from the editor

Finweek English Edition - - CONTENTS - JANA MARAIS

two un­der­re­ported sto­ries caught my eye this week, both send­ing some con­cern­ing sig­nals about in­vestor con­fi­dence. The first was a piece by Mon­ey­web on Transnet’s most re­cent two-weekly bond auc­tion, held on 8 May, where the paras­tatal aimed to sell R200m worth of bonds. It re­ceived two bids amount­ing to R40m, and ended up only is­su­ing bonds worth R10m. Of the R600m Transnet has sought to raise in its three auc­tions fol­low­ing the ax­ing of Pravin Gord­han as fi­nance minister, it has raised just R55m, or 9%, ac­cord­ing to Mon­ey­web.

Given the back­logs in in­fra­struc­ture in­vest­ment and the cru­cial lo­gis­ti­cal role Transnet plays in the coun­try, this can’t be good news. Last year, Fu­ture­growth As­set Man­age­ment came un­der im­mense fire for say­ing it would no longer buy bonds from a num­ber of paras­tatals, in­clud­ing Transnet, cit­ing gov­er­nance con­cerns. It seems its peers have qui­etly de­cided to do the same. One can only imag­ine what in­vestor in­ter­est would be like af­ter fur­ther credit rat­ing down­grades.

The sec­ond story, by Busi­ness Day, ex­plained why Corona­tion de­cided to sell out of South African gov­ern­ment bonds in three of its ma­jor funds, in­clud­ing its flag­ship Bal­anced Plus fund. Nis­han Ma­haraj, head of fixed in­ter­est at Corona­tion, said to the news­pa­per that, while SA gov­ern­ment bonds look “cheap on the sur­face”, it is not pric­ing in suf­fi­cient risk. In short, in­vestors be­lieve SA can fol­low Brazil’s path of eco­nomic and po­lit­i­cal re­forms – a mis­take, in Ma­haraj’s view.

While an ar­gu­ment can be made that stingy in­vestors could even­tu­ally leave gov­ern­ment with no choice but to get its house in or­der, one would hope that the lat­ter hap­pens long be­fore im­por­tant state-owned en­ter­prises or de­part­ments run out of cash, or we get tempted to print money Zim­babwe-style to keep the wheels turn­ing.

It is easy to get car­ried away and paint an overly neg­a­tive pic­ture of SA’s eco­nomic out­look. What hap­pens if global sen­ti­ment cools on emerg­ing mar­kets and the rand blows out, for ex­am­ple, lead­ing to huge in­fla­tion in­creases and in­ter­est rate hikes? But even with­out that scenario on the cards, di­ver­si­fy­ing off­shore as much as pos­si­ble is prob­a­bly a wise in­vest­ment de­ci­sion. (See cover story from page 18-32.)

As In­vestec’s Ryan Fried­man points out, we have ac­cess to only about 400 lo­cally listed com­pa­nies out of a to­tal in­vestable uni­verse of about 49 000 listed com­pa­nies (see page 27). SA’s GDP con­sti­tutes not even 1% of global GDP. If noth­ing else, this should be enough rea­son for in­vestors to look beyond rand hedges on the JSE.

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