It’s been a busy week for markets, with the national budget and a range of company results giving analysts lots to chew on. Helping to make sense of where the South African rand and some of the bigger listed companies are heading is investment expert Kimon Boyiatjis, of Cape-based Trident Capital.
Kimon speaks to Biznews editor Alec Hogg and his co-host Gugulethu Mfuphi on the CNBC Power Lunch, firstly revealing that he thinks the rand will strengthen briefly before weakening against major currencies in the medium to long term. In the fixed interest space, he is most keen on inflation-linked bonds.
He thinks Mondi is a “good” stock, but admits to being a little puzzled by Steinhoff. He says he isn’t particularly clear on the latter’s debt arrangements. Funds Kimon has managed have won awards on the basis of his expertise in the debt area. So, when Kimon is wary, we should be too. – JC
The rand, bond markets, Mondi, Steinhoff, MTN, Old Mutual: Kimon Boyiatjis looks ahead
To watch this CNBC Power Lunch video click here
ALEC HOGG: Old Mutual’s Chief Executive Julian Roberts shared his delight about the company’s performance this year – Old Mutual declaring a full-year dividend of six pence per share…sorry…a final dividend of six pence per share. That’s an improvement of 16 percent for the year as a whole, to take the total dividend to eight-point-one pence – that’s in pound terms, so in rand terms – wow. The paper and packaging group Mondi also reported positive full-year results today. Let’s get an in-depth look on that, the Rand, and the bonds with Kimon Boyiatjis, who is in our Cape Town studio. He is with Trident Capital. Well Kimon, maybe we can start off with the Rand: seeing it below 10.70. It was at 11.20 just a couple of days before the Budget Speech was delivered, so you certainly have to read into that, that there wasn’t anything that made international investors unhappy.
KIMON BOYIATJIS: Exactly. Hi there, Alec. We’re actually looking at the Rand strengthening a bit further, possibly even down to about 10.25, but I think what one must take into account…what’s been happening in other emerging market currencies over the past couple of weeks. We weren’t immune to that and again, I think those currencies are also strengthening marginally, but I think the trajectory in the medium to longer term is for our currency to go weaker. I think…short term – yes – expecting some kind of rebound against the Dollar, the Euro, and even Sterling, but if I had to take a medium to longer-term view, it would again weaken. I don’t expect it at all anywhere below 9.70, where we saw quite a big technical break a couple of months ago.
ALEC HOGG: 9.70. That’s a long way. That’s another two bucks but Kimon, let’s go, and look at the old mutt. Well, it’s not an old mutt anymore, is it? It’s a star performer – Old Mutual just getting stronger and stronger – super improvement in the dividend.
KIMON BOYIATJIS: It has been great to see them restructuring over the years and one of the things they’re also benefitting from is from their asset management side, where you see assets having contributed quite interestingly, much better than what was anticipated. What was needed was the restructuring. We saw that over the past couple of years and [unclear 2:22].
GUGULETHU MFUPHI: Kimon, taking a look at the Budget Speech on the fixed income market: did we see any movements there?
KIMON BOYIATJIS: No, I think we saw a big sell-off before the budget. I think there are concerns about growth going forward, so I think the bond market will be skittish. If I had to take a big step backwards and say ‘what’s going to happen to the bond market’, I’m not that bullish for bonds with a duration longer than five years, so I’d avoid that sector of the market. I think we will see rates internationally creep up and I don’t think we’ll be unaffected by that, so I’m a bit negative on the bond market, at least in the longer part of the yield curve. Where I’d like to be invested – and as you know, it’s one of my favoured asset classes – is in the inflation-linked sector. I think inflation-linked bonds should form a significant part of a portfolio, and no less than 15 percent. I’d actually have it – with our asset allocation – round about 20 percent currently.
ALEC HOGG: Mondi’s results, Kimon…
KIMON BOYIATJIS: Good. I remember when that stock was issued we actually managed to pick up paper, and I see now it’s almost quadrupled from a couple of years ago. I think that industry…I’m not that familiar with the way the paper industry actually works, to be honest with you. There are times when you see some really good numbers and then the share prices get smashed. I think it’s a good stock to hold and I do see that we can possibly even get to about 2.20 over the next couple of months and years.
GUGULETHU MFUPHI: Kimon, what do you make of Steinhoff? They’re seeing good volumes lately.
KIMON BOYIATJIS: Steinhoff…I’ll be honest with you, it’s not one of my favourite shares. I don’t really always understand the way they come to the debt market and the implications of their debt that clearly, so I prefer not to have too much to say on that share.
ALEC HOGG: Well…big volumes today and share prices are up two percent. The results are out next week, so somebody has an insight perhaps, and doesn’t mind their debt too much.
KIMON BOYIATJIS: It would be a little bit illegal if anyone had insights.
ALEC HOGG: Of course… What you do…surely, you guys do your analysis and you say ‘hang on, the markets have these numbers wrong. I’ll take a bet that the figures are going to come out xyz’ and it tends to move… It’s not really insider trading. It’s just insider instinct, isn’t it?
KIMON BOYIATJIS: Absolutely, if you do your homework…
ALEC HOGG: Kimon, what about the ongoing saga in the cellphone industry? MTN we know is taking on the Regulator. Vodacom has joined it now. Is that something that’s starting to get people a little bit concerned?
KIMON BOYIATJIS: I also just briefly read the headline with them both taking on ICASA. I’ve held two views. It would be great to be a shareholder of those companies. I think the expansion of MTN, particularly into other parts of the world… Vodacom’s a good business. As a user, I think what they’ve done is part of the reason they are so profitable. They haven’t improved or expanded their infrastructure as much as they have, so I think they have a couple of questions to answer. On balance, if you look at Regulators, the Regulators are actually there for the protection of consumers. Have they been providing the kinds of services to consumers as they’re supposed to? There are times that I’m a little bit sceptical about that, but I do think that a joint force of Vodacom and MTN is going to be quite an interesting battle with ICASA.
