The ghouls and beasties and things that go bump in the night that will be prowling around on Halloween night have never scared me as much as this market can. Just when you think that you have got your portfolio all nicely positioned, out pops a spectre shrieking about interest rate cuts or exchange controls or some other terrifyingly unexpected subject. This week we had a wonderful example of this kind of surprise when we learned that we all have yet another thing to worry about:
Interest rates in China.
Thursday’s news that Governor Zhou Xiaochuan had increased the one-year lending rate by the marvellously perverse amount of 27 basis points to the equally eccentric level of 5.58% would normally have gone unnoticed. But someone was watching and moreover cared and the resource shares swooned. The weakening oil price (mind you, still above $50) also encouraged the commodity bears. The rest of us were still trying to sort out the difference between a remnimbi and yuan but were dimly aware that a slowing Chinese economy is probably a “bad thing”.
Before this event I had been musing on the story where, in the same speech, some worthy attending a conference lamented the foreign perception of poor returns from investment in Africa and then called for debt forgiveness. No interest and then no capital back? I perceive that as a rather poor return on investment.
Talking of returns, it’s month end already, and the All Share’s October performance is running pretty close to zero, despite having been both 3% up and 1% down at various stages in the month. In the last few weeks the rand has been one of the strongest currencies in the world while the USD has been one of the weakest. This of course also helped knock the resource shares. October’s winners were the financials and industrials.
Next week will see the listing of the long awaited Gold Bullion Debentures. These amount to shares that simply represent 1/100th of an ounce of gold, so I guess that their price will be around 2800 cps. They are to be called NewGold and will be listed alongside the SATRIX products in the Exchange Traded Funds sector of the JSE. I shall be preparing a short write up and description for distribution to clients once we see how they are doing in the market. I have feeling, however, that these could be very useful additions to the portfolio for gold bugs and rand bears like me!
As an idle aside I wonder if you noticed the details of the foreign exchange amnesty revealed by the minister this week. R65bn in 43 000 applications looks like big money until you realise that’s just R1.5m average per application.
In just a few days, the ghosts and skeletons will have been and gone and we will know who will be haunting the White House for the next four years. The point for the markets is just how long it will take for the winner to spook himself with the reality of the US debt situation and how will he try to deal with it. More scary stuff.
Keep safe.
James Greener
29th October 2004
