Global Investing

South African rand slides as labour unrest grows

The South African rand has lost most ground amongst emerging market currencies, according to Reuters data, falling almost 10 percent so far this year to hit 4-year lows against the dollar.

That is perhaps not so surprising given the country’s high level of dependence on the minerals and mining sectors, which have been disrupted by labour strikes along the same lines evident in the summer of 2012. Lonmin, the world’s third largest producer of metal, said it stopped its production of its Marikana mine near Rustenburg following strikes over wages.

 

Net commodity exports – Morgan Stanley and UNCTAD

With the metals and mining sectors accounting for 60 percent of South Africa’s exports, the strong relationship between these sectors and the rand is not surprising. A falling currency has a knock-on effect of facilitating inflation, especially as imports grew faster than exports for the first quarter of 2013. Meanwhile platinum prices have been in a gradual downwards trend since February.

The currency could be in for a deeper slide if mining companies’ wage negotiations are not made within the July 1 timeframe, while the central bank is not expected to act. According to Phoenix Kalen, CEEMEA Economist at RBS:

The central bank of South Africa trusts that the currency will eventually stabilise. I don’t think they will intervene in the currency via interest rates hikes, and furthermore, rand weakness is a consideration against cutting interest rates.

Mali risks in focus

The international focus is on  gold-producing country Mali after days of French air strikes on al-Qaeda-linked Islamist rebel strongholds in the north of the West African country. France expects Gulf Arab states will help an African campaign against the rebels,  and a meeting of donors for the Mali operation is due at the end of the month. West African defence chiefs are meeting today to approve plans to speed up the deployment of 3,300 regional troops.

Mali isn’t normally on the radar screens of international portfolio investors, with little external debt and no developed capital markets.

But it is Africa’s third biggest gold producer, with London-listed Randgold the biggest investor and other foreign firms such as Anglogold also having investments.

Three snapshots for Monday

Is China heading for a hard or soft landing? One chart to keep an eye on is the relative performance of materials equities, the long run of outperformance since 2000 looks like it might be rolling over.

Germany’s Ifo business sentiment index rose unexpectedly in March, moving in the opposite direction to the the PMI released last week:

Italian consumer morale also rose to 96.8, economists were expecting a slight decline to 93.7.

London taking AIM at smaller companies

As investors in London’s junior AIM market know only too well, high risk does not always mean high return. Now, more than ever, the Alternative Investment Market of the London Stock Exchange needs to prove that it can offer investors high-quality companies.******The FTSE Small Cap index of smaller companies listed on the main London market has outperformed the AIM 100 index on the way down, and on the way back up. The FTSE Small Cap has gained almost 30 percent over the last couple of months, while the AIM 100 has risen 20 percent.******And that’s after the AIM 100 saw falls of over 50 percent in the past year, much more than the 27 percent posted by the FTSE Small Cap index.******While liquid companies like Advanced Medical Solutions and Cape typify the benefits of AIM, there are too many that have cut back so much that they are reduced to a CEO operating alone out of his spare bedroom.******AIM officials said on Friday that they thought the market has had its best month for a year, raising around 500 million pounds for companies, but this includes 220 million pounds raised by one company alone, Max Properties.******Fund managers say that they like some AIM companies that are making profits, or close to that point. However high-risk beta stocks that expect investors to hang around for five years or more should be happy that the winter weather has cleared, because they’re likely to spend most of their time with their caps in their hands.******If AIM wants to see its companies grow fruitfully as cash returns to the market, it will have to start out by sifting the chaff from the wheat.

Hedge funds and commodities find interest cooling

rtr1w493.jpgIt was not so long ago that hedge funds and commodities were the two red hot areas to invest in.

The credit crisis has shown that investor interest can quickly cool.

Many hedge funds betting on a so-called “super-cycle” have been caught out by a sharp pullback in commodities after a five-year bull market and are now facing the task of soothing anxious investors.

One of those to have suffered – hedge fund firm RAB Capital - is trying to strike a bargain with investors in its flagship Special Situations strategy, which has plunged 48 percent year-to-date after some bad bets on mining stocks plus a high-profile mistake at Northern Rock.

Commodities hedge funds feel the heat

rtx7ukh.jpgThe heat is on for hedge funds with commodities bets.

Earlier this week Ospraie Management told investors it is shutting its flagship fund after it plunged 27 percent in August. The fund’s energy and commodities stock positions fell as investors worried if a global economic slowdown will mean less demand for resources.

And now RAB Capital’s Philip Richards is giving up the CEO role to focus on his funds after an awful period of performance for his once high-flying Special Situations fund.

Losses on small-cap mining stocks, as well as its high-profile error in buying into troubled bank Northern Rock, meant its listed feeder fund fell 38.1 percent from the start of the year to Aug. 21.

Mick Davis takes late-cycle punt with Lonmin bid

xstrata.jpgMining stocks have lost a third of their value over the past three months on fears the commodity super-cycle is coming to end — but Xstrata’s Mick Davis reckons it’s still a good time to buy.

The acquisitive miner’s $10 billion cash bid for Lonmin, the world’s third-biggest platinum producer, is opportunistic and far from friendly.

But it has injected a badly needed buzz back into the sickly sector, lifting stocks across the board. And Lonmin investors are already betting on a sweetened offer.