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Rumours fuel financials frenzy
MARKET MOVEMENTS
RUMOURS of mergers, take-overs and looming interest rate cuts caused a frenzy on the financial index this week, with shares touching record highs and reaching astronomical price:earnings ratios. But analysts warn the financial index looks overheated, indicating there could be a correction around the corner. The financial index rallied to end the week at 13 344.2 after gaining 2% on Friday alone. A number of major financial shares ended strong runs over the week to close Friday at record highs. These included Liberty Holdings (which gained R10 on Friday to close at a R415 high), Nedcor (up 500c on Friday to R144), Stanbic ( R274) and Investec (R244.60) One analyst said financial services companies were usually rerated ahead of an interest rate cut, which is expected within two weeks. In addition, some financial shares, particularly banks, have been moving up strongly off a very low base. The major correction on the JSE at the end of October, which continued through to January, was not so long ago but now seems a distant memory.
The huge interest in financial shares reflects the flurry of speculation relating to merger and acquisition activity in the sector, as well as indications that interest rates will be cut by or on March 9, the day the new repo rate is introduced and two days before the Budget. Speculation about interest rates was fuelled further by several economic indicators which give Reserve Bank governor Chris Stals more than enough leverage to ease monetary policy. The Reserve Bank has indicated it will not cut interest rates before the new repo rate is introduced, but it is believed that the bank rate will be cut on that day by at least one percentage point from its current 16%. Much of the speculation in the financial sector has been around cautionary announcements relating to the financial interests of Rand Merchant Bank and Anglo American. They are in negotiations to merge their financial interests, a move which will see RMBH's Momentum buy Southern Life. The RMBH share has gone crazy since speculation began. The share surged 42% to R24.50 this week. African Life's hostile bid for Norwich has also seen movement in both shares. Norwich gained 11% over the last week to end at R11.80, while Aflife also gained ground, notching up 8% this week to end at R43. Norwich, which is opposing the bid, published its results for the year to December, which showed a 36% rise in headline earnings to 39.8c a share. Tomorrow Norwich publishes its defence relating to Aflife's bid, which closes on March 13. It is believed Orion Selections, which gained 12% to close at R15.40 on Friday, could appear as the white knight to take a stake in Norwich, although Norwich said on Friday it was talking to more than one potential partner and that it had received no formal offer from any party. On Friday NBS Boland, in the Orion stable, issued a further cautionary announcement. NBS was previously a 25% holder in Norwich, and Norwich previously refused the opportunity to entrench the partnership. Another deal in the making is the partnership between Capital Alliance and Capital Partners to form a new company. Capital Alliance gained 10.5% this week to nudge R30. Nail and its investments Metropolitan Life and recently listed African Merchant Bank have issued cautionary announcements. It is thought Nail could be looking at other financial services assets. Nail ended the week 18% up at 720c, Metlife gained 13% to R17.75 and AMB gained 7% to R30. Top of page
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"I am a bit nervous, the sector is on fire at the moment," an analyst said.