Picture: Paul Yeung/Bloomberg
Picture: Paul Yeung/Bloomberg

With SA set to resume almost-normal life in October — borders will open to international tourists, and we can buy booze on a Friday, mourn with more than 50 people and host an outside party for 500 of our closest friends — it would be cute to ascribe a latent buoyancy in the rand to a lift in the national mood.

Cute, but off the mark.

The currency has had its best run in six months, breaking through the R16.30 barrier to trade at R16.25 against the dollar on Wednesday night. But that was mostly due to the dollar weakening ahead of the US Federal Reserve’s last meeting before November’s US presidential election. On Wednesday night, the Fed indicated that interest rates in the US will remain near zero for a long time yet — until at least 2023.

The Financial Times has the round-up here.

It writes: “Until now, the Fed has said it would not tighten policy until it was confident the economy had ‘weathered recent events’.”

However, the Fed has now “laid out a more ambitious economic goal” — essentially, that it would seek to keep inflation around 2% “for some time”.

This will almost certainly be good for the equity markets for a while, but you can expect to see some rotation in what fund managers are buying.

If you can get your hands on it, the latest Bank of America (BofA) Merrill Lynch “Global Fund Manager Survey” report is instructive. Some of its key findings:

  • 58% of investors say we’re in a new bull market (compared to 25% back in May)
  • Rotation is the new game in town. The money is flowing to technology and health-care companies, with the appetite for industrial shares at the highest level since January 2018. Money flows into small-cap and “value” stocks are increasing, but banking and energy stocks are being shunned.

Beware the tech bubble

Perhaps the standout conclusion is that most fund managers are now “paranoid” about Big Tech. Betting on a further rise in these shares — which include the Fangs (Facebook, Amazon, Netflix, Google) — is turning out to be the “most crowded trade” of all time, BofA writes.

On Wednesday, Bloomberg’s John Authers took a look at the report, as well as the ongoing trade stand-off between China and the US.

“One of the most interesting conclusions to draw from the survey is that Robinhooders and other retail investors may indeed have a lot to do with the extraordinary ascendancy of the Fangs. The big institutions are terrified that there is already a crowded trade; the new breed of retail traders are happily crowding in tech stocks, and probably not even wearing masks,” he writes.

Robinhooders refers to the growing band of amateur traders who, using the zero-commission investment app Robinhood, have been hoovering up all kinds of stocks in recent months. And they just love tech shares.

That enthusiasm for tech stocks Authers refers to explains the first-day gallop in one of this year’s hottest IPOs — data storage company Snowflake, which made its market debut on Wednesday.

While Snowflake had been valued at $120 a share by its bankers, the price shot up as high as $298 a share on Wednesday — giving it a value of $68bn. Which isn’t bad for a company valued at less than a quarter of that — $12.4bn — a few months ago.

Read about the frenzy in this New York Times article here, and you’ll understand why some people are biting their nails over 2020’s new tech bubble.

*Talevi is the FM's Money & Investing editor.

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