected] | www.sequoiacapital.co.za Sequoia Capital Management is an authorised financial service provider, FSP 49393

Inflation has increased markedly in the United States to a thirteen-year record high of 5.4% in September, as restrictions are relaxed, demand has accelerated, but supply has been slower to respond. As a result, growth prospects for 2021 are revised down compared to the July forecast, largely reflecting USA large inventory drawdowns in the second quarter, in part reflecting supply disruptions and softening consumption in the third quarter. The U.S. economy grew at a 2% annualised pace in the third quarter, its slowest increase since the end of the 2020 recession. Decelerations in consumer spending and residential investment helped keep the number lower. Weekly jobless claims fell more than expected at the end of October to a fresh pandemic-era low of 281,000, below the 289,000 estimated. Declines in residential fixed investment and federal government spending also contributed to slack in economic growth, as did a surge in the U.S. trade deficit, which widened to a near-record $73.3 billion in August. Consumer spending, which makes up 69% of the $23.2 trillion U.S. economy, increased at just a 1.6% pace for the most recent period, after rising 12% in the second quarter, suggesting a quicker and perhaps bigger contraction in the US economy that was expected. In Q3 2021, Eurozone GDP grew by 2.2% compared with the previous quarter (Q2 2021). The latest data for the UK is from Q2 2021 when GDP grew by 5.5%. Compared to pre- pandemic peak levels, GDP in Q2 2021 was 3.3% lower in the EUROPE UK, compared with 3.0% and 2.9% lower in France and Germany, respectively, and 2.5% lower in the Eurozone as a whole. In its latest report on the global economy, published 21 September, the OECD lowered its forecasts for UK GDP growth to 6.7% in 2021, from 7.2% at its previous May forecast. The UK is still forecast to see the fastest growth in the G7 this year, after seeing the largest fall in GDP in 2020. The Latest World Economic Outlook for October 2021 reports that the forecast for the group is marked up slightly compared to the July 2021 WEO Update, reflecting upgrades across most regions. China's prospects for 2021 are marked down slightly due to the stronger-than-anticipated scaling ASIA back of public investment. Outside of China and India, emerging and developing Asia is downgraded slightly as the pandemic has picked up. Growth forecasts in other regions have been revised up slightly for 2021. The revisions in part reflect improved assessments for some commodity exporters outweighing drags from pandemic developments (Latin America and the Caribbean, Middle East and Central Asia, sub-Saharan Africa 5 EGAP I RETTELSWEN YLHTNOM +27(0)12 764 7235 | [email protected] | www.sequoiacapital.co.za +27(0)12 764 7235 | [email protected] | www.sequoiacapital.co.za | Spaces Building | 210 Amarand Avenue | Menlyn Maine Sequoia CSaepqiutoaial MCaapnitaalgMeamnaegnemt eisntaisnaan uatuhthoorriisseeddfinfainnacinalcsiearvl icseerpvroicviedepr,rFoSvPid49e3r9, 3FSP 49393

Disclaimer 6 EGAP I RETTELSWEN YLHTNOM This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation and is only intended for the use by the original recipient/addressee.  If further distributed by the recipient, the recipient will be responsible to ensure that such distribution does not breach any local investment legislation or regulation. Opinions expressed are current opinions as of the date appearing in this material only.  The information is confidential and intended solely for the use of Sequoia Capital Management clients and prospective clients, and other specific addressee’s.  It is not to be reproduced or distributed to any other person except to the client's professional advisers.  All data, models, and tests are sourced from external data vendors or service providers unless otherwise stated thereon.  While the information obtained is from sources we believe to be reliable, Sequoia Capital Management does not guarantee the accuracy or completeness thereof.  Save as may be provided under law, Sequoia Capital Management does not accept any liability for inaccurate or incomplete information contained, or for the correctness of any opinions expressed.  Prospective investors should inform themselves and take appropriate advice as to any applicable legal requirements and any applicable taxation and exchange control regulations in the countries of their citizenship, residence, or domicile which might be relevant to the subscription, purchase, holding, exchange, redemption, or disposal of any investments. Sequoia Capital Management is an authorised financial service provider, FSP 49393 SEQUOIA CAPITAL MANAGEMENT +27(0)12 764 7235 [email protected] WWW.SEQUOIACAPITAL.CO.ZA +27(0)12 764 7235 | [email protected] | www.sequoiacapital.co.za Sequoia Capital Management is an authorised financial service provider, FSP 49393