Not yet the end

Finweek English Edition - - News -

in­vestor night­mares.

It’s com­pa­ra­ble to the col­lapse of the share prices of Wall Street’s banks and the Lon­don Stock Ex­change. How­ever, the cap­tion of the list of shares called “Al­most free­bies” doesn’t say it’s al­ready time to buy the shares.

Un­like the sit­u­a­tion in the United States, Bri­tain, Europe and even Aus­tralia, SA’s fi­nan­cial sec­tor isn’t on the brink of col­lapse. Our Big Four banks, closely fol­lowed by In­vestec, don’t have to cope with a US$700bn emer­gency plan to save them from rot­ten ad­vances. Nor is it nec­es­sary for our Trea­sury – as is the case in the US – to buy com­mer­cial bills di­rectly from large in­dus­tries be­cause the banks can no longer sup­ply fi­nanc­ing for the coun­try’s trade and in­dus­try.

Nor, for that mat­ter, does SA’s Trea­sury have to make pro­vi­sion for up to £70bn of new cap­i­tal to its four big banks due to the bur­den now be­ing placed on the Bri­tish tax­payer.

But we’re also be­ing knocked about. Share prices on the JSE have al­ready fallen sharply and, if it hadn’t been for a few gold shares cling­ing bravely to their his­tor­i­cal pop­u­lar­ity, things would have been even more Sty­gian. The JSE’s Top 40 – the group of our best – have al­ready fallen by 27% this year. And please don’t al­low your­self to be mis­led too much by the tra­di­tional wis­dom around the Satur­day af­ter­noon braai that ev­ery­thing will come right and that the fall in share prices doesn’t af­fect the long-term in­vestor.

Every­one who has as­sets is poorer now. We must all re­alise that even if our pen­sion as­sets are man­aged far away by some­one im­por­tant, the value of your as­sets and the size of your pen­sion even­tu­ally will have suf­fered just as much over the past two months as those fel­lows who are still valiantly try­ing to man­age their own in­vest­ments on the JSE.

Though credit in SA isn’t yet as scarce as else­where in the world, there are plenty of signs the price of our credit is climb­ing sharply. Just like the in­ter­na­tional play­ers world­wide, our com­pa­nies bor­row US dol­lars or ster­ling from lo­cal banks at the so-called Libor rate. The rate for three-month loans is now at least dou­ble what it was a few weeks ago.

But that’s not all. The mar­gin above Libor at which banks are pre­pared to do busi­ness (even with good clients in SA) is ris­ing rapidly and is prob­a­bly al­ready as much as three to five per­cent­age points above Libor. Just a few weeks ago that was as low as 100 points.

The cost of in­ter­na­tional money – US dol­lars, ster­ling or euro – has prob­a­bly al­ready dou­bled from 4%/year to some­thing close to 8%/year for good lo­cal bor­row­ers, such as our top com­pa­nies. Banks and bor­row­ers aren’t yet keen to talk about this of­fi­cially, but our ef­fec­tive cost of bor­rowed cap­i­tal has also risen sharply over the past few weeks.

Prospec­tive home­own­ers will also find that banks are no longer so keen to grant mortgages at the old prime mi­nus 1,5 per­cent­age points – or even 2% if you have a nice smile. Pre­pare your­self for prime plus a bit for mortgages now, which means money is be­com­ing more ex­pen­sive – even though the SA Re­serve Bank says it will soon start re­duc­ing the in­ter­est rate.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.