The end is nigh … of the war, that is. An expensive escapade that was supposed to be over as soon as it began has dragged on for 10 days short of a month, terminating armed foes, civilians and journalists with equally extreme prejudice.
From another front line, that of the financial markets, Kevin Barlow-Jones of PLJ Financial Services reports: “We are still at the mercy of the rand and international markets.” The rand touched a high of R7,77 to the dollar on Thursday, putting the   squeeze mainly on the resource counter.
Next week, the reporting season kicks off in the United States. Prepare yourself for some more gnashing of teeth as the corporates unleash a flurry of bad tidings.
The week started with Anglo’s shares falling by 3,2% in Johannesburg and 3,34% in London on news that it faced a lawsuit for apartheid reparations in the US courts.
There are times when Anglo must wonder whether South Africa, its stamping ground, is still such a hot place to do business. Last year, it watched in disbelief as R50-billion was wiped off the bourse in a few days in reaction to a leaked version of what was later to become the Broad-Based Socio-Economic Charter for Empowerment in the Mining Industry.
Anglo had its commitment to the Beloved Country questioned when it moved its primary listing to London, along with Old Mutual and South African Breweries, with the unions leading the charge. Today, it has an unparalleled global presence, while still dominating merger and acquisition activity in South Africa.
Last year Investec also left for London without too much noise. This week saw Sasol raise its global profile by graduating from the Nasdaq to the main board of the New York Stock Exchange. The oil-from-coal giant’s debut, at $10,90 a share, was marked by golfer Ernie Els purchasing 100 shares.
Sasol immediately became part of the top 10% in terms of market cap and turnover. One of the major projects it will look to fund is its R1,1-billion entry into the South African retail fuel market. The roll-out will involve reclaiming leased petrol stations and rebranding them, before expanding the network nationally.
Last week Shell South Africa MD Benny Mokaba expressed his warm welcome to new entrants in the market, but cautioned: “It has to be done carefully. It must not be done in a way that destroys, say, a small dealer in a small town.”
The truth is that a foreign listing helps give an entity exposure to a broader pool of investors who have the cash to support it. It then opens itself up to coverage by a broader range of analysts (and journalists, of course, “embedded” or otherwise).
Finally, a favourable credit rating from the agency Standard & Poor’s lowers the cost of raising capital, as it lowers risk. Moreover, any company that has sector dominance and limited opportunities to invest will be driven to look elsewhere for opportunities.
Looking at how Sasol prepared for its globalisation, a transaction that stands out is its purchase of German petrochemicals firm Condea. That transaction landed Sasol in more trouble than it bargained for. It was one of a handful that former South African Chamber of Business chief Kevin Wakeford took to President Thabo Mbeki as alleged instances of institutional collusion that led to a 37% depreciation of the rand.
Barlow-Jones also pointed to this week’s figures of Japanese machinery orders, showing orders fell by twice as much in March as in February.
These are an early warning of waning investment. “They underscore the fact that the world economy is slowing,” he said, also recalling last week’s indicators of falling consumer confidence throughout Europe and dipping gross domestic product trends.
The lesson to remember now is that market volatility is a short-term phenomenon — so hang on to what you’ve got now and ride the storm. The Iraq war may be over, but there is still some bleeding to be done.