Now one can see who is ‘swimming naked’.

HILTON TARRANT: Martin Jankelowitz is our guest market watcher this evening. He's with Ginsburg Asset Consulting. Martin, the market up a couple of points today, but after yesterday's massive rally we saw in global equity markets it wasn't particularly sustainable.

MARTIN JANKELOWITZ: Yes, good evening, Hilton. I think also the very strong rand obviously weighed down on some of the globally exposed large market-cap stocks - MTN, Breweries, Richemont - which weighed things down a little bit. There was a lot of strength, with a lot of the SA Inc-type shares, the banks, many of the retailers, many of those companies that would benefit from a strong rand actually doing pretty well.

HILTON TARRANT: Our banks really coming back from the sell-off last week. We saw FirstRand up 5% yesterday, it's up another couple of percent, another 3% today. The other banks following suit.

MARTIN JANKELOWITZ: Yes, first of all I think they lagged quite a lot of the rally you did see from March up until September, October. So I think a lot of it is catch-up. You are also getting signs that the domestic economy - we've seen the worst, things are turning around. The market always leads. Yes, there's a lot of bad news coming through but the market always leads, and expectations are that over the next six months, 12 months, things will start improving and the worst is over. You would expect these companies to start doing better. The reality is they were looking cheap. Banking shares were looking cheap. They had lagged quite a few of the shares that were at the forefront of the upswing. I think a lot of it is catch-up.

HILTON TARRANT: A few company results out today. Medi-Clinic out with numbers this afternoon - very defensive and a good performance. So it seems that the decision to buy that operation in Switzerland has been vindicated, the decision to move into the UAE also paying off.

MARTIN JANKELOWITZ: Yes. I had a quick look at them. It looked like a very solid set of results, and you are seeing this pattern, this familiar pattern - those companies that have a sort of more defensive earnings stream able to shield themselves, their earnings pattern, and not as dependent on outside sources for funding and definitely able to weather the storm a lot better.

HILTON TARRANT: Vox, the converged telecommunications operator, out with a trading statement today, saying that headline earnings per share for the year would be between 60 and 70% higher than the absolute shocker last year, 4c share. So a big jump. But, if you dig into it, they were knocked by Dealstream and a 60 to 70% jump doesn't even take them back to where they were.

MARTIN JANKELOWITZ: Absolutely. Hilton, what you are frequently seeing, whether it's economic data, whether it's the rallies in equities, a lot of people sort of fixate on the rally that we've seen or the improvement in some of the economic data - a lot of it is purely the base effect. We had such  a sharp sell-off in certain shares, a sharp decline in certain absolute levels of earnings, or levels of economic data, that you are starting to see month-on-month, quarter-on-quarter, six-month on six-month good numbers coming through, but in absolute terms earnings still well down from their peak.

HILTON TARRANT: An absolute shocker was a series of shockers from Blue Financial Services this afternoon - a number of announcements. They are trading under cautionary suddenly, and they say they will report a loss. Unable to quantify the loss, though.

MARTIN JANKELOWITZ: I did read through all the cautionary announcements. It looked very confusing - not confusing in terms of what they said, but confusing in terms of what you must make of it. The first thought that crossed my mind there was that's why you should have experts looking after your money, to decide whether you should be in a share like this or not.

HILTON TARRANT: They seem to have been hit from all sides, though. They are unable to raise funding to lend out, so their loan book is not growing. They've got currency headwinds. Their operating costs are out of control because they don't have the revenues. They are really hit on all fronts.

MARTIN JANKELOWITZ: Well, to quote Warren Buffett - he says when the tide goes out you get to know who is swimming naked, and clearly this looks like one of those companies that perhaps was doing that.

HILTON TARRANT: Martin, let's chat about the rand for a moment. Ebrahim Patel, the Minister of Economic Development, completely dismissing and rubbishing the notion that government ever intended or even started discussing fixing the level of the currency. And we've seen some more strength today.

MARTIN JANKELOWITZ: Hilton, just take a step back for a moment. I think what we keep seeing is a familiar pattern playing itself out, and that is a lot of what's driving - whether it's our stock market, whether it's our currency - is not driven really by domestic factors. It's the global environment. And in the same way you've got the rand strengthening, you've got the Korean won very strong, the Australian dollar, the New Zealand dollar, the Singaporean currency - all these currencies are doing very well. It's really the global environment. And, contrary to what many people may think, even if they did want to try and intervene to regulate or fix the currency to a lower level, it's extremely difficult to do it - and in fact it's a fruitless exercise. The rumour-mongering obviously continues unabated but, first of all, you can never comment on rumours and, secondly, even if they did want to intervene, I think it'd be a fruitless exercise. And thirdly I do sense that you've got a new governor of the Reserve Bank, who has just commenced her tenure, and I actually think they are going to keep policy - and I am talking about exchange-rate policy - pretty much as it's been. I don't foresee a major change at this point.

HILTON TARRANT: The meeting of the G20 finance ministers this past weekend - almost underestimated. But the effect of what they said after that meeting seems to have really boosted confidence.

MARTIN JANKELOWITZ: Absolutely. This is absolutely critical, because this is what's driving global markets right now, the currencies. And at the G20 meeting in Scotland they announced effectively a continuation of this highly stimulatory policy - i.e. extremely low interest rates, printing a lot of money, pumping liquidity into the global financial market system. And that's what's driving everything. You've got a sea of easy money permeating the global system, and it's got to go somewhere. And I think, Hilton, the critical thing is that money goes to what is working, not to what's not working. So it's not going to any productive capacity, building new factories. It's actually going into commodities, into emerging markets, commodity currencies - that's where the money is actually going. So at the G20 meeting the one thing that came out of that is a continuation of these very easy monetary policies until it is beyond doubt that the global economy is on track.
***

HILTON TARRANT: Looking ahead for the rest of the week - we are up two days. It seems that the confidence is there, the money's there, the buyers are there. A positive week for the JSE?

MARTIN JANKELOWITZ: Yes. Clearly the message coming out from the global authorities, the global central bankers, finance ministers, is that whatever money it takes, whatever it takes to sustain this sort of fledgling recovery - and our doubts remain as to the long-term quality of this recovery - but in the interim a lot of money will be pumped into the global system and South Africa as a small open economy will be a beneficiary. And our biggest trading partners are beginning to show improving trends in manufacturing, and it'll be positive for South Africa, positive for the rand. The gold price is stronger in this environment. So yes, it is. The challenges are there, but in the near term while this money is sloshing around it will definitely provide support to financial markets.

HILTON TARRANT: Martin Jankelowitz is with Ginsburg Asset Consulting.

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