Pair-Trade Holding Cost Strategy Switzerland-20 and South Africa-40

1. Pair-Trade Holding Cost Strategy Switzerland-20 and South Africa-40 ByCentury Financialin 'Investment Insights' Share *Trading in financial market carries risk and can result in loss of capital. *This performance is only observed with historical backtests and not traded by the company. The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully. Trading pairs is not a risk-free strategy. The jeopardy comes when prices of the two instruments move contrary to the positions taken resulting in losses. Thus, adhering to strict risk management rules is important when dealing with such adverse situations. Calculations of estimated or past profits and losses do not include applicable holding costs and transaction charges. Risks & Assumptions The numbers mentioned for holding costs are as per the currently available rates. This may change at the purview of the platform provider and might affect the mentioned performance drastically A Pair trade is always taken together and closed together. If one leg is closed and the other is left open, it's no longer a pair strategy and could result in huge losses

2. Any further change in the underlying macros apart from the ones mentioned below may result in significant deviations in the pair's spread ratio performance and may adversely affect the pair's performance This strategy involves an experienced investor going short on the South Africa 40 Index while simultaneously going long on the Switzerland 20 Index (SMI). By doing so, the investor is likely to incur a holding cost of 5.35% p.a., currently applicable to the South Africa 40 index. On the other hand, the investor will have to pay a holding cost of 4.18% p.a., presently applicable to the Switzerland 20 Index. On a net basis, investors could receive holding costs of around 1.17% p.a. (with 2x leverage). The figures in the table have been derived by taking long positions in the Switzerland 20 while simultaneously shorting the South Africa 40 index with equal exposure on both sides. Over the past 10 years, employing two times leverage, thisstrategy would have yielded a total profit on investment of almost 32% (averaging 3% annually) with a hit ratio of 60%. Despite South Africa outperforming Switzerland on a total return basis 7 out of 10 times in the past, the holding cost strategy has minimized losses and has infact returned gains 6 out of the 10 times with 2x leverage. The loss has only exceeded 2% only once in the last 10 years in 2022 with 2x leverage. Total Returns and Past Performance in the last 10 years Swiss Yearly Total Return South Africa Yearly Total Return Total Return on Investment (Including Holding Cost) Long: Swiss Short: SA Net Return on Investment Net Holding Cost Received on Investment Profits Each Year on Investment Year Investment $100,000 $100,000 $100,000 $100,000 Leverage 2x lev 2x lev 2x lev 2x lev Exposure $200,000 $200,000 $200,000 $200,000 2014 12.93% 9.23% 3.70% 5.53% 9.23% $9,232 2015 1.14% 7.62% -6.48% 6.29% -0.19% ($188) 2016 -3.39% -1.53% -1.86% 7.12% 5.25% $5,253 2017 17.88% 23.20% -5.32% 7.05% 1.73% $1,734 2018 -7.05% -8.18% 1.13% 6.82% 7.94% $7,945 2019 30.16% 12.50% 17.65% 6.85% 24.51% $24,508 2020 4.30% 10.03% -5.74% 4.93% -0.80% ($805) 2021 23.73% 28.50% -4.77% 4.40% -0.37% ($369) 2022 -14.29% 4.67% -18.96% 2.09% -16.87% ($16,871) 2023 7.06% 9.09% -2.03% 3.18% 1.15% $1,154

3. Total 72% 95% -23% 54% 32% Average Return 7% 10% -2% 5% 3% *The calculation assumes an investment of $100,000. With 2x leverage, the client will have a total exposure of $200,000 with $100,000 on each side of the pair. Source: Bloomberg 18th January 2024 Scenarios when spread increases/decreases in the past 10 years Potential Profit/Loss when the ratio increases Potential Profit/Loss when the ratio decreases Potential Price when the ratio increases Potential Price when the ratio decreases *Last Price (Local Currency) CurrencyPosition Exposure SMI Index CHF Long 11,153.11 $100,00011,878.06 $6,500.00 10,595.45 $-5,000.00 TOP40 Index ZAR Short 66,090.11 $100,00062,785.60 $5,000.00 67,808.45 $-2,600.00 Ratio (in USD terms) 3.70 4.15 3.43 Dividend ($) $101.48 $101.48 Holding Cost 1.17% $1,166.00 $1,166.00 Total Return ($) 1.17% $12,767.48 $-6,332.52 Total Return on Exposure (%) 6.38% -3.17% Leverage 2x 2x Total Return on Investment (%) 12.77% -6.33% *Last Price as of 18th January, 2024 **The calculation does not incorporate the movement in currency SMI-SA Ratio

4. Source: Bloomberg | 18th January 2024 There has been a recent breakout in the ratio after testing the resistance multiple times in the last few months, with the potential to reach the range of 4.10-4.15. Fundamental Analysis Long: Switzerland 20 Index The Switzerland 20 Index, or SMI, stands as the premier stock index in Switzerland, comprising the top 20 stocks from the Swiss Performance Index (SPI). The SMI, Switzerland's main stock market index, is heavily weighted towards the healthcare and consumer staples sectors, with a significant presence in financials, industrials, and information technology Switzerland's economy, renowned for stability, showcases resilience with a strong financial sector, diversified industries, and a high-quality workforce. Outperforming its neighbors, the GDP expanded by 0.3% in Q3, with the OECD projecting a 0.8% growth for the year. Notably, Q3 GDP rose from -0.1%, fueled by an unexpectedly robust services sector and contributions from manufacturing. The Swiss economy also experienced a year-on-year growth of about 0.9%, surpassing the 0.5% expected by market forecasts. The consumer price index (CPI) in December was at 1.7%. Despite global economic challenges, Switzerland's inflation remains within the central bank's target range of 0 to 2%. While November's consumer price rise of 1.4% marked a two-year low, attributed to reduced costs for hotels, package holidays, fuel, and produce. Due to the more restrictive monetary policy pursued by the Swiss National Bank (SNB), inflation is expected to continue to fall next year or at least stay within the SNB’s targeted range. This resilience contrasts with inflation trends in other advanced economies, underscoring the protective influence of Switzerland's robust currency. Swiss tourism reflects this vitality, defying economic gloom and global conflicts. The summer of 2023 witnessed a surge in the hotel industry, and Swiss tourism was back in full swing in 2023, with overnight stays expected to top the 40 million mark for the first time. American tourists played a pivotal role, surpassing pre-pandemic numbers by 20%. Anticipated increases in guests from European countries (2.2%) and distant markets (5.4%) highlight the sector's optimistic trajectory. After undergoing a year of restructuring, significant acquisitions, and leadership adjustments, Swiss pharmaceutical companies aim to generate positive attention and reassure investors about their growth prospects in 2024. These companies are increasing their sales projections for innovative therapies, specifically on-patent treatments with the greatest profit potential. In conclusion, Switzerland's SMI, rooted in a diverse economic landscape, mirrors the nation's resilience. Robust GDP growth, controlled inflation, and a thriving tourism sector positions Switzerland favorably. Short: South Africa TOP40 Index The FTSE/JSE Top 40 Index, representing the 40 largest companies on the Johannesburg Stock Exchange (JSE), is a key indicator of South Africa's economic health. It spans diverse sectors, including mining, banking, retail, telecoms, and industrials, serving as a widely-utilized gauge for market sentiment. The

5. South African economy faces challenges, marked by record load-shedding, aggressive monetary tightening, low confidence levels, and a weak job market hindering growth. In 2024, South Africa faces economic challenges with discouraging indicators, including a -0.2% GDP growth in 3Q 2023 and heightened Eskom blackouts impacting the economy in the following quarter. Despite some industries showing resilience, overall economic momentum remains slow. Annual inflation reached 5.5% in November 2023, close to the upper limit of the South African Reserve Bank's target range. The 9.0% year-on-year food price inflation suggests a prolonged period of elevated interest rates due to weakened finances and cautious lending practices. The economic downturn is evident in household finances, retail sales, and new-vehicle sales. There's a potential downward revision of the consensus GDP growth forecast for 2023 to around 0.6%, raising concerns about household stress. Private fixed investment's stagnant performance signals a warning for future growth and employment. Household credit data highlights vulnerability amid weakened finances, higher interest rates, and prudent lending practices, pointing towards an extended period of heightened interest rates. The mining crisis in South Africa reflects broader economic challenges, contributing to increased unemployment and economic slowdown. The sector's decline mirrors the nation's overall economic well-being, raising concerns about diminished investor confidence and heightened capital outflows. The rand depreciated by around 7.5% against the US dollar in 2023, showcasing the impact of severe power cuts, logistical constraints at South African ports, strained government finances, and global risk aversion. This positions it as one of the worst-performing emerging market currencies. In summary, the SA40 index faces various challenges, including economic slowdown, political uncertainty, and adverse external factors, dampening investor sentiment and fostering a bearish outlook for the index in 2024. Technical Analysis Switzerland – SMI Index Chart 18th January, 2024 Source: Tradingview A significant trend has been identified on the monthly chart price chart of the index over the past decade. The current market price has recently touched the lower boundary of a well-established channel, suggesting a potential support level. Moreover, the prices are presently trading above the 100-day moving average, indicating an ongoing upward trend. These technical indicators collectively point towards a favorable market scenario, providing a good opportunity to enter the trade. South Africa – Top 40 Index Chart

6. 18th January, 2024 Source: Tradingview In analyzing the Top40 Index's price chart, it is apparent that the index has descended below the 78.6% Fibonacci retracement level, rebounding from a pronounced premium territory concerning the Fibonacci levels drawn from a swing high of 75,460.83 to a swing low of 33,411.47. Given the prevailing market narrative anticipating a dip, the current price levels present a favorable entry point. Additionally, a robust bearish order block is identifiable within the 70,494 to 73,830 price range, and it is observed that the index has exhibited a bearish bounce after testing this order block, reinforcing bearish sentiments. Furthermore, despite the presence of a downward-trending channel in the Top40 Index, there is evidence of consolidation within the 66,462.26 to 75,460.83 range. Moreover, a descending channel is discernible in the RSI, supporting the overall bearish outlook. Strategy Rationale The fundamental idea behind the strategy is that Switzerland will outperform the South African companies over the long run. The hedged positions will minimize the losses in case of downward trending markets. As witnessed in the scenario table, the naked long positions would have resulted in losses 7 out of 10 times in the past. However, earning holding cost through leveraged positions reduced the impact of losses. Note: However, it is essential to note that Pair Trading is not a risk-free strategy. The difficulty comes when prices of the two securities move contrary to the positions taken, resulting in losses. Thus, adhering to strict risk management rules is vital when dealing with adverse situations. Past performance is not indicative of and does not guarantee future results. Trading in markets may involve loss of capital. The return calculation includes the holding cost-benefit received on the strategy and this could change in the future, impacting the strategy either positively or negatively. The returns do not consider the currency depreciation of the Rand and the Swiss Franc. Investors will have to hedge the currency exposure separately. Data Source:Bloomberg Data & Prices as of 18th January 2024

7. Arun Leslie John Chief Market Analyst