It’s difficult to fathom why other global indices, including the US’s much-watched Dow Jones, S&P 500 and Nasdaq, are hitting record highs as second waves of the coronavirus pandemic sweep across the globe. Much less so our own market. While the expectation of more economic stimulus packages under a Democrat-controlled government in the US and the rollout of Covid vaccination programmes in a number of countries are offering investors a glimmer of hope, they’re all missing here. 

However, all the factors driving our market higher are exogenous. Like last year, however, resource stocks and a handful of other shares are propping up the JSE, masking the devastating impact Covid-19 and an already struggling economy had on sectors, including listed property, financials and so-called SA Inc shares.

Gold jumped 25% over the course of 2020, while platinum rose 11% and palladium 28%. Industrial metals also fared well, including iron ore and copper. The JSE’s Resi 10 index gained 17% over the course of the year. The Industrial 25 also performed well, rising more than 12%, but mostly on the back of two stocks: Naspers and international offspin Prosus. 

On the reverse side, the Financial 15 shed more than 20% and the Listed Property Index sank close to 40%. While Naspers and Prosus drove gains on the local industrial index, big tech shares were behind an impressive 44% gain for Nasdaq in the US. The S&P 500 rose 16%. Unsurprisingly, the FTSE 100 dipped 14%, with Brexit and a devastated property sector weighing on the UK market. In Japan the Nikkei added 16%.

Despite last year’s paltry 4.1% gain for the All Share Index (Alsi) – and 7% if you add in dividends from the few companies that continued to pay them after March when the Reserve Bank ‘advised’ banks to hold back – you’d have made big gains if you’d ploughed your savings into the right stocks after March’s bloodbath. By the end of the year, the Alsi had recovered 58% from March’s low point. It was a market for stockpickers, though.

Nigeria weighs on MTN

What the heck is it with MTN and Nigeria? The network operator was a surprising laggard on the JSE last year, with its share price dipping 27% despite sharply higher demand for its data as the country went into lockdown and customers worked, studied and entertained from home. Main rival Vodacom gained 7.9% over the year. Both companies were affected by the same local issues, including pressure to cut the price of data – which they did – while investing in infrastructure.

The big difference is MTN’s extensive operations across the rest of Africa and the Middle East – and particularly Nigeria. Still dazed from its record $5.2-billion fine in 2015 for failing to disconnect millions of unregistered SIM cards, MTN faces a continuous assault from the authorities in Nigeria. The fine was later reduced by two-thirds and subsequently settled but a few years later MTN was accused by the country’s Attorney-General of underpaying $2-billion in tax, while the Central Bank ordered it to repatriate $8.1-billion in historical dividends that it said were taken out of the country illegally. Although it settled that dispute with a $53-million payment, it’s just an example of the ongoing hurdles it faces in Africa’s most populous nation.

And its troubles are far from over. In the latest development, the company’s shares tumbled last month after Nigeria froze the sale and activation of new SIM cards pending an audit. The move appears to be a guileful attempt by Nigeria’s minister of communications to register citizens for national identity numbers. With only about a quarter of the population in possession of one, it seems the most practical way to get them to register is by threatening to cut off their cellphones until they do so. 

The telecoms industry has the means to help create a centralised identity database owing to its extensive logistical infrastructure. Fortunately for MTN, other operators in the country are in the same position. 

Unfortunately, it’s unlikely to meet the extended 9 February deadline to update the SIM registration of subscribers to reflect the identity numbers and to block any SIMs without them. After burning its fingers so badly in 2015, it’s likely to take the threat seriously.

Amid its Nigerian troubles, the company listed its local business on the Nigerian Stock Exchange just under two years ago, retaining a significant majority stake. MTN Nigeria is now more valuable than MTN itself, with investors discounting a large part of its biggest operation.

The group has already announced plans to exit some of its other troublesome operations in the Middle East, including Syria, Afghanistan and Yemen, with Iran to follow. Despite its massive subscriber base in Nigeria, which accounts for more than a quarter of its customers, perhaps the easiest solution would be to unbundle its Nigerian business and get rid of the headache that has been plaguing it for years.

JSE and Hyprop at loggerheads over distributions

The JSE is playing hardball with real estate investment trusts (REITs), the property funds that benefit from a favourable tax dispensation. And it has led to a tussle with Hyprop Investments, owner of shopping centres that include Canal Walk, Somerset Mall and Cape Gate in the Western Cape and Hyde Park Corner, Rosebank Mall, Atterbury Value Mart and Clearwater in Gauteng.

Having already given REITs a two-month extension to declare their distributions owing to the impact of Covid-19 on their properties, the Financial Sector Conduct Authority told them to stick to a dividend payout ratio of at least 75% of their distributable earnings. The JSE is threatening to remove their REIT status – and therefore the tax advantages that accompany it – unless they meet the minimum requirement. The problem is many of them are facing a cash crunch owing to the impact of Covid-19 and the lockdowns on their tenants. 

With property values declining, investors are also getting nervous, as debt as a percentage of value is on the rise. Selling properties to reduce debt is one solution. And it’s something Hyprop may be considering after receiving offers for two of its shopping centres last year. 

It also tried to get around the problem by settling its 2020 distributions on credit rather than in cash in a move that was approved by shareholders, who would have been allowed to subscribe for new shares under a dividend reinvestment plan. After the JSE vetoed the scheme in December, Hyprop returned with a second proposal: to pay shareholders their total 375c distribution for the year to end-June in new shares or cash – but with the reinvestment option as the default. Again, the JSE rejected the plan, saying it still didn’t comply with the minimum distribution requirements. As a result, it has now had to make cash the default for shareholders, who will have to elect to receive more shares as an alternative.

While one has to sympathise with the predicament REITs currently find themselves in, the trouble is many of them were previously overly generous, paying well above the 75% minimum distribution requirement instead of building capital buffers and putting a little aside for situations like this. That made them highly popular during the good times. Less so now, hence the massive slide in their shares last year. DM/BM