Friday, 20 June 2014


At the time of the winter solstice last year the All Share index dipped quite sharply. Since then our planet has gone right around the sun and the index (plus dividends) is almost 40% higher. This is an astonishing performance pretty much unpredicted by anyone – particularly the bears who have been crouched in a corner rocking gently and keening softly. Or are they  English and Spanish football fans? The cause of their (the bears) concern is that this rate of growth is more than double the earnings growth of the non-resource sector companies. A further, but rather more technical issue is that interest rates look to be increasing and theoretically this too ought to dampen value expectations for equities. Unavoidably it will one day come tumbling down but when and how far is utterly unknown. A brand new and really disturbing development that is derailing many historical valuation comparisons is the news that central banks are now participating in the equity markets. When you have players who can create money at will coming to buy shares, bulls can don their party frocks and order more bubbly stuff.
Just what the nation did to deserve another Address about its State is uncertain but it did kick off what is turning out to be one of this country’s most amusing but rather worrying parliamentary sessions. Amusing, because the “establishment” has no idea what to do with the hypocritical but very blunt talking Honourable Julius Malema, leader of the EFF. Worrying because in due course he will probably be bribed to sit quietly and add his votes to the ruling party’s policies. Part of those bribes might be to reopen the nationalisation debate that seems to be a cornerstone of his strategy for the revolution he plans to lead.
The JSE lists 12 platinum mining companies on its boards. They have a current combined market capitalisation of R 276bn. But only 5 of them declared profits in their latest reports. These totalled slightly more than R6bn.  Subtract from this the aggregate R2bn in losses reported by the other 7 and the industry’s net earnings are in the region of R4bn. Dividing this figure into the market cap number suggests that the whole industry (as seen through the eyes of the JSE) is trading at a whopping 67 times earnings. Now on the foolish assumption that any nationalisation program would pay market value for the assets it wanted to seize, and ignoring the fact that through its pension fund and other vehicles the state probably already owns a portion of these shares, it seems to me that as a simple trade, private shareholders should be happy to let Mr Malema have the lot.
The situation on the gold mining board is even clearer. There the aggregate net earnings are a negative R1bn and the 10 listed companies are valued at a mere R151bn in total. Surely if a buyer turns up at these prices, this sector is another clear sell.
Tragically the reality is that labour and its leaders seem to be prepared to negotiate whole industries into collapse. While perhaps they were not wholly responsible for the decline in the gold mines, not even the government seems hopeful that they can be persuaded to reconsider their program at the platinum mines.
The lurid headlines about “calls for chicken duties” were not about looking for people to guard the coop at Nkandla. Once again it is a story about governments meddling in markets and setting prices. Disappointing really.
Disappointing also was the Baby ‘bokke being beaten by one point by England in the Junior Rugby World Cup this morning. It will be interesting to see if the Lowvelders pack the stadium in Nelspruit tomorrow for the next test against Wales. Last week’s game here at Kings Park was hugely entertaining and satisfactory. The real Tests are still to come of course.
James Greener
(Almost) The Winter Solstice 2014