Chinese liquidity to boost SA assets
Risk appetite lifts markets
China’s decision at the weekend to allow its banks to lend more freely will have a positive impact on South Africa.
CHINA’S decision at the weekend to allow its banks to lend more freely will have a positive impact on South Africa, according to Ian Cruickshanks, the head of strategic research at Nedbank Capital.
He said China’s latest move would improve market liquidity in that country by around $60 billion (R460bn), “buoying risk appetite and demand for oil and other industrial commodities and improving foreign capital inflows”.
Investment in emerging markets has already improved. Patrice Rassou, a senior portfolio manager at Sanlam Investment Management, said flows to emerging market funds this year amounted to 3.4 percent of their assets while developed market funds saw almost no inflows. Flows to emerging market debt funds were equal to 3.7 percent of assets and to US bond funds only 1.6 percent.
At home, Reserve Bank figures show that net portfolio flows of non residents, which were negative in January, turned positive this month. Last month, a net R894 million flowed out, while R844m has flowed in this month. The gains were due to bond inflows worth R3.6bn, which were eroded by R2.8bn in net equity sales.
Like most emerging market currencies, the rand is gaining again. Standard Bank economist Nomvuyo Guma said the currency, which was back below the R7.70 to the dollar level, was likely to “extend gains in the short term”, given the increase in risk appetite.
Stock markets, which have been on a roll this year, held their ground yesterday as they waited for the decision by European finance ministers on a second bailout – worth € 130bn (R1.3 trillion) – for Greece.
The JSE was virtually flat, with the all share up 0.07 percent to 34 106 points. But German stocks rose to a six-month high ahead of the finance ministers’ meeting, Bloomberg reported. And European banks displayed optimism, leading the gains, the news wire said, “with Commerzbank increasing 2.4 percent and Deutsche Bank adding 1.1 percent”.
The benchmark MSCI Emerging Markets index is up nearly 16 percent this year. The JSE’S performance has been more modest with the all share climbing only 7 percent, while the MSCI world index of shares rose 9 percent.
An important contribution to the JSE all share gains came from the financial sector, which has risen nearly 10 percent to 9 205 since the end of last year.
The buoyancy in financial shares is in line with events globally. Lebogang Molebatsi, the head of financials research at Stanlib, said: “A lot of risk was taken off the table when the European Central Bank announced a liquidity scheme in December. It reduced the risk of systemic bank failure in the euro zone.”
Molebatsi noted that domestic banks had performed well since their recovery from the profit slump of 2009. He cited Absa’s recent announcement that headline earnings were up 21 percent to R9.7bn for the 12 months to December last year.
Rassou said much of the impetus in the rise of the JSE financial index, over the past three months, had come from insurer Old Mutual, with a share price gain of 27 percent. The sale of Old Mutual’s Finnish subsidiary Skandia, in December, boosted sentiment. When the sale was announced, the share price rose to R16.24 from R14.53. It reached a high of R19.57 on Friday’s close, dropping back to R19.46 yesterday.
Rassou said the insurer had a weighting of 6.5 percent in the financial index.
Another strong performer was MMI. With a 4 percent weighting, the financial services company was up 13 percent over the past three months, Rassou said.