If the real intention of last week’s unexpected interest rate cut was to weaken the rand, then the committee members must be looking pretty glum right now. It was two months after the cut in August before the currency regained the level it had before the cut. This time it was about two days.
The other thing interest rate cuts are supposed to do is lift everyone’s spirits and make them optimistic and buy shares. But it hasn’t done that either. What it has done is lured a large bear from his lair, and the All Share Index is now 6% off its March peak.
Almost every day there is yet another announcement by a company explaining the details of their method for conferring chunks of ownership to those citizens whom the government has identified as being in need of such benefits. Each method seems more complex than the last. Unsurprisingly the common thread running through these deals is the fact that the beneficiaries are unable to pay anywhere near market value for these chunks. Presumably if they did have the money in the first place and if they did think the shares were worth owning in the second place they would have bought them already. But you know how it is with bureaucrats – always keen to improve people’s lives, especially if someone else is going to pay for it. Today’s deal involves assigning about R1bn worth of shares to about 45 000 beneficiaries via five trusts. This translates into an average individual shareholding of almost R23 000 that should pay about R750 per year in dividends. This calculation neglects entirely the costs of running those trusts. I suspect the latter number is rather less than is being expected and it has not been explained how the individual will find/fund the former figure.
I am in no doubt that this meddling in the allocation of capital – however well-meaning the intention or well-deserved the beneficiary or guilt-ridden the donor – is distorting market prices. My guess is that without all these charters and scorecards and financial sleight of hand, prices would be higher. But the truth will emerge only in a few years time when the shares trickle back to those who really want to own them.
Several months ago I mentioned that Telkom had popped up on the valuation model as looking interesting. Now we can see why. They are alleged to be charging four times more than the going rate for many of their services – particularly the high volume data lines needed for the internet. This news coincided with a report about how the world’s playing field was now flat and level, thanks to the internet. The amount of international outsourcing of intellectual services that is already taking place over the optic fibres of the world telecomms links is astonishing. Unless you are a barber or a waiter you can be sure that somewhere in the world there is a better qualified and harder working individual looking to do your job for less than half your wage! Down here on the southern tip we are mostly blissfully unaware of these developments. If my phone line is down and I can’t dial out, then it means those fellows can’t dial in either!
Many folk have linked the upcoming mid-week public holiday with the May Day one (shifted to the Monday) to create a giant long weekend. It’s going to be pretty quiet for a while here, but I think the bear won’t be sleeping.
James Greener
22nd April 2005
* = “We have a bear”
