This was a very bad week to be a bear. The All Share index is now just 4% off the October 2007 highs and is up more than 10% this month so far. Even without its one extra day this year, February 2008 could threaten the record of the best month ever on the JSE. This trophy has been gathering dust in the cabinet since July 1982 at 17.74%. Almost all the work on this awe-inspiring bear-trashing recovery has been done by the resources shares whose sector index is up almost 40% from the late January vale of depression and despondency about the future of the country. Ironically, of course, the currency has vanished into a black hole and this is what has driven the exporters.
Minister Manuel’s Budget Speech on Wednesday was fairly bad news for the few of us in the country who have formal employment, permanent addresses and a few assets. None of the members of this constituency was surprised to learn that they would in future have to pay even more to the fiscus, but some of us are very angry that most of it almost certainly will vanish without trace. The state will spend R121bn (11.5%) of its money on Education and yet the country lies at the foot of almost every international league table in this area. The only skill that most of the children learn appears to be how to become a venal, incompetent and corrupt government official. By the way, Health will receive 10.6% of the budget. Do you know any well paid nurses?
Buried in the fine print of the Budget were a few paragraphs about certain relaxations of exchange control regulations. While this is good news, it has certainly added to the rand’s woes and our currency is starting to look settled above 15 to the British pound. Eight to the US dollar is not far off either and both of these levels are multi-year lows.
In particular, the niggling restriction on inward listed securities was lifted and investors with accounts in the name of companies or trusts will now be able to buy these shares without problems. As if forewarned of this development, a major investment bank just last week launched three new exchange traded funds which provide exposure to the Japanese, US and a Global market via appropriate stock market indices and currencies. These ETFs join the two existing Itrix funds that offer UK and Eurozone exposure. Faithful readers know that in principle I like these instruments (which of course include the Satrix family and NewGold) but I also have reservations about them until they grow in size sufficiently that the originator is not the sole price-maker. Anything below about R1bn market cap can face this problem.
About three dozen companies reported this week and glorious unfettered upward growth in earnings is not a universal theme. Some businesses are certainly finding that things are tougher than a year previously. The nation’s favourite quality food and underwear vendor delivered results which compared very poorly with the supermarket that used to be “just up your street”. Banks, however, seem to be clinging to growth numbers north of the magic 20% level.
The sliding rand is causing dangerous cost overruns in the preparations for the World Cup. That would explain why the FIFA contingent, who were pictured standing in the long-completed Ellis Park stadium, were outfitted in hard hats and reflecting jackets. The budget for this ridiculous and superfluous gear for visiting dignitaries must be enormous. It most cases it serves only to denote that the wearer is on the way to a large lunch paid for by someone else.
Did you see how those magnificent Lions stole the game from the Cheetahs last week? With luck, the Blues will suffer from the altitude tomorrow night.
James Greener
22nd February 2008
