Why Barclays PLC’s timing to sell Barclays Africa is poor

The resource cycle might be turning – Wayne McCurrie – Momentum Wealth.

SIKI MGABADELI: Let’s check this market. It’s had a very strong finish to the week. We ended on the all-share above 52 000. It’s 52 200, up by 0.1%. You’ll remember earlier this week we were just happy that the market had managed to close above 50 000.

So let’s look at the rand: it’s at R15.39/dollar, R21.83/pound and R16.94/euro. Gold is at $1 269.21/oz, platinum at $966.80/oz and Brent crude oil at $37.27/barrel.

Wayne McCurrie is with Momentum Wealth and joins us now. Hi Wayne. That’s a very strong finish.

WAYNE McCURRIE: It actually has been stronger. It’s really been the resource shares, the gold shares, platinum, general miners and to a lesser extent the banks and financials that really propelled the market up from below 50 000 to the current 52 000.

SIKI MGABADELI: And what’s given those particular sectors the momentum?

WAYNE McCURRIE: The biggest single reason was they were just so completely bombed out halfway through January. They were at record, record valuation lows. Certainly the resource shares were. And the banks were almost as cheap as they were during the financial crisis. The biggest single reason why they’ve recovered is because they were simply so massively bombed out a month or so ago. Now, whether this continues or not you simply don’t know, but there is some hope that it will because not only have the shares come from an oversold level, you’ve actually seen resource prices going up. And oil is the best example of that.

SIKI MGABADELI: Yeah. Could this be the start of some stabilisation? It’s been so volatile since the year started, Wayne.

WAYNE McCURRIE: Yes, I think some volatility is always in markets. When you live markets day to day, like you and I do, the current set of circumstances always seems the most volatile you’ve ever seen. But volatility is part of the game, just part of the game. But it does look, as I said earlier on, that the resource cycle might be turning a little bit. And of course if that continues it’s not only good for our mining shares, it’s good for the whole country because, should that happen and resource prices, the price of iron-ore, etc, go up, you’ll see the rand stabilising, maybe even strengthening a bit. And then that takes a lot of pressure off our economy. So we must hope and pray that it actually does continue because that will be good news for the economy in general, not just for the mining and banking shares.

SIKI MGABADELI: We were all waiting for the US jobs data. That came out, looking pretty solid, sending those markets up as well.

WAYNE McCURRIE: Ja. The number was quite positive. Actually, the effect on our market was relatively muted. But yes, we all know the US economy is growing. It’s just the degree of strength that it’s growing at that is a little debatable. But understand, there is no real pressure on the American Federal Reserve to up interest rates dramatically. There is no inflation in the US. And, even though there are big job-growth numbers, wages growth is actually zero, if not quite negative. So it’s not as though the average person is significantly more well off in America than a few years ago. So by and large the first increase is symbolic. I don’t think there is going to be a flurry of increases in the US. There is no need for that. There is no what’s called demand-driven inflation, there is no excess demand in the system. So, unless there is excess demand, you don’t have to up interest rates.

In South Africa it’s very different. We’ve got high inflation because of the drought, because of the rand, because of Eskom – all these other things. There is also no excess demand here, but we still have high inflation. We’ve got almost no option but to increase interest rates as things stand now.

SIKI MGABADELI: It’s been a busy week on the corporate front. We started off of course with speculation about what Barclays PLC was going to do with its stake in Barclays Africa, and they put us out of our misery. What do you make of their withdrawal which is going to take two to three years?

WAYNE McCURRIE: They were very clever in one respect – they are not selling tomorrow. Hopefully over the next two or three years they can get a much better price because they know the price is very depressed. The Barclays Africa share price has the worst rating of all of the banks, and of course they …[indistinct] the rand price, in keeping the rand/pound exchange rate. And you can argue that the rand is at the worst it’s been for many, many years. So obviously they are hoping for a stronger rand and a better underlying price; so that they were quite clever with that.

But of course where I think they are missing the boat totally – why sell when things are terrible in South Africa and things are terrible in Africa? Rather wait until things improve before you sell. Don’t sell at the bottom of the commodity cycle; try and sell at the top of the commodity cycle. So I think they’ve got all their timing wrong in wanting to get [rid of it]. Maybe they’ll wait two or three years. But of course if someone comes to them tomorrow with a decent price they could be forced to sell because they’ve told everyone they are going to sell. I think they are unfortunately doing what a lot of global investors do. They can’t buy enough right at the top of the cycle and at the bottom of the cycle they can’t sell quickly enough. Quite frankly, that’s normal.

SIKI MGABADELI: Who is going to buy?

WAYNE McCURRIE: That’s the unknown. It can’t be another South African bank because the Competition Commission won’t allow it. Africa is not the flavour of the month at the moment so I doubt that a global buyer would come in.

But maybe there is some local guy who has a couple of billion lying around the place, because it’s certainly cheap, make no mistake – if you take a ten- or 50-year view, maybe even a five-year view. And all the other banks are incredibly cheap. Roughly speaking – and it is a little rough here because it’s not quite accurate – you can borrow money now to buy Absa and within three years you’ll be cash-flow positive because the dividends will start paying the interest on your loan. Now that’s very cheap. … [Telephone line breaks down]

SIKI MGABADELI: I wish I had a couple of billion lying around. Thanks, Wayne.

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