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Lonmin to report massive impairment: Nerina Visser – ETF strategist,

SA and Nigeria seemingly in a race to become the ‘most unattractive for international investors’.

SIKI MGABADELI: Having a look at the markets now. The all-share was at 53 860 on the close today. It looks like financials and other sectors helped to offset some of the losses that we saw in resources and gold mining. The rand is at R13 79/dollar, R21.23/pound and R15.20/euro.

Nerina, it is November, so what’s the thing – there’s the “sell in May and go away” – what’s the October thing?

NERINA VISSER: Well, there was this idea that September and October should be the worst months in markets. Well, clearly that didn’t quite happen. So ja, maybe a word of warning for people who like to trade on these adages, like “sell in May and go away, remember to go back in November” – except that’s probably too late this time round.

I think what’s so important is when you think in terms of trying to time the market – which we strongly recommend against – but if you are going to try to time the market, it’s not just about when do I sell and go away, it’s also about when do you get back in. And if you didn’t do it, I’m afraid it’s too late, because we’ve actually risen above the highs that we saw in April this year, just a short six months ago.

SIKI MGABADELI: So how are we looking then?

NERINA VISSER: Surprisingly today most of the day traded in negative territory and then late afternoon it had quite a strong surge, pushing us into positive territory. But you are quite right. It was mostly thanks to the financial shares and most industrials other than MTN – we’ll get to MTN shortly. But the resources remain under pressure.

So if it wasn’t for the strong push I think though the financial shares, it would have been hard pressed to actually see the positive close. I guess what we found during the course of afternoon trading was the manufacturing data coming out of the US, which I think was certainly worse than expected. And I think those that are in the camp that says we will not get an interest-rate increase in the US in December said right, we’ll go back and play – let’s go out and buy anything that is potentially interest-rate sensitive. Hence the good performance by our financials.

SIKI MGABADELI: Is that what we are going to be doing up until that Fed meeting – looking for any excuse for why the Fed will or will not, because we were talking just last week about how they’ve possibly run out of reasons for not hiking.

NERINA VISSER: I’m so glad you are saying look for reasons, because I think at this stage one can just about justify any market view that want to hold with some sort of data. There is just no clear sense of direction. I think we’ve spoken before bout this non-directional volatility that we have in markets, the huge variability, even on an intraday basis, lots of volatility but not necessarily going anywhere in a hurry. And I guess if you look at the market performance of the last six weeks you might say no, no, no, we went somewhere very fast, we are up 8 or 10% in the last six weeks. But if you look at it over the year, actually we have not gone very far. And I think that for me is more the theme of what we are dealing with here, rather than – I can bet you, as soon as the US increases interest rates, whenever that might be, the next view will be, okay, and what about the next, and what about the next. We need to remove our obsession with the Fed and actually focus on things where we actually do have better control of our investment decisions.

SIKI MGABADELI: So let’s talk about some stocks. We are going to be talking to Duncan McLeod who is at TechCentral in a moment about MTN itself, but yo, it’s been tough.

NERINA VISSER: Yo, eish, all of them. I think I’d like to take this from two angles. Clearly from MTN’s side, they are on the receiving end of an absolutely ridiculous amount of money in terms of the fine, which is clearly out of kilter with the size of the sin, if I may call it that. Even though the Nigerian government or the regulators there might technically be correct in what they are doing, it seems completely out of kilter. But, having said that, it does not mitigate the fact that MTN has been extremely poor in communicating with the market. And that was really the main reason for the suspension of the shares today, when the JSE just said, you know what, there is price-sensitive infrastructure out in the market that you are not sharing sufficiently. You need to actually get your communication sorted out before share trading can resume. It did resume just before two o’clock this afternoon, and it settled at around 5% down on the day. So the total loss in market cap of around R80bn since the story first broke still is more than the size of the fine that we are currently looking at. But I think it talks to the importance of communicating with all your stakeholders, which of course shareholders.

But let’s also just look at this from the Nigerian side, and that is there is unfortunately a cynical view on this that’s aid that the Nigerian government is fairly desperate to find any source of revenue to prop up what they are losing out in terms of their oil revenues because, when you look at the size of that fine, this would be a significant larger amount than the total oil revenues that the Nigerian government received during the second quarter this year. So I think from an attractiveness from an investment destination point of view, Nigeria has not done itself any favours. Last week there was that fairly ridiculous fine to Standard Bank, also for some accounting discrepancy – no real issue, but they get fine a ridiculous amount of R70m or so. So what we are looking at here, as much as Nigeria is now the largest economy in Africa, unfortunately between South Africa and Nigeria it seems as though it’s race to the bottom to see who can make it the most unattractive for international investors to come and bring their money into the country.

SIKI MGABADELI: Lonmin says they are going to be reporting an impairment – a massive impairment, close to $2bn.

NERINA VISSER: Some of the numbers that are being thrown around – it’s almost unfathomable, especially when you see them in the context of the size of what remains in the business. So I think the entire resources spectrum does remain under significant pressure, with clearly platinum also right up there. Unfortunately we have just not seen sufficient cut-back in supply in the global commodity space to really sort of signal any form of turnaround in the slump in the commodity markets that we’ve experienced for the last 18 months.



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