Financial Mail - Investors Monthly
BUY, HOLD, SELL
With Absa’s NewWave exchange traded notes you can play the rand against the euro, dollar and pound. Here’s a quick guide to the game
NEWWAVE EURO Share price: R15.18 JSE code: NEWEUR
BUY WEB ADVERTS CLAIMING forex trading can make you an instant millionaire have overtaken ads for online casinos, especially if you google “forex trading”.
To steer readers away from bucket shops in the shady corners of cyberspace, here is a guide to legally gambling on forex through your stockbroker, using exchange traded notes (ETNs) offered by Absa.
Absa’s NewWave range includes three popular currencies: the euro, US dollar and UK pound. Each of these ETNs trades at roughly the current rand exchange rate.
Better yet, they act as foreign money market accounts, paying interest at the low prevailing rates. The euro and dollar pay the overnight London interbank offered rate (Libor) minus 0.1%. The pound product pays Libor minus 0.2%, adding to the reasons I rate the sterling product a “sell”.
Picking which to buy involves betting that the rand will weaken against the given currency, and that cash in that economic region will beat equities in the coming year or so. My bias is towards equities, but it is probably wise to diversify into both.
With “Super Mario” Draghi at the helm of the European Central Bank, investors who converted their rand into euro three months ago are 6.37% richer and those who converted six months ago are 7.55% richer. Those who converted into dollars lost 1.12%, and pounds broke even. NEWWAVE US DOLLAR Share price: R13.43 JSE code: NEWUSD
HOLD ONE OF THE THINGS that makes guessing the direction of the dollar against other currencies impossible is that it requires fluency in “Fedspeak” — the impenetrable jargon of the Federal Reserve.
Unlike SA, which has one central bank, the US has 12, known as the Federal Reserve System. Each has a president, and the Fed has a chair (currently Janet Yellen).
On any given day, at least one of these officials will be talking Fedspeak to some or other gathering. Commentators who pretend to understand this then pronounce to the laity whether the speech was “hawkish” or “dovish”, causing currencies like the rand to wildly weaken or strengthen.
One of US President Donald Trump’s few sensible plans was to try switch the US to the more comprehensible central banking system of inflation targeting. In SA we had the reverse, with (presumably) President Jacob Zuma trying to remove inflation targeting from the Reserve Bank’s mandate by getting the public protector to sneak a clause into one of her reports.
Trying to guess if the rand will weaken or strengthen against the dollar is to guess whose next move will be more chaotic — Trump or Zuma. This makes it a “hold”.
Despite SA’s economic woes, people who converted their rand into dollars a year ago are 4.5% poorer. And Trump’s presidency has hardly begun. NEWWAVE POUND Share price: R17.57 JSE code: NEWGBP
SELL BEFORE THE UK VOTED for Brexit on June 23 2016, the NewWave pound ETN was trading at about R21.80. It proceeded on a gut-wrenching dive to a low of R15.44 in March before rebounding to about R18.
At the time of writing, the rand/pound exchange rate was extremely volatile, falling 3% to R17.50 after the Bank of England held its interest rate at 0.25%. The day before the interest rate announcement, the pound had strengthened 3% to R18.05.
Given the enormous confusion about what Brexit means for the UK economy and in turn the pound, I rate this a “sell”.
Online trading platforms that advertise aggressively tend to pitch volatility as a good thing, convincing the gullible they can make money in day trading. But just as only casinos make money from one-armed bandits, so only brokers make money from those who buy and sell every few minutes.
Besides the three currencies, Absa’s NewWave range also offers platinum and silver price-tracking ETNs. Many other commodities, including oil, copper, maize and wheat are available as ETNs from Standard Bank. These products strike me as being pitched at speculators, not investors.
Holding a small portion of a portfolio, maybe 5%, in cash is considered sensible. But equities do far better over time, particularly at the prevailing low interest rates.