Wednesday, 23 November 2011

Deafening silence..

Protection of State Information Bill - in favour 229; 107 against... 

I suppose we all thought the government would do its duty. In these impure, politically-bereft and often emotionally draining times, nepotistic leaders (sic) callously impugn the dignity of the people. Described as a vote of tactical defiance or partisan politics for the sake of defiance, South Africa's government took its first steps down the constitutionally slippery slope reminiscent of the draconian heavy-handedness employed by the apartheid-masters against which, perversely, many of the aye-vote STRUGGLED against.

A shining African light for democracy no more.

Tuesday, 8 November 2011

Wolf on the spit..

We sympathise with Occupy Wall Street (OWS), the self-styled people's-power movement fighting against, in their own words 'the corrosive power of major banks & multinational companies'. Even so, you could in fact argue that the banks & multinational companies had the latitude to act contrary to the spirit of the law on lax, negligent and in some cases, blatantly incompetent REGULATORY supervision.

You would be hard-pressed to understand why the Johannesburg Stock Exchange (JSE) would insist on high moral and ethical standards at community level without aggressively insisting on the same code of conduct internally. Trade-execution procedures for personal accounts, specifically applied to its executive, are seemingly easily transgressed. 

Whilst details on Allan Thompson's dismissal are sketchy you would be forgiven for thinking that, in this case at least, the wolves have been put in charge of the lambs...

Wednesday, 2 November 2011

Red-herrings & a hot potato

It might be prudent, for the time-being, to relegate the public indiscretions and or financial inconsistencies of the ANCYL's Malema and focus instead on more pressing issues which will, in time, become defining.

Faced with a contradiction in terms and based on the premise that all South Africans are free, the idea that economic emancipation or economic freedom, if you like, should, by definition, follow is inherently flawed. In fact, perversely, history often confirms the opposite.

Has the African National Congress (ANC)- government failed its people? Yes; mostly... but it's hardly surprising and that's not a reflection on the competencies within the ANC but rather on the system itself. Yes, some officials have been incompetent and yes some are corrupt. Even so, it would be ridiculous to suggest that South Africa's economic woes are commensurate with the ANC and by extrapolation any different from other developing countries.

Service-delivery promises, often the only tangible way for ordinary people to measure the success of their vote, have fallen short. Poverty is rife. 25% of the workforce remains unemployed. Schools, hospitals and other basic infrastructural necessities are either in a state of decay, disrepair or are inadequate. So where to from here?

Traditionally there are three basic economic strategies to uplift the poor. One - grants, subsidies, welfare & charity. Two - artificial wealth redistribution and Three - Education and access to funding. Most countries prefer a combination of the three with an emphasis on one or the other. The permutations are many... In South Africa we employ a combination of the three with an emphasis on welfare. Black Economic Empowerment (BEE) is our preferred version of artificial wealth redistribution and we have legislation compelling banks to lend money favourably to the poor. Now, if the ANCYL has its way it will nationalise the mines. That's tolerable if the mines are well-managed and draw on skills from within the private sector and the proceeds spent on higher education and infrastructure investment. If the emphasis is on education everything else takes care of itself. If however, as most suspect, the ANCYL plans to nationalise the mines to give the money to the poor, that would be finite, unsustainable and inefficient. Worst of all, if the ANCYL nationalises the mines for the sake of taking from one ethnic group to give to another then that would be counterproductive, demotivating and in short nothing short of disastrous.

So, if we are serious about this country's future let's not begrudge a politician his time in the limelight for that's what he is, a politician. Notwithstanding, ignoring the plight of the poor and the associated socio-economic issues as the ignorant rantings of a fool is economic suicide.

Monday, 24 October 2011

The ghost of Africa past..

The notion that Africa will position itself as an economic superpower somewhere in the not-too-distant-future falls a yard or two short of reality. Where violent tribal enmities are a common thread and with her demographically segmented peoples, flawed long-term economic strategies and burgeoning poverty it's not difficult to be dismissive of Africa's prospects.

In a new development, the European legacies of the past, largely exploitative and still entrenched in Africa's beggared psyche, have been rekindled, unnoticed it seems, in the boardrooms of China. China's resource ambitions are unfettered and often environmentally disastrous and yet African governments smarting from Western betrayal, perceived or otherwise, have little option but to look to the East. China's propensity to lull the uninitiated by conjuring up poorly constructed, inferior quality infrastructure in return for what can only be described as economic exploitation, imperils Africa. 

In countries where retained power is often pillared on ethnic subjugation and even genocidal sacrifice, the elected officials and or self-styled political leaders continuously flout the best interests of her peoples. Under this guise Africa's leaders, lulled into a Ray-Ban-tinted sense of self-worth and where the rule of law is an ephemeral notion at best, seemingly lack the experience or courage to resist this trickery, exchanging precious non-renewable resources for cheap trinkets. 

In a leadership vacuum African Ubuntu (pride) has a fragility reminiscent of the distant past. South Africa is no different. 

Wednesday, 12 October 2011

Rand-hedge equity is an oxymoron

The ONLY way to hedge your equity portfolio against a declining rand and it's on the cards by the way, is to buy a currency hedge of some sort or by buying an equity collar. It is grossly incorrect to assume that a favourably weighted rand-hedge (companies with earnings positively impacted by a weaker rand vs the US dollar; usually) portfolio provides positive returns when the rand deteriorates against the cross.

Neither should you underestimate the impact on local equity prices by foreign funds or traders in a declining rand environment given their real losses in their own currencies on repatriation. PE-ratings fall dramatically regardless of the perceived 'increase' in earnings expressed in ZAR. It would be prudent to remember that share prices stagnate or fall when currencies become unstable.

There is NO predictable protection, absolute or otherwise, against a falling rand by weighting an equity portfolio in favour of companies with currency-enhanced earnings in a deteriorating rand environment. Given the JSE's reliance on and its index weighting in commodity stocks and the prevalence of foreign shareholders in these companies the opposite is usually true. 

Wednesday, 21 September 2011

ZAR weakness and the carry trade

The rand remains vulnerable in the short term and could test 8 to the US $ later this week. The ZAR has fallen to levels last seen a year ago on perceptions that the global economy is slowing at a faster rate than initially feared.

South Africa’s MPC meets on September 22 to discuss SA interest rates. Even so, early indications in the bond markets indicate ‘no change’ in interest rate expectations.

Two external price shocks for the ZAR require careful consideration. Given SA’s dependence on the euro for 45% of its exported product, any weakness in that currency has serious implications for SA’s growth prospects. The unwinding of leveraged assets, of which the ZAR is the most leveraged, will keep the rand under pressure. To date, the ZAR has been a favourite haven for the so-called carry-trade. That might change in the next day or two with some interesting consequences for rand-hedge equity.

Friday, 9 September 2011

Investec - still at the back of the class

Some listed companies develop a personality on a stock-exchange. These perform or under-perform their peers depending on current economic conditions.

South Africa's zebra-striped Investec is the epitome of personality. You might have seen their advertisements at any mainstream sporting-ground.. Amusingly, anybody who knows the company well can attest to its reputation in the marketplace. Like the consummate host in the executive-suite at the world-cup final, guests/clients are wowed, lulled and entertained. Only the very best facilities a must.. Food & drink is free, the atmosphere's vibrant and the staff pretty.. Guests / clients drunk on fun go home thoroughly satiated. Ask the guest/client the next day who won the game and they probably wouldn't know the answer..

In the School of Investment you would probably decline any homework-help from the kid at the back of the class but you would, no doubt, invite him to your party. He's a lot of fun.

Thursday, 8 September 2011

Indigenisation - Zimbabwean stock-grab

If you own stock in Impala Platinum (Implats) and you've never heard of indigenisation you'd better google the term; quickly. You might even want to revisit your investment models and understand the reasoning behind your purchase. Granted, Zimplats doesn't currently mean much in the greater Implats scheme-of-things but it does, however, play a very important role in Impala's strategic future. For interest, the Impala executive team predicts a difficult 2012 & 2013.

I wonder if the SA government is quietly reviewing the indigenisation concept; let's hope not.