In this two-pronged podcast, veteran money manager Kokkie Kooyman of Denker Capital explains how banking stocks, his speciality, have reacted to the war in Ukraine and tells us markets are already starting to price in the impact of peace breaking out. Kooyman also shares his conclusions after months of researching the impact on banks of disruptive technologies like decentralised ledgers, Bitcoin and blockchain. He was interviewed by BizNews editor Alec Hogg.
Kokkie Kooyman on how banking stocks have reacted to the Russian-Ukraine war
We actually liked Russia because of what it was doing to its balance sheet. However, what we did not see was it preparing for war. Since 2014, Putin has been sanction-proofing his economy and balance sheets and building up reserves. Funny enough, the reserves in the end didn’t help him and he made miscalculations. As a portfolio manager, one just learns each time. Fortunately, towards the end of last year when Tinkoff and Sberbank got fairly expensive, we started reducing that. When it looked as if Putin was going to invade, we immediately sold the remaining Sberbanks. The whole region has taken in enormous club. The European banks are down 20% because almost every bank – including the insurers – have some exposure to Russia, even indirectly. Most like ING 0.8% but the sudden fear in that region is that European ECP won’t hike interest rates for a while, that they might prevent the banks from buying back shares, which everybody bargained on. We have been communicating with our investors as much as we can. When the markets were closed, our Russian exposure was 0.2% in a fund, so that was very small. We have actually had small inflows. Investors are starting to learn that, even if you’ve got a crisis wrong, when it has happened and share prices go 20% down. The big debate we had in the team was whether to sell European, Brazilian or Indonesian banks.
On a huge relief rally for the markets if the Russo-Ukrainian war ends
If the war ends, the key negotiating point is what do we do with sanctions? Do we reverse them? And does he make that a condition? Then the world will fly because obviously oil price will come crashing down, commodity prices come down and world growth starts picking up again; there’ll be a huge relief rally in markets. It seems to be happening starting this morning, even the ruble is up 8% this morning. The reserves might be released but it’s very fluid. You are now going to the stage of a lot of volatility. The fact that they are talking is a big step forward. Especially if it is accompanied by a ceasefire to get civilians out. The Ukrainians also benefit because Poland is offering to send a whole squadron of MIG fighter jets to Ukraine. It is volatile. Initially markets will rally because there was too much bad news priced in.
On interest rate hikes if the war continues
If the war goes on, oil prices and food prices will stay high. You will find countries like South Africa, Brazil and Indonesia benefit. I think markets would start looking towards emerging markets. The one underlying theme that will remain is that the Fed will hike interest rates. Despite the war, they will say they have first got to protect the dollar and consumer savings and still hike interest rates. So, the interest rate hikes in the US will continue. That is good for financial shares and not so good for the rest of the market in Europe. Whether they will hike interest rates or postpone it… I think they’ll postpone it. If inflation in Europe starts running 7%–8%, there is concern with negative interest rates. The underlying theme is interest rates will keep trending up.
On blockchain in the banking sector
There are a few banks that have really moved fast. JPMorgan is one. They have their own blockchain for clients to transact on. Wells Fargo and HSBC have got a joint blockchain for clients to transact on, Signature bank, which we were invested in. They are always on the front foot. They got involved and started a blockchain and a trading exchange signet. They are growing their loan book at 30%, also taking it all within the regulatory framework, allowing Bitcoin deposits and lending. Visa MasterCard, the same. It really made massive strides in providing for crypto payments on the so-called rails. Even Standard Bank has a JV; with Shinhan Bank in Korea exploring the possibility of a blockchain to facilitate payments. What blockchain really does is facilitate and enable 24/7 transactions. There is nothing like making a payment on Friday evening, but the bank is closed and it can only affect the transfer on Monday morning. So, things happen quicker, continuously and, in theory, cheaper. JP Morgan is such a big ship, it can afford to put $10bn into blockchain. A smaller bank cannot do that. A large organisation also has a negative if it has the wrong board and the wrong management team, you know, it becomes institutionalised.
Read also:Â
- From the frontline: Ronnie Apteker – Ukraine is fighting for the whole world
- Message for ‘confused’ SA from formerly embedded advisor in Ukraine, erstwhile UK-diplomat Cormac Smith
- Making sense of the Russia/Ukraine mayhem for South Africans
