Thursday 19 January 2006

EXCHANGING BLOCKED RANDS FOR SUN BLOCK


“Exchange controls may be lifted” says the headline. I wonder who really cares anymore. Supposedly, without controls, cash will stream out of the country and the currency will crash. Somehow I doubt it. Whether there are restrictions or not, if the government does anything silly, the money finds a way to flee. And I wonder if there is currently very much appetite for overseas investment beyond what is already legally there. As long as we can dig stuff out of the ground to sell to people who are desperate for it, our rand will likely remain a sturdy little fellow.
But what about all the  “blocked rands” left behind by the emigrants over the years? Some estimates suggest that there could be as many as R20bn of them. I’m not so sure. While I have no wish to impugn the integrity and administration procedures of the banks, I have to say that not many people these days have any idea what a blocked rand is and what you can and can not do with it. I am pretty sure that one way or another plenty of these “blockies” have leaked away or been legitimately moved or used up with holidays to the Kruger and Plett. There are many aspects of exchange control that baffle the finest financial minds. Just try to get someone to provide exchange control approval for a Trust to buy an “Inward Listed Security” – like Itrix.
Less sturdy were the spirits of people trying to read and trade the share market this week (or the bit of it that has passed so far). Although most local financial data and results released this week have ranged from excellent to OK, share prices took their cue from overseas markets and swooped and soared like a peregrine falcon on drugs. It is possible that the all share index will set both the year’s high and the year’s low in the same week.
These unpredictable wild gyrations are one good reason why this letter does not commit itself to recommendations of what to buy and sell. Another is that once the page had been filled with dozens of lines of the required disclaimers, there would be no space left for anything else.
I would not, for example, be able to share with you the thoughts from a friend about the perks tax payable by a on a R750 000 benefit received by using an air force plane for a mid-eastern shopping trip. This looks like an excellent topic to cover when you compile your “Tips for Trevor” email. My own suggestions will run more along the lines of “please take me off your mailing list”. Nor would there be space to invite you to consider just why a dismissed vice-president would be termed a “key dignitary” at the opening of parliament. Dignity is not the word that comes to mind.
But now what comes to mind is a short break down at St. Lucia where, if the fish don’t bite, I’ll fly my kites. And see what I can do about SAB Miller’s complaint regarding low beer consumption because of a cool summer.
Keep good care of the markets for me please. Keep an especially close eye on the 10 year US bond. I think it will be the first harbinger of trouble.
James Greener
19th January 2006.

Friday 13 January 2006

INDICATIONS OF AN INTERMISSION?

In order to avoid watching any cricket on TV, I tried my hand at old-fashioned analysis this week and spent time sorting out the new family of indices that the JSE presented to us at the start of the year. I am delighted to see the back of those dreadful cyclical / non-cyclical labels. It used to get me thinking about the Argus bike race versus the Two Oceans marathon.
Are you aware that of the roughly 400 listed (more or less) ordinary shares, just 161 of them contribute to the All Share Index? This in turn is split into a Top 40 (containing 41 shares!), the Mid Cap (63 shares) and the Small Cap (57 shares). A different subdivision splits the 161 shares into nine Economic Groups and then again into about 45 sectors.  Many of these groups and sectors are rather silly. The Oil & Gas Group contains just Sasol. MTN and Telkom are the sole occupants of the Telecomms Group and then each of these shares is the only member of its own Sector (Mobile and Fixed Line). The Health Group is also thin and sickly, with just three shares, also further split between two Sectors. Don’t complain, we are now in line with international standards.
Some 115 shares that to make the cut for the All Share Index, are lumped into the cutely named Fledgling Index. However, the total market capitalisation of this whole batch is less than that of Barloworld. The JSE recognises the triviality of this Index by computing its value just once a day, after the close. The conclusion is that unless you are a derivatives trader interested in some of the special indices such as the Findi30 or the Indi25, pretty well the only indices worth watching regularly are the All Share or its slimmer twin, the Top 40 (which drives SATRIX), the Gold Mining index (for gold bugs) and perhaps the Banks index. Thereafter one should probably just follow the shares themselves. After all, that’s mostly what you can buy.
This has been one of the least volatile weeks in a long time. Although the All Share Index achieved a new high at mid-week, the daily ranges of this parameter have been smaller than we have become used to. Is this the eye of the hurricane? When the daily ranges surge up towards 200 points again, will the wind be blowing in the other direction? Should we be battening down the hatches?
Patient readers may recall the results of a straw poll taken amongst my colleagues several months ago. The question was simple. Will the rand / dollar exchange rate next break above 7 or below 6? Not one of us voted for the lower number. But this week we saw that exchange rate proudly wearing a 5 big figure. As usual, the advice was worth its price! It has been an interesting week in the forex markets, with both the Euro and the Swiss franc losing ground to the dollar, pound, yen and of course, the rand – that king of currencies. A front-page picture in Business Day made me wonder if the dollar had finally begun to experience the difficulties that many of us have so long been expecting. It showed a wad of US dollar notes all printed back to front. I presume that hoisting one’s flag upside down is still an international distress signal?
All the lads with houses along the Vaal have been considering distress signals as the flooding river rises higher. The rest of us a very pleased with all the rain, but it must stop by next weekend please when I go off on holiday.
James Greener
13th January 2006

Friday 6 January 2006

AND AWAY WE GO WITH 2006


Although the holidays are drawing to a close, it seems that most people’s interest in the markets is about equalled by their excitement about the forthcoming local government elections. That is – nil. The JSE welcomed us back with a whole new classification system for shares and indices.  This does not appear to have got off a great star. But I suppose that in time we will be used to seeing Anglo being lumped into the same sub-sector (general mining) as Kumba  and Scharrig Mining. And is it a sign of the times that the JSE has just three listed food retailers but five home improvement retailers, and a dozen apparel retailers?
The first headline of the 2006 in Biz Day declared that the “Rand (is) set to be king of currencies this year”. This is a fine illustration of the new year excitement that infects market wizards still under the influence of the sparkling grape juice. In fact the year started pretty well for the market with the all share index (if it is still called that) getting within a whisker of 18 500. But it was not such a happy new year for King Sigcau of the Xhosas, who died at the age of 79. This is doubtless a sad occasion for his family and subjects but it provided an opportunity for a politician to begin his own year with the foolish statement that “more needed to be done to improve the medical care of traditional leaders.” We all of us would be pleased if medical care improved for the everyone in the nation, but some of us are certain that this will never happen while the state is responsible for it.
I rather fear that the markets will also see more interference this year from people who think they can price and allocate resources much more effectively than can a willing buyer and a willing seller – not forgetting the eager broker. Two fine examples of poorly used funds came to light this week when a body that would appear to be failing in its task of running an HIV prevention campaign and the National Youth Commission (no, I don’t know what they do either) both seem to have run into money troubles. Unlike listed companies, they cant blame the newly implemented International Financial Standards for their mess.
Neither (yet) can Gautrain use that excuse, The project (pork barrel?) was reported this week to be “grinding on” with financial talks. One hot topic at these talks is expected  to be “private-sector contributions to the project”. I’ll bet. While there are legions of folks keen to show us how to build a railway set for just R20bn, the queue to provide the cash is much shorter. Taxpayers, whose representatives believe that we are unconcerned with trivialities like “return on capital”, are advised to hide their wallets as we are doubtless to be nominated the financiers of last resort.
I expect that it will all get a lot busier next week and I may even have to come in to the office a bit earlier so as to avoid some traffic. But that will be fine if it means that turnover picks up. It is difficult to see where anything is going if it doesn’t move much. This early in the year however, we are already getting exciting signals from gold and the rand. Both are strong with the numbers in the first case going up (to $550?) and in the second case going down (to below R6/$?). Lets hope that there will be no “sporting” declaration here.
James Greener
6th January 2006.