Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. We closed right near the lows of the day, the Jozi all share index ended at 33622, down 236 points on the day, or 0.7 percent down after all was said and done. Lagging the broader market and in fact doing all of the moving lower were the resource stocks. Down, down, down. Construction stocks still continue to edge ahead from their completely trounced levels of late last year. It has been one way traffic since then but starting to level off a little I suspect.
Hold onto your knickers there. For better or for worse, the general public tends to take these things very seriously, what the ratings agencies say. I suspect that the ratings agencies have gone from a time where nothing could go wrong to seeing all sorts of things that could go wrong, go wrong. And as such have become reactionary, because they seemed to have missed the great financial crisis of 2008. Or even worse, seen as one of the villains because their ratings were blindly followed by bond investors, and triple A ratings were given to mortgage backed securities and then packaged and sold to Swedish town pension funds and the like. And the quality of the mortgage book started to show. And the quality was should we say, not triple A. So, that is why I think that the ratings agencies have become more outspoken and cautious, because when the tide went out, to use a Buffett analogy, there were no swimming trunks within a country mile. And the ratings agencies amongst others were badly caught out.
So, when Standard & Poor's yesterday revised their outlook from stable to negative, and affirmed our BBB+ rating, seemingly everyone gets irritated. Personally I don't care from an investment point of view, if you are not willing to do your homework when investing in South African bonds, and listen to these guys, then that is your own indaba. However, where I do care, is where the perception of our country lies from the views of a foreign party. That matters. Treasury might say this or that and not agree with the actual reasons, but there are some reasons that one should or could agree with.
For instance, this could be interpreted in a number of ways: "The negative outlook reflects the potential for a downgrade if economic and social problems feed into the political debate in the run-up to the 2014 national and provincial elections and consequently further put pressure on the policy framework." Does this mean that talk could lead to greater government intervention? That is then the will of the masses, the voting base in South Africa, not so? Perhaps the core of the issue is the same problems that we grapple with, different messages from the ruling party. Mixed information. A not too friendly operating environment for both business, labour feels aggrieved, too much parastatal involvement in the economy. Those are real issues. These lines from the official release, which you can get too if you go and sign up for free at the Standard & Poor's website -> South Africa Outlook Revised To Negative On Persistent Economic And Social Problems; All Ratings Affirmed.
Is this not true? "However, fundamental structural economic and social problems continue, such as very high unemployment and a structural current account deficit that makes the economy dependent on external financing." Could that not happen? Yes, maybe, who knows. To understand the ruling parties politics is a full time job, check this article out from Justice Malala in the Financial Mail -> Loving and loathing. Amazing. See that?
My parting on this downgrade are that it does and it does not matter. Do not engage in hand wringing. Our credit rating company is in the same company as a country like Thailand. According to this Wiki page -> List of countries by credit rating, sort it by rating, you can see that we attract a better rating than Russia, Mexico and Brazil. Better than India. Worse than China. So, whilst it is a problem, I am reminded that National Treasury had this response in January when the other two ratings agencies led with the same line -> MEDIA RELEASE. And besides, why get upset about something you can't change, perceptions take a life time to change. In this case, a life time for the image of Africa.
Byron's beats tackles an issue. A big issue. One that we have been talking about for a while now. MTN.
- Yesterday Turkcell filed a lawsuit against MTN in the Washington Federal court attaching documents that throw a lot of very extreme allegations towards the telecommunications company whose public relations have been squeaky clean up until now. Now, I am not an investigative journalist so I don't have the time to follow up on all the leads of what seems to be a massive scandal with much finger pointing and dirty deeds involved. Mandy Weiner could write a book on it.
Fortunately there are investigative journalists who have already done some research from which I can start forming an opinion. This Bloomberg article summarises what Turkcell had to say in their files, I suggest you give it a read and you will see what I am talking about.
This Mail and Guardian article also does a good summary but doesn't say anything new. It does however state that "MTN was due to put out a SENS statement before markets opened on Thursday morning but a spokesperson said that they believed in the Hoffman inquiry to investigate the claims." Of course MTN released a SENS which we covered here when the allegations first came out in February.
As an analyst these kinds of things are tough to call. The truth is, we have no idea about the facts and who is right and who is wrong, that is why it is going to the courts. We can only speculate. What I can tell you is that it is certainly negative for MTN from a PR perspective. The share price is down 2% on the news so that is what the market thinks.
The other issue of concern is the U.S sanctions being imposed on Iran concerning their nuclear programme. As mentioned in the Bloomberg article, MTN have many ties with US companies which may halt services if MTN carry on operating there. This is certainly a worry because communication is such an important part of a countries operation these days.
Not only do MTN get 9% of their revenues from Iran but it forms a big part of their growth plans. I'd say that most of the bad news is factored into the MTN share price which looks extremely attractive on a valuations and a yield perspective. However, for the time being we would trade with caution on this one. We will keep a very close eye on the proceedings.
New York, New York. 40o 43' 0" N, 74o 0' 0" W. Markets advanced from their lows, but that was not good enough for another losing session on Wall Street. I think two days ago this had been the best first quarter since 1998, whatever that means. Good, bad, not sure. The Dow closed just over half a percent lower to 13126, the nerds of NASDAQ lost the same as the broader market, 0.49 percent, for all the major indices to be inline with each other for a change. Energy and basic materials were the big losers again. Goldman says that the oil price is going up. But others are asking, what did the Bernank actually say? Read the speech, interpret it in any way you want. Humans are brilliant at that, you can present exactly the same dataset to both an optimist and a pessimist and they both come to completely different conclusions. That is the market forces at work every day.
Remember from yesterday where we were talking about Foxconn and Sharp and Apple TV? Well, it did not take long. The Foxconn-Sharp Alliance is all about Apple's Coming HDTV. Read it. It might be the coolest thing that you read all day. TV's with a touch screen usable in medical science. Amazing.
Currencies and commodities corner. Dr. Copper is last at 378 US cents per pound, that is lower on the day, the same with the gold price, that is down at 1656 Dollars per fine ounce. Not the platinum price, that is slightly better at 1637 Dollars per fine ounce. The oil price has also eased back to 105.17 Dollars per barrel. The Rand is weaker, risk off, 7.69 to the US Dollar, 12.24 to the Pound Sterling and lastly 10.23 to the Euro. Risk off like I said today, selling because of concerns of global growth. Err.... but the same "investors" were cheering Bernanke's outlook on the US economy and ultra low interest rates. I can't and won't try and figure it out.
Parting shot. This is really, really good: 9 ECONOMIC MYTHS. It is a piece by one of my favourite bloggers who takes on the 9 economic myths of self proclaimed realist (I think he is bearish), Dave Rosenberg. Dave Rosenberg is really smart. So is Cullen Roche, who writes for his website/blog Pragmatic Capitalist. Roche used to manage money, and seems to talk about his own activities now. And Rosenberg manages money too. I know it sounds silly, but it matters more what people do and say who actually make market "moving" decisions rather than bearish market commentary or Uber (missing the Umlaut) bullish market commentary. If you have thirty years to invest, look at this: Dow Jones Industrial Average (1900 - Present Monthly). None of us have 110 years to invest, but many of us have at least thirty years. Even the worst periods there, if you kept buying through the period you would have been OK.
That makes the levels of anxiety right now seem silly. If anything, if there is anxiety and not everyone is in agreement, that is good if you are in accumulation mode. Thirty years I hear you say? I have clients in their sixties who keep telling me that they might, or might not be around shortly. I always say to them nonsense, medical science has advanced significantly. Which means that if you are in your mid sixties you might well live for another 35 years. Yes. My great grandmother lived to 101. Yes, so if you are anxious, you have time. More than you think normally. Equally, don't delay.
Sasha Naryshkine and Byron Lotter
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