Barclays may be the first of many SA exits

Monday March 14, 2016

advertisements

RISK appetite has returned some in the international markets and this can be glimpsed via the recent performance of higher beta currencies.

For example, notwithstanding the determination of prosecutors to arrest Luiz Inácio Lula da Silva [the former president of Brazil], the Brazil real closed out last week at a 2016 high at 3.58 units against the US dollar.

The South Korean won is back below 1,200.00 and is looking through some serious sabre-rattling on the Korean Peninsula. The South African rand is also close to a 2016 high.

Crude oil has rebounded with WTI [US] oil closing last week at $39.50 a barrel, having twice touched $27.00 in January.

President of the European Central Bank Mario Draghi turned up the QE [Quantitative Easing] a few notches on the dial last week. Gold is not buying into this “all is now well with the world” and remains locked at $1,250.00.

In South Africa, the equity market has pushed into positive territory, but you will recall I mentioned that the Barclays PLC exit could be the first in what might become an avalanche of exits.

The news that Old Mutual is seeking its own break-up and that it will spin off its 54 per cent controlling stake in Johannesburg-based Nedbank Group to shareholders, is in essence the second exit after Barclays.

Multinationals carrying large South African exposures via listings in Johannesburg are simply no longer prepared to wear the currency risk or ''Zupta'' price volatility.

South African assets are a sell, and Barclays and Old Mutual are signalling that loud and clear as are South Africans themselves who seemingly cannot get their own money out fast enough, according to the latest high Frequency Data.

The Nigeria All Share while still 9.27% lower year to date has cut its year to date loss by half over the last few weeks. Minutes of the last MPC meeting confirm that just one member of Nigeria's central bank monetary policy committee Adedoyin Salami said the naira should be develued and allowed to trade within a band, saying that the fixed exchange rate would not work alongside a planned rise in government borrowing.

The naira trades some 40 per cent below the official rate on the black market versus the dollar and that confirms the current official rate is a Mickey Mouse price.

Africa's biggest economy grew by an estimated 2.8 per cent last year. Salami said his proposal gained no support at the meeting and that confirms that few are prepared to challenge President Muhammadu Buhari.

The president is fixated and I expect Nigeria's GDP to be at 0% through 2016. It is clear that this is a red-line for Buhari, but what is clear is that negative spill-over is going to get worse not better.

Here in Nairobi we find ourselves slap-bang in the middle of the earnings season. The banks have been reporting their full-year earnings and positive price reactions confirm that investors had become too bearish and we have seen some shapely rallies develop after these releases.

Kenya Commercial Bank has definitely hurdled Sh40.00. Diamond Trust Bank closed at a 2016 high and reported that full-year loans and advances to customers accelerated 28.979% to Sh177.54 billion. Compare that to Barclays Kenya which reported a 15.91% expansion and clocked Sh145.38 billion.

Bamburi Cement posted a big outsize full-year profit after tax gain of 50.45%. On balance, earnings at the Nairobi Securities Exchange have outperformed expectations. I expect Nairobi to outperform Lagos and Johannesburg through 2016.

This week, everyone will be keeping an eye on Federal Reserve, chaired by Janet Yellen. At the start of the year, the FED was predicting four 0.25% rate hikes through 2016.

The markets are pricing in two rate hikes in 2016. The markets will pivot on the FED decision this week.

Home
Email

Hiiraan Online