Pleased to see that my advice has been heeded by the Governor, with the recent further 100 point cut in the repo rate. Please see my full comments below in an article I interviewed for with veteran financial journalist Shaun Harris.
Quite frankly I did not think I went far enough – now is not the time for timid reaction but rather a time for decisive action.
BOLD CUT BY SARB. BUT NOT ENOUGH.
By Shaun Harris
31 March 2020
The 100 basis points cut in the repo rate has been widely seen as a bold move by the South African Reserve Bank (SARB). The cut, on March 19, was in the face of an expected 50 basis points reduction and brings it to its lowest level since 2013.
But it’s not enough, says Simon Stockley (59), banking consultant and disruptive entrepreneur. “I welcome the more interventionist and timely action of the Reserve Bank. However a 100-basis point cut was too timid. A 200 to 250-point cut would be more effective, sending a clear message
of intent to the markets.”
The move by SARB was a reaction to the Covid-19 pandemic and the effect it is likely to have on consumers and the damage it will do to the economy. “The SARB has recently reminded everyone of its role in ensuring the orderly functioning of markets”, says Razia Khan, chief African economist at Standard Chartered, adding that buying bonds may help offset some of the selling of bonds.
Stockley says SARB saying it will buy an (still unspecified amount) of government bonds to inject liquidity into the market is “a welcome departure of practices of the past. But here again the approach is too timid. Had the governor, Lesetja Kganyago, indicated the amount of support he
would provide, it would have demonstrated a clearer intent and helped to provide certainty in the market.”
Ed Stoddard, writer at website Business Maverick, is more scathing. He says SARB is infected with the quantitative easing bug. “Symptoms include buying government bonds that no one else wants, which may require printing money. In the distant past, it was generally regarded as the
hallmark of a banana republic. That changed after the Great Recession of a decade ago.”
Then along swam the second black swan; Moody’s downgrade of South Africa’s credit rating to junk status, a rating seen for the first time in 25 years.
“Losing our last investment-grade rating will mean being booted out of the World Government Bond Index (WGBI), with potentially R80bn to R120bn of bonds that are likely to be sold by foreigners,” says Nolan Wapenaar, Co-CIO at Moneyweb. “We expect that this will create further selling pressure on local bonds and the Rand for a short period, while the oversupply of
bonds is absorbed by other market participants.”
So much for local bonds. They seem down the hatch, at least now and for a while hereafter.
But what about South African equities? Wapenaar notes the “saving grace for domestic equities is that Covid-19 has made them very cheap and we therefore think that there will be good opportunities for a bounce in equities.” However he warns that investors buying now must be able to stomach further potential downside.
The sparkles in the Covid-19 gloom come from the East, where it’s reported that Asia’s stockbrokers are being swamped by the largest rush from Asian retail investors in a decade or more.
According to Reuters, stock markets across Asia are hitting record buying highs. These mainly small, office working investors have even coined their own rallying cry: Buy the dip.
Two points about Asian investors should be noted. They are clever investors, not prone to getting emotional. And Asian people tend to have a strong savings culture. So these investors have ready, investable cash for buying the dip.
Reuters quotes Cho Hyun-suk, a 40-year old office worker in Seoul, saying: “This is the best opportunity I have seen in 10 years to get into stocks.” He adds he has been steering clear of the market since the global financial crises.
Back home, Anchor fund manager Stephán Engelbrecht offers ten shares worth buying (This is rare as local fund managers seldom name shares). The equities are: Naspers, Transaction Capital, BidCorp, Discovery, Capitec, Mr Price, Growthpoint, First Rand, Bidvest, and Curro Holdings. Engelbrecht adds detailed descriptions under each share on their strengths so that investors who only want to select a few can read his reasoning. And he adds the shares are currently cheap because, at these times, there is extreme risk.
Stockley, who is well qualified to advise on banks as his successful start-ups include SA Home Loans, a name well known to South Africans, Ghana Home Loans, Deutsche Gulf Finance and Rasameel Investment Bank, has a few last words for Kganyago. “His approach is welcome but I would implore the Governor to draw courage from fellow Regulators around the world and act boldly, decisively and without too much regard for past conduct. Unprecedented times call for a bold approach – time to show some balls Mr Governor.”