Too much interference

From Gareth Stokes, MoneyWeek editor, SA

Dear MoneyMorning reader

Talk about sending mixed messages to international business! With less than 24 hours to go to Vodacom’s local listing, a delegation from trade union Cosatu and the Independent Communications Authority of SA (Icasa) went to court to scupper the deal. As the market got the first sniff of trouble, the rand plummeted against the dollar, euro and pound. This proves once again that nothing moves markets more effectively than political shenanigans.

The telecommunications sector isn’t under the cosh alone this week. You might have noticed recent reports on Reserve Bank governor Tito Mboweni’s attack on bank lending practices as one example. He claims the banks’ prime lending rates (the rate at which banks lend money to clients for home loans and otherfinance) are too high. The gap between the Repo rate (at which the Reserve Bank lends money to banks) and the prime rate is currently 350 basis points. Banking Association (Basa) chief executive, Cas Coovadia, said the organisation would seek an urgent meeting with the governor to clarify the situation. “We don’t understand what [Mboweni] was saying,” he said.

It shouldn’t be too difficult for you to draw some early conclusions. Mboweni is calling on banks to compete more aggressively in the lucrative market for home loans. The so-called “prime less” incentive offered by the banks are too contrived for his taste. You can’t claim unfettered competition when discounts are so similar across product and consumer classes. Besides, we’ve noted significant resistance to interest rate concessions as credit liquidity tightens, not to mention the inflation plus increases in monthly bond administration charges and initiation fees! But we doubt Mboweni’s attentions will lead to significant behavioural changes. Banks – like the cellular network providers – appear beyond the reach of competition commissions and regulators alike.

While you struggle to come to terms with large corporate consumer relations practices, the rest of the world is grappling with the likely duration of the global economic recession. The offshore experts polled in this MoneyWeek’s Roundtable suggest you batten down the hatches until at least 2014. Their major concern is with corporate profits. Will companies be able to meet earnings forecasts as the expected downturn in global trading activity plays out? We’re sure South African analysts – who will closely follow local bank and resource company earnings – share their fears.

For once, South Africa’s lagging in the pessimism stakes. Although local equities still take their lead from the US and Europe – ebbing and flowing with investor sentiment – there’s a renewed underpin from risk seeking international investors. Money is streaming back to emerging markets as slight improvements in global financial markets filter through. Investors are also excited about recent improvements in the international oil price – surely a leading indicator for better times. But US housing and employment data could prove a major stumbling block. You’re going to have to wait a while to determine whether the recent rally in banking and financial sector shares is enough to offset the weakness in other key economic indicators.
 

Turning to the markets...
 
The JSE all share index closed up 1.86% on Friday. The gold mining index jumped 4.56%. Resources added 3.05%. Banks and financials rallied 1.11% and 1.13% respectively. Industrials gained 0.93% and the platinum mining index rose 5.91%.
 
London’s FTSE100 climbed 0.46%. The Dow Jones plummeted 0.18% and the Nasdaq lost 0.19%.
 
Tokyo’s Nikkei closed 1.25% up. Hong Kong’s Hang Seng tumbled 0.64%.
 
Brent crude is currently trading at $60.43 per barrel.
 
Spot gold’s trading at $956.20 and platinum was last quoted at $1,155.50.
 
And here’s how the rand is performing against the major currencies:
R/$ 8.30
R/£ 13.19
R/€ 11.63