Investment managers hold onto your knickers – the market jolt has come and gone
The local market was somewhat skittish after last week’s carnage on the stock exchange with one fund manager even expressing concerns over their broader Namibian portfolio, but these fears proved unfounded. What the spike did was to create a clear buying opportunity which is something that very seldom (never) happens on the Namibian Stock Exchange.
Just to recap, last week Thursday, 26 July, the local index of the Namibian Stock Exchange took a nose dive shedding just under 20% in one day. This move was based on the performance of only three stocks, the Breweries, Capricorn and FirstRand which all lost between 35% and 25%. The index itself went from 509.06 to 408.02, shedding 101.84 index points and dropping 19.85%.
Of course, a move like this must send shudders through all the local investment managers for the simple reason that nobody knew where it will stop and how long it will continue. One analysts compared the move to events on the Johannesburg Securities Exchange in April when the All Share Index lost around 34% in a very short period.
But what few people realised is that the local plunge created an enormous buying opportunity for investors in an otherwise staid, stagnant and illiquid stock market. Following the dive, in just four trading days, other investors have grabbed the opportunity and by Wednesday this week, all the stocks have made a solid comeback, albeit on very thin trading.
Breweries who lost 35% in the plunge made the biggest gains, improving again by 35.2%, settling at N$35, a tad above where it was before the rapture. Similarly, Capricorn traded at N$12, on its way to its former value of N$13.99. Capricorn gained 14.3% over the four days. FirstRand Namibia has also improved from N$20.15 to N$23 giving it a 14.1% gain.
The local index also made a solid recovery, clawing back 16% of the 20% it lost.
It is not my idea to drown in the technicals. Any interested person can go and extract the detail for him or herself from the daily NSX report. Rather, I want to draw attention to the enormous investment opportunities created by a little volatility and although many fund manager got a bad fright, those few lucky ones who bought the dip made a killing.
Where in the world can an investment manager realise a 35% gain for his clients in just four days. Even the 14% appreciation is not to be disregarded. This must be viewed in context though because the bounce back is based on only a very few deals, (except for Capricorn which saw some lively trading on some days) but it does show that local investors have their own opinion of what a stock is worth and they will continue to invest in those stocks up to that point where the price reaches their valuation.
What these moves of the past ten days tell me is that the NSX can be a far more active trading ground with much potential for profits if only it had more local companies listed. The fundamental problem is that there are only nine local companies listed and that investors grab what is available as soon as it becomes available, and then hold onto those stock to comply with statutory Domestic Asset Requirements.
Last week Thursday was not the end of the world, it was also not the beginning of the end for the local market but it definitely send out a signal that there is much appetite for local stocks if only they were available.
Few people know who is the investor that was forced to liquidate, thus causing a fire sale, but those that do know, immediately snapped up these same discounted stocks for other clients. How else can one explain the stellar bounce back.
Over the past decade there was lots of noise of growing the capital market, improving liquidity and expanding the number of investment instruments. This rhetoric is good but it has only served to defend the government’s insatiable appetite for more debt. In my view, that is not helpful to grow and expand the capital market, it actually produces the opposite result of crowding out private investment.
The moves on the NSX’s local index clearly demonstrated that there is vast potential in this phalanx of the capital market but for that to happen, more companies must go public. The obvious place to start is the myriad of capital-draining state-owned enterprise. If we can bring one per month to the bourse over a twelve month period, imagine what a real boost that will be for the local market.