In just one week the story about the Japanese earthquake has vanished from the front pages and from investor’s concerns. Despite the ominous and very serious developments in the damaged nuclear-fuelled power plants, life for everyone not directly affected has obviously returned to normal. In most share markets a modest recovery has been seen after the panic drop. The US long dated bonds have also seen some buying, however, and that is usually interpreted as a move to quality. Myself I am not so sure. Getting paid back in dollars in ten years time may not be that welcome. I am also not sure that we have all yet experienced the worst implications of this event
The prices of the variable dividend preference shares have been plunging recently. The indicated yield of the “safest” and largest one (Standard Bank) has moved up from 0.6% above the benchmark to double that. While this may be an (over) reaction to next week’s possible repo rate increase, it really ought not to have anything to do with the long awaited implementation of the change in the way that dividends will be taxed. If that were the case then ordinary shares ought also to be falling, as their dividends face exactly the same taxation change. And in any case the tax change is revenue neutral to the fiscus and so (unless companies are exceptionally greedy and unfriendly towards shareholders) ought to be neutral to dividend recipients.
Another strange discount is visible in the price of Newgold, the exchange traded fund that provides exposure to the price of bullion in rands. The price of the units is now more than 2.5% below the actual rand price of the metal. Presumably this reflects suspicion and doubt that the sponsors can meet their obligations. I believe this is unfounded.
Readers are cautioned that my views on the financial markets are very suspect and possibly dangerous as I have not sat any of the exams that the Financial Services Board requires financial advisers to pass before working with their clients. Years ago I did pass the JSE membership exam and for a while I was even president of the Institute of Stockbrokers but I doubt that the Board would consider me to be properly licensed. And as I have made a pact with myself never again to write any exams, there may be problems ahead. The problem is that cynicism is not a recognised or welcome exam technique.
Here in Durban plans were unveiled of a scheme to turn the old airport into a harbour. This must be a world first. A lot of digging will be required. And money. It’s a popular product, money. There are a number of listed companies who are having rights issues and other capital raising schemes at the moment. Eskom have announced that they have all the money they need, provided that they are allowed regular eye-watering price rises for their product for the next several years. Only a few of us will spot the irony in their delight at funding a mere 90 basis points above the government rate. In the days when Eskom was a world-class utility and the state was a pariah that premium was reversed.
Everyone is sympathetic to the plight of the folk in Christchurch who have decided that their stadium will not be repaired in time for even the Rugby World Cup. They are gambling on a pay-off from moving the Super 15 match between the Crusaders and the Sharks to Twickenham next week. They might just enjoy a larger, more sympathetic and possibly generous crowd at Kings Park. Mind you, London is where it is all happening. The national soccer team’s new jersey (designed in Germany, made in China?) is to be launched at “a glittering ceremony in London. How odd.
James Greener
18th March 2011
