In this fascinating interview, Nerina Visser, Head of Beta Solutions at Nedbank Capital shares her expert insights on the true difference between trading and speculating, with particular focus on what has been happening with the shares of Pinnacle in recent days and Abil before its trade was suspended. The uncertainty and erratic movement of the share prices creates the perfect environment for panicked decision-making. Nerina offers words of wisdom and calm when it comes to trading – electing to only ever focus on the facts. A tough thing to do when the market is jumping about on sentiment. She also discusses the reality of today’s GDP figures and why it isn’t all good news for SA Inc. For excellent insights into the complicated workings of the markets, the country and how not to get burnt, this interview is for you. – LF
NERINA VISSER: Yes, which I think is one of the reasons why the JSE might be looking at some of the trading activity around Pinnacle. Not just of these last couple of days but also earlier in the year, when these bribery allegations were first sort, of neutered. You might recall that they were issuing huge amounts of shares. The official response to that was that it was, forced sales, due to options and positions that they had and that some of these had been, applied for well in advance of this. I think it definitely is worth looking at. I couldn’t help but think of the share price activity that we saw around Abil, and what we are seeing with Pinnacle now, and clearly nothing other related, between the two companies or the two events. But to look at the volatility in that share price and to realise to what extent people are actually getting involved in trading, without really knowing what’s going on there and how incredibly dangerous it is.
It really is speculation. It is not trading and certainly not investing, if you are really just following these erratic price movements, rather than basing it on any firm fundamentals.
ALEC HOGG: There is always somebody, who knows something. We had a very interesting chat yesterday, to Gary Booysen at Vunani, who said ‘they’ve been frozen out effectively by ADvTECH because they are too critical’.
NERINA VISSER: Yes.
ALEC HOGG: We got the ADvTECH CEO, who came in immediately afterwards and he said, “Well, they’re not professional in the way that they focus on our company.” It is almost like if you are nice to a company then the CEOs will talk to you but why do you have to be nice to them to be, spoken to? Presumably, you’re getting information that not everybody else gets, so why do we say we have all these insider trading laws and then you get the strange things that are happening? From where you are sitting, you must get rumours coming in and out, somewhere though there’s a hint of truth.
NERINA VISSER: Yes, I refuse to even, consider the rumours. I don’t them the time of day. Not only do I believe it is unethical but very importantly, I think that what you need to do is actually focus on the official information coming out of the company. The company should be communicating with all its stakeholders, but in particular all its shareholders, on an equal and equitable basis and, unless you are actually dealing with information that originated on that basis. I think you could find yourself in trouble, either as an investor, as a trader, or as a fund manager. I prefer rather to not even be involved in that or be aware of that. Again, no reference to a particular company, but rather to the way that, that new information flow comes through.
I think what’s very important then is that the main regulating body, in this instance being the JSE, need to also ensure that the communications, from the companies, through SENS is actually or is made available via SENS, being the single source that actually treats all shareholders, large and small, close or far away equally.
GUGULETHU MFUPHI: Do you also think that maybe investors are on edge, given the recent news flow? It’s the Pinnacles, it’s the Abils’, and it’s the concerns about high evaluating?
NERINA VISSER: Very much so, and I think this cuts both ways. On the one hand some investors are on edge, concerned about are there more skeletons coming out of the closet in some of these companies? What’s happening in terms of it? But at the same time also, because returns have really, sort of moderated quite a lot, you see some, almost desperate activity. Desperate trading activity, trying to squeeze that last little bit out of a lemon or out of an orange, and I think that it is very important at times of like this to actually, take that step back and make sure that you are doing the trade for the right reason. One that will stand up in Court afterwards if I can put it that way, you have to be able to defend why did you do a certain trade? Whether it was buying or selling. You have to know that your basis was right and rumours, speculation, with insider information, all of them are definitely not on.
ALEC HOGG: What’s your take on the action in Abil, after the trading statement came out on the Wednesday, because the shares were only, suspended over the weekend but there was lots of trade on the Thursday and Friday?
NERINA VISSER: Yes, that was, done with information that was readily available to everybody, so that is the concept of a free market where it is caveat emptor – buyer beware. Everybody had the same information or one should assume that everybody had the same information available and if you were prepared to trade, whether it’s buying or selling, on the basis of the information available, you should be allowed to do so. I’m definitely, in agreement that the JSE did not suspend the trading in Abil. Once the bailout was, announced or once the restructure was, announced the capital structure of the company changed, and then it was appropriate for the JSE to suspend the trading.
ALEC HOGG: But what about the point that the seller, and it was just one-way traffic, was the biggest shareholder? One would presume that if anybody knows what’s going on in a company, it would be the biggest shareholder and they were dumping, without disclosing the fact that they were selling.
NERINA VISSER: Yes, well they don’t have to disclose that they are selling.
ALEC HOGG: Don’t you have to disclose when you change every five-percent?
NERINA VISSER: Only once, you’ve done it. Remember, all of this transpired in the course of 48-hours. They hadn’t even triggered the time at which they…by the time they disclosed it, they were perfectly legal, within how and what they did it. I think that is why I am saying caveat emptor because anybody buying those shares should know of the position of the largest shareholder. That they have those shares and should ask themselves, “Whose busy selling these to me?” Bear in mind also that a lot of the buying that was taking place was actually the closing out of short positions. These were actually, very natural counterparties to the trade and completely above board, in a market that is as well, regulated as the JSE.
ALEC HOGG: Interesting.
GUGULETHU MFUPHI: Let’s take a snapshot now at the GDP figures that just came out, disappointing, even though we have managed to sidestep a recession. Should investors be concerned about the SA end companies, especially the retailers, after they published their announcements last week, and their share prices, which also took a knock?
NERINA VISSER: Yes, let’s maybe start with the first part of it. The GDP numbers itself, yes disappointing, certainly not surprising. I think what was highlighted for me was the idea that we declined by point-six percent, in the first quarter. We rose by point-six percent in the second quarter, and I think for the uninitiated eye, you sort, of think ‘okay, we’re back where we were’. Of course, we’re not because when it comes to percentage changes, you have to increase by a bigger margin, to get back to where you started, than by what you declined. Let’s take 50 percent, as an example. If a share price falls by 50 percent, it has to go up by 100 percent, to get back to the level where it was. Where we are in the South African economy at the moment is still on a nominal basis, smaller than the economy was at the end of last year.
Although we’ve had, a positive number and we’ve avoided a technical recession; it really is a small consolation. Obviously, we are all extremely aware of how sluggish the economy is. How bad things are going, so what does that mean for the investor? Does that mean that we should now be very concerned about the JSE overall? For starters, for the JSE overall, no, not at all because a relatively small proportion of the JSE originates its earnings or generates its earnings from South Africa, per say, and that we are all very familiar with. Are there pockets of the JSE or of the economy that we should be very concerned about? Yes, I do think so and I think that’s where you alluded to the retail sector, in particular. Where I think that is probably one of the closest links through, to the South African economy.
Again, there are individual companies who have diversified their earning base very successfully outside of South Africa, so one needs to actually, focus on the individual companies and the make-up of their earning space. We definitely have, the companies that are exclusively, focused on the South African economy, I would be very concerned about.
ALEC HOGG: Increasingly they are becoming fewer and fewer.
NERINA VISSER: Fortunately, from an investment point of view, yes.
ALEC HOGG: That’s just a nice, little stat to close off with. When we spoke with Whitey Basson last week, he said, for the first time Shoprite, this year will be spending more money outside of the country, in developing the business than inside the country, which is; when you think of the size of them in the South African market, it gives you quite an interesting observation. Where do you find these pockets of SA Inc. then?
NERINA VISSER: But it also talks to why our economy is as sluggish as it is because there is no sufficient investment being made, into the South African economy. We can’t expect to grow and to generate earnings in South Africa if we don’t invest and spend in South Africa. It is not a reflection on Shoprite or Whitey doing the wrong thing. Not at all but it is talking to one of the reasons why we are not going to see the GDP growth levels that’s required to actually address the unemployment problem.
ALEC HOGG: Make it exciting for people to invest then they will invest. If you look at what is happening in other parts of the Continent. It is exciting. Why wouldn’t you go to Ghana at eight-percent growth or Nigeria at six or seven-percent growth? Why come where you are flat?
NERINA VISSER: Yes, and you must be compensated for the risk that you take, which is also not happening in South Africa.
GUGULETHU MFUPHI: A real, wake-up call that we’re getting today, no doubt. Thank you so much to Nerina Visser, Head of Beta Solutions at Nedbank Capital.
