Weekly Money Show interview | A dynamic landscape of opportunities and strengthening currencyAnother possible merger & acquisition in Telkom generates interest due to potential growth prospects in business because of fibre infrastructure specifically in under-penetrated areas. And positive sentiment surrounding loadshedding and averted US debt default contributed to the rand's strengthening, along with interest rate differentials favouring the currency. DATE: 14 JUNE 2023 | LISTEN TIME: 5 MIN

      The Money Show  00:05

      Meryl Pick joins me now, she is a Portfolio Manager at Old Mutual Investment Group. Some activity on the market today. Let's start with Telkom and that unsolicited bid that's moved up the share there.

      Meryl Pick  00:18

      Good evening, and good evening to your listeners. Yes, you know, it's not the first time that we've seen some potential M&A activity in Telkom, and the share tends to be quite sensitive to that, although it did retrace during the day. So, you know, earlier, let's say within the last year, we had a potential deal between MTN and Telkom, which seemed to fall through because Telkom was talking to another party. And now, there's a third hat in the ring. 

      And this one is particularly interesting, because obviously, the leader of the consortium would know the business very well. And when he was at the helm, passionately believed that the share was worth much more or the sum of the parts was worth much more within the business than the market ever gave credit for. So, this is particularly interesting and does raise that theory, again. I think clearly scale and efficiency is important in the telco industry. If we look at telco industry globally, after some years, they tend towards cost of capital businesses and good cash generating, high dividend paying, but not very exciting businesses. South Africa did have a growth phase when cell phones were a new technology in the country. And I think the interesting bit here is the fiber infrastructure, and particularly their market share within the business sector- 

      The Money Show  02:03

      That's like their crown jewel right now.

      Meryl Pick  02:06

      Exactly. So, I think that is the bit where there's interesting growth prospects, in our opinion, where South Africa remains under-penetrated. And I think those are the parts, those are the assets within the group that are the most interesting.

      The Money Show  02:28

      And then for the Rand today, we saw the JSE down, but the Rand having a much, much better day, up more than half a percent against the US dollar, up more than 1% against the euro. And also up by close to one and a half percent against the pound. You know, we've had this positive sentiment talk from last week, better loadshedding schedules, especially during the day in the country. But what else is strengthening the Rand this time around?

      Meryl Pick  02:51

      Yeah, I think it could be some... look, I think the Rand has moved weaker against the dollar, along with many emerging market currencies, particularly last week, perhaps some of the risk-off sentiment was lifted as the US reached a deal and averted a debt ceiling. A vote of default, essentially. So, that's one factor. 

      But I think the SA or the South African specific factors and sentiments around loadshedding must have an impact at the margins, so better or more confidence statements coming out of Eskom, I would think do have an impact because the Rand has, yes, performed with emerging market currencies being weak, but within that basket has been one of the weaker performance against its emerging market peers. So, there are some country specifics that perhaps we've seen the worst of that news for now.

      The Money Show  04:00

      And there's still some risks for the Rand, especially this week. We know there'll be interest rates announcements in the US, the Eurozone, Japan as well. So, that could shift some luck for the Rand, but if we see the United States Central Bank on Wednesday, holding interest rates, what bearing would that have on our currency?

      Meryl Pick  04:21

      So, you know, the SARB has been really quite proactive and aggressive in terms of its rate hiking cycle. It has matched the US Fed blow by blow and arguably gone ahead of that with the most recent increase ahead of market expectations for the most part at 50 basis points. So, that inflation differential which does other than kind of sentiment and risk-on, risk-off,  the interest rate differential and inflation rate differential do matter. So, a pause at the Fed level should actually be beneficial for the Rand going through the cycle because the interest rate gap between our interest rates and the US has been growing with our hikes passes going through.

      The Money Show  05:17

      All right, and long may continue, that Rand strength. That was Meryl Pick, Portfolio Manager at Old Mutual Investment Group.