John Clemmow: Global Market Report

MONEYWEB, BY BRUCE WHITFIELD, 23 NOVEMBER 2001

BROADCAST TRANSCRIPT: John Clemmow from Investec London is with us know. John, I don’t know how much you would like to say about the news which came out yesterday that there is to be an Investec listed in London. But what’s the reception been like in the corridors of Investec, where you are?

JOHN CLEMMOW: We’re all very pleased. Steven Koseff yesterday said that this has been a process that was initiated four years ago, that it’s a process that he and the senior management team at Investec think is vital for the future growth of Investec. I could see the emotion on Steven’s face when he announced the move that he and his management team think is very important to us. I could just correct possibly your previous correspondent in one little detail. He’s quite correct in saying that it looks highly unlikely as though Investec London would be large enough to qualify for the FTSE 100, and therefore those tracker funds that do look at the FTSE 100 wouldn’t be picking up Investec. But by far the majority of tracker funds actually look at the FTSE 250, which Investec would certainly qualify for. So I don’t know at what level there would be demand, but there certainly would be tracker demand for Investec London listing.

MONEYWEB: Based on current valuations, though, we would see Investec at between 110 and 120 on the FTSE 250, wouldn’t we?

JOHN CLEMMOW: I don’t think we’d see it at that level. As far as I’m aware, for the listing purposes, the value of market capitalisation in London will be just that of Investec London – not of the greater Investec group. Rather like the case of Billiton BHP where the market capitalisation for index purposes of Billiton BHP in London is just the Billiton element, and in Australia is just the BHP element. That’s the way these structures work. So, in effect, you would be just having the assets of London valued in London and the assets of South Africa for market cap purposes in South Africa.

MONEYWEB: We’ll pick up more on this Investec story with Kokkie Kooiman at coronation in just a couple of minutes’ time. John let’s have a look at the markets now because the American markets were closed yesterday. It’s been a half day in America today. Doesn’t seem to be much news coming out today on this long weekend?

JOHN CLEMMOW: No, it looks like it’s by far the quietest day of the year. I think there is some news that is quite interesting relating to the market. The first bit of news was late on Wednesday we got some data on money funds. Our Moneynet reported that the inflow of individuals and institutions into the market has increased. $22bn of new money entered into taxable money funds in the week ended Tuesday. This means the total amount that’s now in there is a staggering $2.01 trillion dollars. This is the first time ever that the $2 trillion level has been broken. And the flow of money into taxable money funds is up $200bn since September 4 and $440bn since the Fed started easing in January. In short, there is a great deal of money going into the American stock market. And given that IPOs are still very thin on the ground, given that you’re seeing far more share buybacks than share issuances – when you get that much money and you get so little new equity out there, you tend to see a market that goes up.

MONEYWEB: What does this tell you about the medium-term view on American markets then?

JOHN CLEMMOW: You have to consider that for American investors sitting in their domestic market, interest rates are now effectively negative. Putting your money in the bank is going to lose you money – even before tax. After tax, of course, that’s a certainty. So I think investors are rallying to the flag. There’s a wave of optimism in that the war in Afghanistan is going well, that Osama Bin Laden will be captured or possibly found fairly soon. And that as a result there’s money flowing into the equity markets. Now, this may be a little naïve, but the data that’s coming out of the United States has turned almost uniformly bullish, and it appears as though the recovery in the United States is under way. We’ve heard calls all over the place that September 4 was the bottom of the metals cycle. We’re about to see metal prices going up. And that explains, by the way, why you’ve seen such strong performances on the mining sector. Not just in South Africa, where you’re protected by the rand, but in Australia, in the United States and here in the UK, where Rio is very strong again today. There’s a lot of feeling that the market has turned. I have to say there are still pessimists out there who point out to the extremely high level of valuations that you’re seeing in the S&P 500 and the Dow. But we as a house are optimistic that the American economy will surprise on the upside, and if that’s the case, you will tend to see an improving market. I would just caution one thing. Our investment strategist pointed out earlier this week that usually the first year of a recovery is not the best year to be in the equity market. It’s a reasonable year, but it’s not the best year. We in general are optimistic. We think the markets are going to pick up.

MONEYWEB: And then John, finally, Tony Blair has been speaking on the euro and we’ve seen the pound slip. What exactly has he been saying? Is he moving closer and close to the European single currency?

JOHN CLEMMOW: Well, there’s two wars being fought in the UK at the moment. One in Afghanistan and one between Tony Blair and his chancellor. Gordon Brown and Tony Blair dominate British politics to an extent that it’s hard to imagine elsewhere, but they don’t seem to particularly like each other. In particular, Mr Brown believes that at a famous lunch before Mr Blair ran for party leader, Mr Blair agreed to step down after his first term as prime minister and allow Mr Brown to become prime minister. As Mr Blair shows no signs of doing that, Mr Brown is getting quite sulky. Mr Blair seems to now believe that it’s his destiny. He believes – he is quite messianic and believes these kind of things. It’s his destiny to take Britain into the euro and Mr Brown is his chief opponent. Now we’ve seen all kinds of leaks and sniping in the press from Labour Party lieutenants in either camp saying whether we should or shouldn’t go into the euro. But Mr Blair now seems convinced that it’s time for Britain to go in, and it looks as though he’s going to take a gigantic political gamble and hold the referendum on the euro on the date of the next general election. And the reason why this is a gamble, is that almost already you won’t bet against Labour winning yet another landslide in the next general election. Conservative opposition is in complete disarray and Mr Blair is extremely popular. But on the other hand, seven out of ten Britons say they don’t want to join the euro, and the number of those anti-euro is increasing almost day to day. So Mr Blair would be fighting a campaign where people might be voting for him, but against the policy that he’s campaigning on, and it might make things a little difficult.

MONEYWEB: John Clemmow at Investec London. Thank you very much for joining us. British politics is certainly something which is worth watching. Pictures in newspapers, British newspapers, this week showing lots of friendly smiles and handshakes between Gordon Brown and Tony Blair. Would Britain’s entry into the euro have any effect on South Africa whatsoever?

ARTHUR BUCHNER: I don’t think so, but I think it would be a bad move from their perspective. You know, they are one of the banking capitals of the world. Why go and suddenly support Spain and Portugal and Italy and so on when your economy’s running? Their parliament is fascinating to watch like a comedy show. I’m surprised they don’t throw oranges and pawpaws at one another.

MONEYWEB: Prime minister’s question time I think happens every Tuesday afternoon, and it is among the best television viewing anywhere in the world.

Arthur Buchner from BoE Securities. Before that you had John Clemmow at Investec London.

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