To market, to market to buy a fat pig. We give Mr. Market too much credit, really. The collective acts like a four year old that either needs their comfort blankey (from Bernanke) or acts irrationally because there is not enough comfort or information. Just take the (almost past us, but finished according to the French president) Euro zone crisis where we were led to believe that every single piece of news from Angela Merkel's mouth was more important than the zone itself. What did she say? Everything is OK, then that is very good! However, when there was a void of news then the chattering classes were convinced that Greece was leaving, or this or that was happening right now.
I enjoyed the piece in the WSJ titled Analysis: Fed Likely to Push Back on Market Expectations of Rate Increase. As the article explains, the wind down is going to be slow and orderly. As the Fed continue to wind down, the economy will continue to improve and rates are likely to continue to rise, perhaps starting at the end of the year. The Fed have moved the starting point of that more than once. So what if treasuries are yielding more now than they were six months ago. I thought nobody wanted to be stuck in a low rate environment forever? And if you forgot to refinance then so what, rates historically are still low, there is lots of time!
So finally Mr. Market, when they saw the data from yesterday in the US, with improving retail sales (Monthly & Annual Retail Trade) and better than anticipated jobless claims (UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT), heaved a sigh of relief and embraced good news. After all, good news is good news, right? Markets went from the worst point on the open all the way through to the closing highs on the day. I saw that our market EFT in the US soared 5 percent! When I say our, I mean the iShares MSCI South Africa ETF, it is relatively small, according to Google finance 476 million Dollars, that hardly qualifies as a market mover, right? Any institution worth their salt would have their own setup here and be able to make inroads into the deep liquid markets that we offer.
It is rather strange to think of our market being one of the biggest in the world, in fact the 17th biggest according to this list: List of stock exchanges. The link then points you to a place where you can download a .pdf document from here: MONTHLY REPORTS. I selected all exchanges for the Month of May, 2013 and then hit go! It is always amazing to see what comes out the other end.
At the end of May 2013, the entire value of all the worlds affiliated stock markets clocked 58,582 trillion Dollars. Wow!! 15.8 trillion Dollars is on the NYSE Euronext, 5.279 trillion Dollars of that is listed on the NASDAQ. Joburg, 833 billion Dollars. Cyprus? Well, only 1.883 billion Dollars. The Mauritian stock exchange at 7.799 billion Dollars makes the Cypriot stock market look like a rank long hop amateur. The next page is unbelievably enlightening, the number of listed companies globally. My best guess was nowhere near. Locally we have 382 companies, 30 of which have their primary listing elsewhere, and are classified as "foreign" companies. The total number of companies listed are 45,459 across the affiliated stock exchanges.
That is how many choices you have. What counts as investment grade is never going to be a number that everyone agrees on, but that is an extraordinary amount of listed businesses. Choices! If you had to read 4 annual reports of these listed companies every day (yes, including your weekends and public holidays), it would take you 31 years to get through the whole lot. And by that time the landscape would have changed more than you could ever imagine.
What also amazed me was value traded year to date (end of May) clocked 23 trillion Dollars. If you annualise that number you get to 55 trillion. The value traded on equity markets yearly is nearly the market capitalisation in its entirety. In the bigger markets it is crazier. The NASDAQ year to date traded volume is 3.876 trillion Dollars, annualise that and you get to market turnover in the tech heavy index of 1.76 times. And that is on a year by year basis. Now who rationally can explain to me that people turning (churning) shares over the NYSE Number of Trading Days 2013, which equals 252 are "investing".
Am I the only person that thinks that 3.5 percent of the total value of the NASDAQ trading every week is absolutely nuts? Minimum holding period should be five years, at least in my world. By that time the NASDAQ has turned over 9 times its value. How the {expletive} does that possibly work?
My last point is about choices. I would send this sheet to each and every politician who talks about resource nationalisation, bigger taxation and so no, because this is just to show you how many investment choices there are across the globe.
Byron always asks me, why do you write about those Telkom results? What is the point? We have no clients who own them, why would you even want to cover them? Well, I often tell him that it is often as much as what you don't own, as much as what you do own. And with Telkom there is a company that the main shareholder (who owns less than 40 percent) thinks it belongs to the state. How do I quantify that? Well, the name changed from Telkom to Telkom SOC, with the SOC standing for State Owned Company. That is what the government think. It tells me that the main shareholder has very little regard for the rest of the shareholders, even though they don't have a majority, you get my drift. You can often tell a lot about a company if you check their shareholders out. And in this case meddling with the business of Telkom has seen them with too many CEO's and not enough focus.
But that ongoing gripe aside of who should be involved in the business of business, that is an ideological debate that we are never going to agree on. So let us look at the number: ADSL subscribers clocked 870 thousand, an increase of 5.2 percent. To put this into perspective, in late May Vodacom released results (see our analysis from back then: Vodacom with good FY numbers) and indicated that they had 18.5 million data subscribers. Obviously not as intensive users as Telkom ADSL subscribers. In the recent MTN subscriber numbers (MTN subscriber numbers, close to 200 million), data users with 13.2 million here locally. Again, the Telkom users you would think are a whole lot more intensive.
But the growth rates of the future of the business are not exactly exciting, 5 percent? The others are growing quicker. And the truth is that handsets and tablets are set to be the future of the home usage, if not already there in the developed world. So you want to be dominating in the data space, and whilst Telkom have more lines in than anybody else, our country still has too few.
Only 3.8 million fixed lines now, down from 4.895 million in 2002, a 22 percent fall over 11 years. Number of minutes on those lines left over continues to fall too, total millions of minutes used on the Telkom network in 2003 was 32,868, this time around it was 18,425 minutes. In ten years the number of minutes spoken on the Telkom network has fallen nearly 44 percent. It is fair to say that they have seen their core (originally) business absolutely annihilated.
And the value of the network, because the competition have invested heavily, is not worth what originally thought. "The Board decided to impair the carrying value of the assets of the Group by R12 billion for the year ended 31 March 2013. The impairment review was prompted by the considerable period of time that Telkom's shares have been trading at significantly lower value compared to its net asset value. After the impairment the net asset value is R34 per share. The impairment takes into account the impact on the financial returns of the Group in light of technology changes, competition from mobile operators and evolving regulatory landscape over more than a decade. These factors have eroded the returns from legacy assets."
Well, everyone has the same regulatory environment. The truth is that the handset evolved quickly, Telkom could not keep up. And evidently did not. So why would we be encouraged to believe that they are going to be in catch up mode from here? Even if management suggest that this time it is going to be different. I wish Telkom the best, because their success would be a success for all of us here in South Africa. Just think how we could advance education with a high speed broadband connection in every single classroom around the country. Imagine how that could change the dire state of teaching, I'm sorry, I mean "learning".
Home again, home again, jiggety-jog. Markets are flying here. The Rand has firmed a little, that is always encouraging. We are hopefully expecting this to continue, it would be great for the inflation outlook.
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
011 022 5440
No comments:
Post a Comment