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

Financial Mail - Investors Monthly - - Contents - Robert Laing

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.

Pic­tures: iSTOCK

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