Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. The selling started in earnest in the last hour and a half of trade when the Americans came back to spot market trading time. The sell off doubled from three thirty all the way through to the close, leaving the Jozi all share index down 332 points on the day, or a loss of nearly a full percent to 33392. Oops, where did 34 thousand go? Resources sold off nearly a percent and a half, industrials sold off as much as the rest of the market, whilst the banks were down just shy of three quarters of a percent. MTN and by extension telecommunications stocks were down pretty sharply, in recent days there have been more investigations into wrong doings associated with their licence award in Iran. Until the Turkcell claim is dismissed, or the government agency tasked with the investigation finds something (or nothing) the news will weigh on the stock. Recently the stock has been on a tear, after the move to get the US courts to dismiss the Turkcell claims. Yesterday MTN sank 2.22 percent. Well, if it makes you feel better the stock clocked a 52 week high on Tuesday, so we are closer to that than the 52 week low in early April.
Wow. Telkom are getting crushed here this morning as the announcement comes that you no longer need to exercise caution when trading their shares. Errr.... tell that to the people that have sold them off 4 percent plus, that looks like either they are throwing caution to the wind OR they are exercising extreme caution and just getting out, no matter what the cost. And the cost is apparent to Telkom share holders, the stock has MORE than halved in the last year. The stock price this time last year was 36 Rands and some change. This morning the low that has been reached is 1716 cents. The overall market over the last year is up around five percent, Vodacom is up over ten percent (and that is ignoring the whopping dividend). The MTN share price is flat over the last year, again that ignores the much better dividend flow. Naspers, a choice of sorts in the listed space when compared to Telkom is up 19 percent. Telkom has lost more than 50 percent.
Why don't you have exercise caution anymore? Because it seems that the South Koreans from KT Corp. are going to leave town, at least with the prospect of being a shareholder in Telkom. Perhaps the leftist policies and the red book carrying (I am being facetious) members of government should rather invite people from North Korea to take a stake in Telkom. Because as you well know, North Korea knows their state owned enterprises better than the developmental model neighbours to the South. Sarcasm alert in the extreme here folks, apologies. But what next for the company? Really? This is not good news for the average internet user in South Africa. Whilst government might have good intentions of letting the state control of a strategic asset reach all households, but this is at the detriment of the current users. Who have poor speeds and worse service to blame on the folks that own the backbone. We reckon that Telkom are going to go along hopping on one leg shouting "come back you coward" ala the black knight in Monty Python when taking on the king in a sword fight. You should watch it. So, we don't own any, we don't feel compelled to buy any presently, although it is completely nuts that the installed infrastructure is a multiple of five (or more) times the current market cap.
When you read this, you will weep: Highlights of the Telecommunications History of South Africa. Check out the Finances sector, I am presuming that this is from 1994: "With total assets of R16.4 billion at book value, turnover of R8.3 billion and as staff complement of more than 60,000, Telkom is one of the largest companies in SA."
Fast forward to the last set of results (Telkom SA Limited Group Annual Results), there are only now 20,9 thousand people who work for Telkom. Property, plant and equipment are valued by the company at 36.155 billion Rands. The current market cap is four percent less than 9.5 billion Rand as at the last close. Mr. Market is either delusional, or tells you that Telkom cannot make enough money in the future off that asset base, unless something seriously is done. Break it up, sell the whole lot to Naspers or Vodacom, heck, even the marginal Cell C could probably sweat those assets harder. But, that is not going to happen. And if I need to remind you, Telkom just bumped their ADSL pricing up. That is almost an admission of failure. But what do I know.
Today it is going to be all about the release from Beijing central. 39o 54' 50" N, 116o 23' 30" E. I am guessing that there is a slight sigh of relief when the Chinese released their numbers for the second quarter of the year 2012. GDP estimates came in line with expectations, with the second quarter registering growth of 7.6 percent. Retail sales grew by 13.7 percent year on year, and that was a slight beat in expectations. Industrial production came in slightly lower than the estimates suggested, but still registered a very healthy 9.5 percent growth year on year. There are of course those suggesting that this is the trough and the second half will be stronger. I am already seeing the question marks about the official release on my twitter stream. I turned on the twitter "thingie" just before my run with the hound this morning, and saw someone quite rightly point out that electricity demand increased only 3.7 percent year on year, how could it be possible that the Chinese had become so energy efficient? Maybe. I do not actually know the answer as to whether the Chinese massage their numbers or not, I suspect that any statistical body tasked with an economy the size of that of China is always going to have problems.
If you want to take a closer look at the numbers, the Chinese statistical body, the National Bureau of Statistics of China, actually does have an English website, where you can read all of the numbers if you would like to: Overall Economic Development was Stable in the First Half of 2012. The real growth driver in these numbers however was in fixed asset growth, 20.4 percent better year on year. The Western and Central regions are growing comfortably ahead of that number. The encouraging news is that construction build has turned positive again, if only for the short term.
There are a whole lot of useful graphs in the Industrial Production Operation in June 2012 page, including some interesting ones which tell you the landscape changed in April, with all the anxiety over the Greek elections and lack of a government, the not as yet having happened exit from the Euro zone. Let us look at that electricity consumption graph over the last 12 months.
What I am trying to point out is that the nervous managers and consumers globally were stuck, were paranoid, and as such did nothing for a number of weeks spent like bunnies staring into the lights. On that score my mate and I running earlier in the week saw a distraught woman wipe out a bunny (with her motor vehicle) early in the morning, just in front of us. It was not *nice* for her, let alone for the bunny who never recovered. Poor bunny.
As I said at the start of this piece on Chinese growth, there would be a collective sigh of relief from the China bulls, even though I am seeing the headlines that already say "things" in China are cooling, with the slowest quarterly growth since the first quarter of 2009. Yes, this is indeed true, but since then the base was gotten wildly bigger. And listen in closely to this factoid, according to the Google finance database, which gets their data from the World bank, the Chinese savings rate, as a percentage of GDP rose to 51.7 percent in 2010 from 37.53 percent in the year 2000. Does that sounds like a lot? Well, let us try and quantify that. First, a wonderful chart from the folks over at Tradingeconomics.com:
Slowdown? What slowdown? It does not look too bad to me. You only get the sense of the base when you view it over the years like this, and how it becomes less possible to grow at 8 percent or 9 percent or even 6 percent per annum on a multi decade basis. Because you cannot go on building "stuff". Stuff of course is another word like things. Not a very useful noun at all. But what is apparent that Chinese people have extended their savings over the last decade by a whack. Back in 2000, the Chinese economy topped 1 trillion Dollars for the first time. Roughly 40 percent of that is 400 billion Dollars worth of savings. Fast forward to 2010 and you see the economy of China stand at 5.878 trillion Dollars. And 51.7 percent of that is over three trillion Dollars worth of savings. A massive seven and a half fold increase. Surely, if there ever was a statistic to show you how rich the Chinese have become, this is the stat. Now, the tricky part is to get the Chinese to spend this. To become bigger consumers of goods. It is happening already, you just have to look at the numbers from the global retailers.
Currencies and commodities corner. Dr. Copper is last at 347 US cents per pound, higher on the day, as is most of the commodities complex. The gold price is also higher, last at 1582 Dollars per fine ounce. The platinum spot price is last at 1429 Dollars per fine ounce. The oil price is also higher, 86.93 Dollars per barrel for NYMEX WTI, and 102.09 Dollars per barrel for Brent Crude oil. The Rand is still weaker, 8.32 to the US Dollar, 12.90 to the Pound Sterling and 10.19 to the Euro. We are better here today as a result of the relief rally around the Chinese GDP number.
Sasha Naryshkine and Byron Lotter
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