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A pretty red day across the board: Wayne McCurrie – Momentum Wealth

‘The Chinese market is collapsing around our ears.’

HANNA BARRY: We are talking markets now with Wayne McCurrie of Momentum Wealth. The all-share index closed down 0.35% to end the day at 52 669 points. A pretty red day across the board. A little bit of risk-off sentiment, Wayne?

WAYNE McCURRIE: Yes, I think the market did rally quite strongly at the begging of this week on the back of what was perceived as positive news out of Greece. Now it turns out they all had a big fight again yesterday and so it wasn’t so positive and he markets came down.
    Secondly, the Chinese market is collapsing around our ears. Now, that hasn’t had a direct impact on our market yet, but obviously it affects sentiment. I think the market was down about 7% today.

HANNA BARRY: It was 7.4%.

WAYNE McCURRIE: So you would think that would negatively affect the ne company that is directly linked to that, and that’s Nasionale Pers. But Naspers only came off a very slight amount on huge volume. There was over R2.5bn trade in Naspers. So we’ll see what happens.
    Of course there is a final emergency meeting tomorrow about Greece, and hopefully they will reach some sort of conclusion because the payment is due next week – $1.5bn to the IMF, which of course they haven’t got. We know they haven’t got it so we’ll see what happens. I still think some sort of settlement will be reached because, quite frankly, there is no other alternative. But, once again, let’s wait because we’ve heard this is the final meeting on Greece a few times.

HANNA BARRY: Absolutely. Alexis Tsipras, the Greek prime minister, is returning to the Greek capital tonight, where his cabinet ministers say they are on standby for an emergency meeting. That’s according to a report by The Guardian. I did read an article in Bloomberg that I thought was fairly interesting, saying that the risk is more for the IMF than it is for Greece because it really puts their reputation, I suppose, as the world’s lender of last resort, at significant risk.

WAYNE McCURRIE: Yes. I read that exact same article. It’s difficult to ascertain. Ultimately if Greece defaults, Greece will be the ultimate loser. The IMF doesn’t want a default and the IMF’s methodology of getting the money back and declaring a country that owes them money in default seems to be a very long and arduous process. It seems to take forever. But ultimately if Greece doesn’t get money they are in deep trouble. The Greek banks had to be bailed out this last weekend, because they literally ran out of money. Now, you can imagine your banking system – if you’ve got money in the bank and you want to make a payment to someone and the bank just comes back to you and says I’m sorry, we’ve got no money, what do you do? Greece was actually at that point this weekend and they [IMF] had to give emergency funding to the Greek banks so they could open their doors on Monday. So I don’t think there is any alternative other than a deal. And the IMF does want a deal and Europe does want a deal. But they don’t want a deal at any cost. In other words, unfortunately that’s life. Greece will have to bear the brunt of whatever they say and whatever austerity measures they deem necessary because, quite frankly, the alternative I think will be way worse. If Greece had to default quite frankly it would just be chaos there – total and utter chaos.

HANNA BARRY: You mentioned the IMF. The other countries that owe the IMF money, the three nations that have overdue payments to the IMF, are Zimbabwe, Sudan and Somalia. Those outstanding payments amount to $1.8bn in aggregate.
    Let’s bring it back closer to home. I noticed an announcement on the Stock Exchange News Service this afternoon that Coronation – of course the country’s largest fund manager – has increased its shareholding in Anglo American plc above the 5% mark. And so of course you then have to announce that. It is interesting – Anglo of course is significantly down over the last one, three and five years, but fund managers seem to think if you want a resource stock, that’s where the value is.

WAYNE McCURRIE: Look, all the resource shares are in more or less the same boat as Anglo American. Gold and platinum – you’ll have to make your own call on the metal but the general commodity resource shares, Billiton, Anglo American, you can name them all, Glencore, are all more or less in the same position. Shares have been pummelled since 2008 and specifically in the last year or nine months or so. And if you take a longer-term view they represent extremely good value. The point is they are as they were a year ago and that didn’t stop them falling another 20 or 30%-odd. So it’s a difficult position that you find yourself in. Coronation is so large as a fund manager that they have just got to change their holdings very slightly to trigger a 5% limit because the volume of money they manage is quite staggering. So they manage I think about R650bn or something like that. It is a large amount of money. So even if they just almost rebalance their portfolio, it doesn’t mean that they are changing position. But Coronation and lots of other fund managers have also said we are now getting out of these incredibly expensive industrial shares – the retailers, for example – and going into what they perceive as the value shares. And they’ve done it too early, as you always will as a fund manager, I suppose, and their performance does not look good for call it the last six months or so; but then again they are taking the longer-term view. And over the longer term they clearly represent value, because at some stage the oversupply in the resource commodity market will end and the prices of the shares will go up.

HANNA BARRY: Briefly, Wayne, African Bank issued its interim results for the six months to March. It did flag a R2.8bn loss but that is a 53% improvement on the same six-month period last year. Now, that’s largely because it has restated its loss from last year. It had initially reported a R2.7bn loss but when it changed its provisioning policy – which means when it declares a loan to be in default – when it changed that, that loss suddenly shot up to R5.9bn. Do you think Good Bank will be a going concern by October?

WAYNE McCURRIE: I don’t think so, personally – not that it’s going to go bankrupt or going to disappear. But Good Bank in the market is going to find it very difficult to raise money at low interest rates in comparison to the other banks. So it will be able to raise money because it is a good bank. But, even if it pays 1% more than what Capitec or what FirstRand would pay, for example, can they really compete in the market – because their cost of funding is higher than the other banks? So I’m a little sceptical about their ability. But when you add up the losses in African Bank, they are truly staggering.

HANNA BARRY: Unbelievable – R9bn full-year loss to the end of September 2014.

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