Masters of timing in climate of fear

Report on Capitec is like yelling ‘Fire!’ in a packed theatre

Page two of the Viceroy Research report on Capitec is perhaps the most informative of all of its 33 pages. It probably contains more indisputable facts than any other section of the report.

Titled “Important Disclaimer — Please read before continuing”, the page goes way beyond the usual disclaimer notice and was no doubt designed with very angry shareholders and regulators in mind.

Among the warnings it issues is: “This report and any statements made in connection with it are the authors’ opinions . . . and are not statements of fact.”

It urges readers to think critically about the report and do their own research and analysis before making any investment decision. If that’s not enough to discourage all but the most intrepid of investors, it goes on to warn: “All expressions of opinion are subject to change without notice.”

Despite these reservations the authors state: “We are entitled to our opinions and to the right to express such opinions in a public forum.”

They also make it clear that they might have a direct or indirect interest in Capitec and stand to realise “monetary gain” from the movement of the price of the shares or any derivative.

All in all, it’s difficult to imagine that anyone who read the disclaimer would have made a significant investment decision on the basis of the report or at least confessed to having done so. And yet some obviously smart, or at least well-resourced, individuals did just that, and the Capitec share price bounced all over the place within minutes of its release. It plummeted to a low of R800 before beginning a reasonably steady recovery.

Whatever their research skills, the Viceroy team are evidently masters of timing. The report contained little that was new but its release was perfectly timed to take advantage of the brand value the authors had created following their Steinhoff report. They also took advantage of the fear that, after Steinhoff, nothing could be trusted.

If the Viceroy report was equivalent to shouting “Fire!” in a packed theatre it was because of the echo chamber that is the JSE. In a more robust market, where negative reports on a company are commonplace, it would have been a whisper unheard by most. That it targeted a bank creates something of a dilemma; but if banks need special protection perhaps they should not be listed.

The accusation that Viceroy did it only to make money or that it breached some imagined code of ethics is laughable. Or at least it’s laughable to the vast majority of outsiders who see the enormous rewards that drive all market participants and little evidence of matching ethics.

Instead of wasting time chasing down the Viceroy crew, the regulators should look at better enforcing the rules dealing with short selling. It has a useful role to play but in recent weeks the sustained battering of several shares indicates something more aggressive. Speculation that some big players have broken the rules to fuel the selling suggests it’s not only littleknown research companies that will do whatever it takes to make profits.