"Japan is the second biggest pharma market in the world, around a 112 billion Dollar per annum market in 2012, not really growing. The US dwarfs the whole lot, 327 billion Dollars worth of sales in 2012."
To market, to market to buy a fat pig. Another poor day for equities both on the local bourse and across the globe yesterday. Until .... the Federal Reserve released their minutes from their prior meeting. My goodness, it never ceases to amaze me (it still does however) of how much importance is placed on the views of central bankers. Again, I have absolutely nothing against what I think are some of the smartest minds in public service anywhere, I admire and respect them deeply. In terms of innovation and pushing boundaries however, it is not happening at a Central Bank level. It happens in laboratories, workshops and as we have often seen, garages. That is where change happens.
The headlines read overnight, "dovish Fed minutes send markets higher", indeed the single biggest gain for a day this year was last evening in New York. At the end of the session in New York the nerds of NASDAQ were up nearly 2 percent, the broader market S&P 500 added one and three quarters of a percent, whilst the Dow Jones nearly crested 17 thousand again, up one and two thirds of a percent. Locally we were led lower by resources and industrials again, some late selling into the close saw the Jozi all share index end the session at a whisker above 48 thousand. The sell off has been pretty serious, no more serious than many of the other sell offs that we have experienced over time. There is almost always something to be anxious about, that is human nature.
The publication (the Fed release last evening) is available for download from the Fed website: Minutes of the Federal Open Market Committee, September 16-17, 2014. The strength of the Dollar is the one that everyone has picked up on, in the Fed minutes that is and the other one was the weakness in the global economy noted by the Federal Reserve. Nice, this is not all news, apparently when the Fed notes this, it is. Even though these minutes are nearly three weeks old. Thanks for all of that, irrationality will continue, there is nothing that either you or I can do about it.
Last thing to prove my point of Fed watchers and Fed armchair critics and the outcome on markets, I for one am very relieved that earnings season has started. There is a single line from Alcoa's earnings release, Third Quarter 2014: "Global aluminum demand growth forecast of 7 percent in 2014 reaffirmed". I do not think that the company is investable at all. Really. Profits are too wild. All you need to know is that the company is selling more metal to industry.
Aspen have released an announcement this morning, another in a long line of collaborations with shareholder and global leader Glaxosmithkline, in which the two will be shareholders in a newly established business in Japan. The business will be known as Aspen Japan K.K. in which Glaxo will hold 25 percent and Aspen the rest. Rather than me try and identify which points are the most important, let me rather do a copy paste. AGI is Aspen Global Incorporated:
"AGI will transfer the marketing authorisations and grant perpetual distribution rights to Aspen Japan for all products currently being marketed and distributed on behalf of Aspen in Japan;
GSK will transfer the marketing authorisations and grant distribution rights to Aspen Japan for certain mature products in GSK's portfolio;
GSK will provide Aspen Japan with a pipeline of authorised generics for a number of GSK's products;
AGI will offer Aspen Japan the rights to all future products that it acquires or licenses in Japan; and
AGI will be responsible for the management of Aspen Japan and for the commercialization of all the products in Aspen Japan's portfolio."
Why Japan? Well. Japan is the second biggest pharma market in the world, around a 112 billion Dollar per annum market in 2012, not really growing. The US dwarfs the whole lot, 327 billion Dollars worth of sales in 2012. China is now the third biggest, perhaps it is going to overtake Japan soon. For the time being however, Japanese citizens are covered with social health insurance and the balance getting public assistance.
Why does this make sense for Glaxo? I think that Glaxo have obviously bigger fish to fry. During 2013 (according to the annual report), they sold the drinks Lucozade and Ribena to a business called Suntory of Japan for 1.35 billion Pounds, or 2.19 billion Dollars at current value. Japan represents 7 percent of total revenues for Glaxo. For Glaxo this is not a growth market. Expectations are for prescription drugs in the developed world, including Japan, are for 1-4 percent growth. Here however is the clincher for me. In the Glaxo annual report there is a key as to why this happened:
"The government in Japan continues to progress a number of additional initiatives that are likely to affect the prescriptions medicine industry. These include the goal of having 60% of all prescriptions filled by generic medicines by March 2018, and the introduction of health technology assessments for evaluating pharmaceuticals and medical devices."
Ah-ha! Plus also remember that Japan has the second oldest population as a collective, after Monaco. Perhaps Charlene Wittstock, all of 36 years old and born in the same town as me (Bulawayo) brings the age down a little. The average age in Japan is nearly 45 years old, all 126 and a half million people, the population keeps shrinking and they are battling with that. The older the population, the more medicine you need. Equally Japan has an average life expectancy of 84.6 years. Older people. The other point worth noting is that Japan as a percentage of GDP spend around 10 percent on health. A little less than France, the Netherlands, Germany (around 11 and a bit percent) and a whole lot less than the United States.
Last little note of interest, the new president of the Glaxo Japanese region (portfolio expanded in September 2012) is none other than Abbas Hussain. Who? He is the brother of Nasser Hussain, the former English cricket captain and commentator. I love Nass! He is a legend. Perhaps Stephen Saad and Abbas Hussain can talk smack about one of their favourite sports. Perhaps they both have a view on the new book by KP.
All in all, this is another positive for Aspen and whilst GSK might have sold a stake (GSK complete Aspen sale, PIC now biggest shareholder), they are the loser in this, over 100 Rand a share higher than where they sold! Yowsers. I suppose, unsurprisingly Aspen is trading at an all time high, surpassing the 351 Rand from a couple of days ago. Up over three percent in early trade.
I have been wanting to do this exercise for a while. It is a simple one. In many consumer societies people are hardwired to the idea of having the latest x or y or z. In South Africa when young professionals get a new job, they normally get themselves a new set of wheels, often spending a large percentage of their salary on the latest vehicle. Obviously dependent on what the bank will extend to you. Seemingly, and it is very dumb, you are "doing well" when you have a whole lot of debt new shiny motor vehicle.
I am of course pigeon holing now, for that I apologise. Let us however presume that a recent graduate who has landed a very decent job in Sandton decides that they need a BMW 116i, the cheapest BMW you can get. Over 60 months, including a 10 percent deposit (purchase price without trimmings = 330 thousand Rand) at a 12 percent interest rate total payment on the motor vehicle is 404 thousand Rand. Or 6673 Rand a month.
At the end of the period the motor vehicle is possibly worth one-third of its value. In fact, Autotrader had a used model, 98 thousand km on the clock, 2009, (a 120i) for 139900 ZAR. The comparable new motor vehicle (the 120i) is a diesel model and retails at 390 thousand Rand, so that sound about right. Forget insurance for a second, as well as running costs, let us roll that away in favour of a cheaper model for the youngster, you can definitely get a good run around for 100 thousand Rand.
Let us presume that you stuck away the same amount of money, 6673 Rand a month, the same as the monthly for 60 months at a 12 percent return. Why 12 percent? It is actually less than the overall market locally since World War 2. It works out to 80 thousand Rand a year. If you save that amount of money for five years with a 12 percent return you will end up with over 725 thousand Rand (if you compound the interest once per annum). In fact the number is 727120.94 Rand. You can buy two of those motor vehicles cash and have more than enough money left over.
The problem for consumers and spenders is that distractions are too many. Always. The problems for savers and investors is that there are equally many distractions. We are always looking to outperform, some with exotic investment strategies, some of which pose a risk to the very financial systems themselves. Patience is learned, patience is conditioned, patience is a key arrow in your investment quiver. Without it (patience) you are subjected to a life of chasing your own investment tail. We all know how that turns out for the Jack Russell. The harder option is to wait, the delayed gratitude option.
Home again, home again, jiggety-jog. The market is up strongly this morning, huge moves northwards in the gold and platinum stocks. Ditto banks. All in all a big day. Sigh, volatility is not my favourite thing. In this case however you have to ride out the storm of uncertainty, volatility always presents opportunities.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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