SHARE WATCH: Volatility and negative interest rates

Cape Town - This week's share watch focuses on volatility and negative interest rates, wth Nedbank, MTN, Kumba and an ETF in the mix.

Old Mutual announced that it will be reducing its stake in Nedbank Group by distributing shares in Nedbank to its shareholders. This move forms part of Old Mutual’s strategy under their new CE, Bruce Hemphill, to streamline its business by separating its four main businesses.

Old Mutual is yet to reveal how big the reduction in their Nedbank shares will be and exactly how it will take place.  It is however expected that the process will be completed at the end of 2018.

Nedbank ended Friday at R174.01.

2. MTN [JSE:MTN]

The MTN Group offered to pay the Nigerian authorities $1.5bn to settle their fine for missing the deadline by which they were supposed to disconnect unregistered SIM card users. This follows a good faith payment of $250m that has already been made towards a settlement. MTN is still negotiating with the Nigerian authorities to reduce the initial $3.9bn penalty.

According to media reports, MTN is proposing to pay the fine through a “combination of government bond purchases, cash instalments and network access to the Nigerian government”.

MTN ended Friday at R145.03.

3. Kumba Iron Ore [JSE:KIO]

On March 7, Kumba Iron Ore's share price jumped by 34.62% to close the day at R11.95. In light of increasing worldwide economic stimulus, investors are expecting Chinese policy makers to further ease monetary policy to boost the Chinese economic growth and its steel industry. 

On Monday, the iron ore market kept on gaining as sentiment drove prices higher causing a lot of high frequency traders to get in on the action. The rally in iron ore prices is not expected to last as the supply and demand dynamics have not changed.

Kumba Iron Ore ended Friday at R93.99.

4. New Gold Limited

New Gold Limited is a gold bullion backed exchange traded fund (ETF) listed by ABSA bank. The ETF tracks the rand price of gold bullion. With central banks around the world using negative interest rates, it is becoming cheaper to store gold than to put money in the bank, as its storage cost is being eliminated.

In times of market uncertainty, as we are currently experiencing, gold has historically been a safe haven for investors. The gold price is currently trading at around $1 250 per ounce and at these levels, fund managers are still adding to their portfolios.

New Gold ended Friday at R185.08.

5. Negative interest rates (This is technically not a share but is highly relevant to the share market)

This week saw the European Central Bank cut its main interest rate from 0.05% to 0% and the bank deposit rate from -0.3% to -0.4%. The reason behind the move towards zero and negative rates is that central banks around the world believe that they can boost their economies and create inflation by lowering rates and continue printing money.

Classic economic theory suggests that lower rates will lead to more money in the economy, which in turn stimulates growth and inflation. Yet, we have seen no economic growth and no inflation. Why? The transmission mechanism might very well be broken and the link between the central banks and the main economies is not functioning properly.

Central banks can cuts rates all they want, if consumers and businesses do not have sufficient confidence in the economy, they won't spend, invest, and drive the economy and inflation.

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* Kirk Swart is a director at Overberg Asset Management (OAM), an authorised financial services provider (No 783) which specialises in the private management of local and global discretionary portfolios as well as pension products.

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