Market movements over the past week have been unlike anything we’ve ever seen before.
This was not driven by fear about the future of the global financial system as in 2008. This was – is – something far more primal, as it dawns on investors that over the short term at least, life as we know it is on pause. Economic activity is grinding to a near complete halt.
The forecast on Friday by Goldman Sachs, which sees US GDP in Q2 to be down 24% quarter-on-quarter, will weigh on markets this week.
This has simply never happened before (in Q4 2008, US GDP shrank by ‘only’ 8.4%).
Also, these were not cataclysmic drops a-la-Steinhoff in 2017. This was fairly indiscriminate selling across the board as investors fled to cash.
The result is that some blue-chip stocks are trading at levels investors have not seen for a decade or more.
Excluding the likes of Sasol and property counters, MTN Group last traded at this level (R35.66) in 2004 – over 15 years ago. Given the size and importance of its Nigerian operation, it is more exposed than most to the brutal double whammy of Covid-19 and a massively lower oil price. MTN is down 57% so far this year. In less than three months, R90 billion in market value has evaporated as it plummeted from R157 billion to R67 billion.
But the moves after the shock and uncertainty resulting from the (original) $5.2 billion fine in Nigeria in 2015 were far more severe. Then, MTN lost more than R200 billion in value as it cratered from R235 a share to just above R100.
Top 40 shares by market cap (not the JSE Top 40 Index)
Fri 19 March
|Market cap||Year-to-date move||Last at this level (excl 2020)|
|British American Tobacco||R533.50||R1.31trn||-12%||2019|
|Anglo American Platinum||R514.62||R139bn||-61%||2018|
|Kumba Iron Ore||R291.34||R94bn||-31%||2019|
* Excluding impact of Prosus, BidCorp unbundlings.
This shares-by-market-cap table does not adjust for combination of dual-listed stocks.
The country’s banks and insurers are down anything from 30 to 45%. Two of the better-rated ‘big four’, FirstRand (R36.96) and Standard Bank (R100.50), have declined 42% and 41% respectively to levels last seen in December 2015. The drops then were precipitated by the appointment of ‘weekend special’ Des van Rooyen as minister of finance before sanity (somewhat) prevailed. Insurer Sanlam’s stock is trading at a level last seen during that December as well.
Others have fared worse …
Discovery Holdings is at R67.75, a drop of 45%, to levels last seen in 2013. Aside from the obvious pressures related to Covid-19, some have pointed to forced selling emanating from a hedging structure initiated by CEO Adrian Gore in 2016.
Weakness in Discovery probably associated with Adrian Gore’s put options (right to sell) 4.393m shares at R83.16 and 4.393m shares at R93.96, exercisable in 26 equal tranches, from 19/3/20 to 15/6/20. Means bankers who wrote deal need to offload 676k shares a week for next 13 wks
— David Shapiro (@davidshapiro61) March 20, 2020
Nedbank Group is down 59% so far this year, a decline exacerbated by it delivering the weakest 2019 financial performance of the major banks. The unexpected earnings decline rattled investors. Current levels of R88.58 were last seen in 2009, as the dust settled following the global financial crisis.
Former parent Old Mutual as well as Absa Group are also both back to levels last seen in 2009, at R10.74 and R84.35 respectively. Both are down around 44-45% this year.
After a rollercoaster week, shares in Capitec are ‘only’ down 33% in 2020. At R970.23, these levels were last seen following the attack on the bank by Viceroy Research.
Declines among resource stocks have been even larger – around 60% in the case of major platinum counters – but these have mainly been in (at least) a four-year bull market.
A handful of the 40 largest companies on the JSE are trading at all-time lows. Anheuser-Busch InBev only listed in 2016 (following the takeover of rival SAB Miller) but at R750 is trading at less than half its post-listing peak (R1 735.86 in 2017).
Bid Corporation, unbundled from Bidvest in 2016, is trading 30% below the price it traded at post the demerger. Nepi Rockcastle, one of only two property counters still left in the 40 largest on the market (there are plenty still in the index itself, given the inherent lag), is trading at R71, around a third of its peak post the Nepi/Rockcastle merger of R216. Growthpoint is at R13, a level it last traded at in 2009.
MultiChoice (R94.85) is now below last year’s demerger level of R98 (the stock saw a subsequent rerating of around 30%).
Some companies, however, are holding up well.
These include Prosus, Naspers, Vodacom, Clicks, Reinet and Assore, whose declines have been under 10% in the year to date. Vodacom (+3%) and Assore (+7%) are actually up so far in 2020, but the latter is subject to a delisting at a significant premium which would distort matters.
Littered among the wreckage – no longer even near the 40 largest companies – are the former blue-chip shares. There, the declines have been larger and more vicious. A story for another day.