'Whoa! Isn't that a turn for the something, is it better or worse for shareholders? And what about the relationship between them and the regulators? The release details that: "Notwithstanding this action the Company will continue to engage with the Nigerian Authorities to try and ensure an amicable resolution in the best interests of the Company, its stakeholders and the Nigerian Authorities."'
To market to market to buy a fat pig. Yesterday was a massive day for the local markets, a missed couple of days of a big global rally, coupled with a weaker Rand again, saw stocks add nearly two and two-thirds of a percent. There were some really big and under "normal" circumstances I would say unusual moves for some big stocks. Discovery rallied over 7 percent, Sanlam a little shy of that, MTN added over 6 percent, Standard Bank five and two-thirds of a percent. Naspers added a whopping 5.5 percent. In fact, of the ALSI 40, there was a single stock hanging out in the red, Anglo American, down 2.7 percent on the day.
The afterglow of the Fed rate hike (finally) was a positive for all and sundry, other than the company that was once synonymous with South African business, Anglo American. The stock is down a whopping 71 percent over the last 12 months, about the same year to date. And 81 percent over 5 years, most of the heavy selling has taken place since the commodities slide, from about the middle of last year. Mr. Market is clearly unimpressed with the turnaround strategy, the cost savings and pending job losses have riled the "radical" left of South African politics, the EFF have called for immediate nationalisation of the assets. History has always shown that private capital works harder.
The beneficiation argument is understandable, my view is that if someone needs the products, then you should be so lucky to have them in the first place. In other words, if China’s massive building projects had not come along, then all (oil?) the major producers of the world would not have benefitted in the way that they did, their countries having collected higher taxation would have known this was a once off event, right? Dealing with lower prices for longer is another issue, I read a report yesterday that pinned iron ore prices over the medium term (next five years) in the mid 30 dollars per ton. Nobody thinks that this would ever happen, I certainly didn't think a price plunge of this magnitude would happen so quickly.
You would have struggled to comprehend a couple of decades back, that Anglo American by the end of 2015 would be a smaller business than Brait, the same size as Discovery and half the size of Standard Bank. If someone had told you in 1995 that Naspers would be ten times plus the size of Anglo, you would have laughed in their face. This is however what has happened, and the only reason why I air the demise of Anglo's share price is to show you that other companies rise in their place. Other companies rise to prominence. The newer business, relative to the history of Anglo, companies like Aspen, Mediclinic, Steinhoff, Vodacom, MTN, Bidvest, were all tiny compared to this company 20 years ago. Even five years ago, I guess. That I guess is both the positive and negative for passive investing in the index on a monthly basis.
Paying attention is important. Equally however, in this great Ben Carlson piece from yesterday titled Remember When, it is so easy to get spooked into rash decisions in equity markets. You must read the whole thing, I will share a few: Remember when we were going to see a repeat of the 1929 crash because of a chart? Remember when Greece was going to cause a global economic collapse in 2010? And 2011, 2012, 2013, 2014 and 2015? Remember when the Dow was going to fall to 1,000 (or rise to 30,000)? Remember when the BRIC countries were the hottest investment trend in the industry because of "growth." Quite right, right now, nobody wants to invest in emerging markets, their flavour has turned to that of a durian. Hakarl anyone?
Talking Hakarl (fermented dried Greenland shark, a dish from Iceland), the US markets swooned at the end of the session, energy and basic material stocks again losing on the day. Energy stocks divergence with the broader index happens at exactly the same time as that of Anglo American, in the second half of 2014. Since then, all energy stocks in the US are down nearly 40 percent, relative to a market that is only up 6 percent. The Fed relief steam evaporated, that is at least what the wires say. The tape says that the S&P 500 was down over a percent and a half, giving up all the gains from the session prior.
Once again, year to date, the broader market S&P 500 is in the red. Like I said last week, there is one part of me that in a way hopes for the market to end the year marginally in the red. So that people can scratch that idea of the market going up in a straight line. The S&P 500 has been at and around these levels since November last year, there was of course a terrible swoon in late August, that is just a memory now. Inline with the "remember" piece, remember when that was going to be the start of another bear market? Yip. I certainly remember.
Company corner
OK, very important news on the MTN front near the end of the market close yesterday. A SENS that I am going to copy and paste the important bits: "shareholders are advised that all factors having a bearing on the matter have been thoroughly and carefully considered including a review of the circumstances leading to the fine and the subsequent letters received from the Nigerian Communications Commission (NCC)." OK, as you would expect from the company, take legal advice and then proceed, what to do from here though?
They continue: "MTN Nigeria acting on legal advice has resolved that the manner of the imposition of the fine and the quantum thereof is not in accordance with the NCC’s powers under the Nigerian Communications Act and therefore there are valid grounds upon which to challenge the fine." How? Like this: "Accordingly MTN has followed due process and has instructed its lawyers to proceed with an action in the Federal High Court in Lagos seeking the appropriate reliefs."
Whoa! Isn't that a turn for the something, is it better or worse for shareholders? And what about the relationship between them and the regulators? The release details that: "Notwithstanding this action the Company will continue to engage with the Nigerian Authorities to try and ensure an amicable resolution in the best interests of the Company, its stakeholders and the Nigerian Authorities."
How long this is likely to take, your guess is as good as mine. The Nigerian courts might be quick, experience always tells you that these matters take a long time. The market cheered the news, admittedly through the whole day, the stock was at the top of the leaderboards. It may have had to do with a SENS at the beginning of the session before the market opened, relating to the award of a LTE/4G licence in Ghana. MTN was declared the winner in an auction process and will now provide Ghanians with higher speed mobile internet. For having paid 67.5 million Dollars. As the release points out, data is growing like gangbusters in that country:
"Data revenue increased 78,6% year-on-year for the nine months period ended 30 September 2015 and contributed 28,7% to total revenue. For the same period the operation had approximately 3 million smartphones on its network."
So it is neither huge, nor is it small. What I found interesting is that in terms of the "eligibility criteria" for the licence, MTN Ghana have to have a minimum of 35 percent local ownership, i.e. Ghanaian shareholders, inside of the next 13 months. The release says that the company is exploring various options. I suspect that perhaps a local listing, or finding a single broad based shareholder would be the order of the day. We will see. Year to date, if you needed a reminder, MTN is down 37 percent. Yech. We continue to watch the Nigerian "situation" unfold, and continue to advise holding your shares.
Linkfest, lap it up
I was pretty pleased to see this piece, titled Highly educated women no longer have fewer kids. Higher wages for educated woman mean that as a group, they are able to pool more family resources in order to have more services for their bigger family. Less educated women (and men I guess) seem to be having smaller families in the developed world, in order to give their kids better opportunities.
You like Guns and Roses, I don't, I like Mumford and Sons, you may think they are boring. My kids listened to a rapper yesterday and thought he was awful. This Quartz article tries to answer the mystery: This one personality trait can predict your taste in music. This is not just all for fun, it may be that music therapy can go a step closer to understanding autism. That is interesting.
He is called the special one. The chap who held football fans and sports journalists in his collective hands for so long. It is of course all too easy if "things" are going well, if not, then it is a different story, the world turns on you. Sport is completely unforgiving, no matter how awesome you were before, as this FT article shows: If victory is your only selling pitch, nothing is left when you become a loser.
Two articles about the Fed, the first one shows how obsessive people are at pulling apart each sentence in the Fed statement: Redacted Version of the December 2015 FOMC Statement, the second one by Felix Salmon titled We have officially reached the end of the financial crisis, concludes on a positive note: "But at least now we’ve exited the bizarre world of zero interest rates, and we’re reverting, slowly, to some approximation of normality. That, surely, is something to celebrate."
Home again, home again, jiggety-jog. Japanese markets are lower, the Chinese ones, Shanghai and Hong Kong are not, Australia is hanging on to tiny gains. I am thinking that after the hurrah yesterday, we will find it difficult to not fall lower on the overnight Wall Street slide. Still, "things" are markedly changed over the last week, better today than last Friday, which was a complete mess! One more message left this year, and then we are off until early January. Enjoy your break, wherever you are.
Sent to you by Sasha and Michael on behalf of team Vestact.
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