What you need to know about trading derivatives

8 March 2011

Derivatives can help you hedge against risk, but you need to ask some smart questions before you introduce them into your portfolio.

When the JSE partnered with Deutsche Bank to launch International Derivatives (IDX), an asset class allowing South African investors to trade single stock futures (SSFs) on internationally listed companies, investors revelled in the opportunity to participate in international markets.

Towards the end of 2008, the JSE was ranked the 10th largest derivatives exchange in the world, by number of contracts traded. This ranking was published by the Futures Industry Association (FIA).

Derivatives trading is big in South Africa—but it’s perhaps important to note that we’re not talking about opaque, non-exchange-traded credit derivatives, which were largely to blame for the United States credit crash in 2007. The credit default swaps that caused all the trouble are not traded on an exchange and there was no transparency surrounding the dark, unregulated pool of about a trillion dollars’ worth of swaps. But that is another story.

Derivatives are considered useful because investors can unbundle and transfer some financial risks, while some products like IDX can also provide additional diversification in a portfolio. Olatundun Janet Adelegan, who works for the International Monetary Fund (IMF), has noted that our derivatives market was developed to self-insure against volatile capital flows and manage risks associated with the high volatility of asset prices.

How are derivatives traded?
In South Africa, most derivatives traded can be divided into two classes of instruments: options and futures. They can be traded in two ways—through a broker, that is, on an exchange like the JSE, which is regulated. They can also be traded OTC (over-the-counter).

OTC trades are usually for big, professional investors who understand the markets and are aware enough of the risks involved not to need the protections of exchange trading. However, in South Africa, there is also a large retail OTC market in CFDs. A CFD (contract for difference) agreement is a bilateral contract between, say, a bank and a private individual, whereby the buyer must pay the seller the difference between the current value of an asset and its value at the time the contract is concluded.

You can’t enter into CFDs in the US because the US Securities and Exchange Commission has restricted over-the-counter (OTC) financial instruments to professional users. OTCs are not regulated in South Africa, but you can access the market in two ways: through online trading, or over the phone with a financial or other institution.

SSFs are the exchange-traded version of a CFD and offer transparency and effective regulation missing from CFD trading.

How does the IDX set of products work?
The JSE’s IDX (International Derivatives) allows investors the opportunity to trade and gain exposure to price movements of internationally listed equities or shares. The JSE’s Equity Derivatives Market (SAFEX) lists, regulates and margins these products daily in order to provide a safer investing framework for investors.

Depending on the kind of investor you are, you can use derivatives to hedge your portfolio (that is, reduce risk by protecting a particular share portfolio against a drop in price in the market). Or you can also try to make a profit on the short-term movements in the contract price of a derivative, but this is obviously a rather risky enterprise.

The advantage here is that the JSE regulates the trades. You therefore have some protection against fraud and undeserved financial losses. Pricing is also more transparent, you can see how the market is performing and whether you have received a fair market price. Through the JSE’s central clearing house your profits or losses are guaranteed to be paid even if the other side of the trade defaults. This minimises credit risk.

How does a CFD or an SSF work?
SSFs and CFDs give you much greater exposure to the market by affording you leverage. This means you can profit from the market without having to pay the full amount invested in cash upfront. Rather, you are borrowing funds to trade in the market. But this also means that you can lose a lot more, because if the market makes an abrupt correction you may have to pay significantly more than the cash you used to take the position.

“Instruments such as (CFDs and SSFs do have a place and purpose in financial portfolios but the associated risks must be clearly understood and mitigated where possible,” says Allan Thomson, head of derivatives trading at the JSE. He recommends trading on a regulated formal platform. He cautioned that although CFDs may appear to be cheaper products, they do have a hidden interest-rate on which both the interest rate and the principal amount on which interest is charged, can fluctuate daily.

This is in contrast to a SSF, where the interest rate and principal are fixed for the period invested. “The net effect is that CFDs’ interest costs can fluctuate and for longer periods will often be more expensive than SSFs,” he says.

There is a large OTC trading market for derivatives in South Africa for large institutions and professional traders. These trades are regulated by the International Swaps and Derivatives Association Master Agreement. As a professional investor, you still need to check that these transactions don’t run contrary to South African regulations. Also, there’s less price transparency because these transactions are often performed privately and bilaterally. This means that unless you are a very experienced trader for a large institution, with good insights into the correct pricing of complex derivatives, you may want to avoid OTC trading. 

The underlying market risk is the same for SSFs and CFDs
It’s important to note that the underlying market risk is the same, whether you’re investing with SSFs or by means of CFDs. But where you may be taking on more risk is entering into CFD trades with a small brokerage with small balance sheets.

This is naturally a credit risk for investors where the profits owed to them and their deposits at that firm may not be safe.

South African investors may remember Dealstream, the brokerage trading in unregulated CFDs, which defaulted on its payments to its clearing agent, Rand Merchant Bank, and subsequently went under. (Interestingly, Rand Merchant Bank started the first informal futures exchange, in 1987.)

But it’s not all plain sailing with SSFs, either—the Bourse had to tighten its rules on SSFs in early 2009 when client defaults forced Absa bank to buy stakes worth R1,4-billion in the four JSE-listed companies involved. (Absa is a clearing agent on the futures market.) Absa then announced it would take legal steps to recover these losses.

Note that you’re required to match your losses with cash if a price move works against you. If you can’t do so, the position you’ve taken will be closed by your broker and loss will be inevitable.

As long as the investor understands that derivatives are perhaps inherently risky trades, and proceed with caution, he or she can take advantage of the leverage offered. Derivatives are useful instruments—but they can also be dangerous, so make sure you’re well-informed before you dip your toe in the water.

Questions you need to ask:
Before you dip into derivatives, ask some pertinent questions.

• Is the seller authorised to sell these instruments with the JSE and or the FSB?


• Is the firm a member of the exchange?


• Is the product traded on an exchange and does the exchange have a record of you as a registered client?


• What interest rate will I be paying and will it be annualised? Is the interest rate sufficiently competitive?


• How does a CFD provider manage risk? What are the clearing processes like?


• Be careful when it comes to online products—websites may make false, misleading or deceptive claims or forecasts. This is an offence in terms of the Securities Services Act, so don’t take anything at face value: ask for more information and check with the JSE or the FSB.

It’s important to note that pension funds and long-term insurance companies allocate only a 15% foreign allowance in terms of futures; and asset managers and registered collective investment schemes have a limit of 25% foreign allocation.

This article was published on the Mail & Guardian website. 

Why socially responsible investing affects you

The environment wasn't the only thing to suffer with BP's oil disaster. Investors lost R723-billion as BP violated 760 safety regulations.

Investors -- including more than 1 000 institutions that owned portfolio stock in BP to the combined asset value of $2,7-trillion -- took a serious hit.

BP lost more than half its market value, which fell as low as $26,75 a share by June 28, though it rallied to above $40 a share in August. Its weight in the FTSE 350 index fell from about 7,1% to 4,6% and for a time investors' hearts were in their mouths.

Assuming BP can contain the cost of the spill in the coming months, it may be business as usual for the multinational oil company. But investors may well hesitate to put their money into BP stock, particularly as BP faces 300 federal lawsuits and has had to set aside $20-billion for a claim fund.

Institutional investors are also threatening to sue, claiming the company inflated its share price by misrepresenting its safety record. Environmental activist George Monbiot writes caustically about this on his website, monbiot.com: "They might not have been warned by BP, but they were warned repeatedly by environmental groups and ethical investment funds."

Assessing risk
After the disaster, fund managers scrambled to gain assurances from oil-industry players that any possible future accidents could be handled so that investors would not be the losers. But can oil companies give them the assurances they need?

Deepwater offshore oil and gas drilling is notoriously risky. Quite apart from spills, deepwater drilling can throw up toxic metals from mud, which may end up in our seafood. At best, the ethics are dubious; at worst, environmental catastrophes are a very real possibility.

Of course, one might argue that, after a decade of deepwater drilling without incident, one accident is an anomaly. But the fact is, the risk remains. BP's 2009 annual review, titled "Operating at the Energy Frontiers", spells this out clearly: "Risk remains a key issue for every business, but at BP it is fundamental to what we do. We operate at the frontiers of the energy industry, in an environment where attitude to risk is key. We continue to show our ability to take on and manage risk, doing the difficult things that others either can't do or choose not to do."

Terence Craig, writing for Element Investment Managers' quarterly newsletter, poses a crucial question -- why did analysts not highlight the risks posed by BP's drilling activities? With enough research into BP's safety record, could they not have factored this risk into their valuations of the company? Craig points to a US government department study showing that, during the past three years, BP violated no fewer than 760 health and safety regulations. By contrast, Sunoco and ConoPhillips recorded eight violations, Citgo two and Exxon one.

"Shareholders and analysts should have been focusing more on BP's safety standards and procedures to prevent such a disaster," Craig suggests.

Potential claims
Prasheen Singh, head of RisCura Investment Consulting in South Africa, says that investors need to know what effect any potential claims against a company in the future might have on that company's bottom line. "When managers assess the value of the company for investment, some of the measures that they may look at are how much free cash they have, and what their earnings growth potential is, and so on -- in the case of BP, for example, the effect on earnings as a result of potential claims against the company should also be factored into the assessment of the company and understood."

The event has highlighted something investors and analysts can no longer choose to ignore -- environmental impact. Yes, analysts have taken corporate governance and social issues into account with regard to valuation, but environmental matters are increasingly a factor.

"BP's drop in share price represented a loss of £63,2-billion in market capitalisation -- in rand terms at end-June this represented a R723-billion loss of value -- more than the value of Anglo American, Sasol and Standard Bank combined," Craig said. "Given that most UK [and possibly global] pension and mutual funds will have been invested in BP, an understanding of environmental risks is clearly material for investors."

Socially responsible investing
Socially responsible investing (SRI), also known as values-based or ethical investing, has traditionally looked at social infrastructure, development, roads, rails and so on here in South Africa.

The safety record of mining companies and the possibility of asbestosis claims are already taken into consideration by analysts. However, Singh feels that environmental issues should be top-of-mind for asset managers in today's investment climate. "Look at the potential of a company down the line and the legacy we leave behind for future generations," says Singh. "Responsible investing is increasingly on the agenda in South Africa, but it's not yet mainstream. And yet asking if companies are serious about accountability is a very important question."

Analysts are slowly starting to factor in investments that are not just secure and promise adequate financial returns, but which are also ethical. Ethical investments are inclined to focus on avoiding companies that causes illness, disease and death and which may damage or destroy the environment. Tobacco companies therefore get the cold shoulder, as do companies that pollute the environment or produce biohazardous products.

The pension-fund scenario
If your pension fund is invested in a company, it's essential to ask some questions, as diversifying into publicly offered funds seems to be the most sensible way to structure such an investment:

• It is not possible to predict which companies will have accidents, though some ventures are obviously riskier than others, as inherent sector risk is a fact of life. The question to ask is, how will the company I'm investing in manage any fall-out? How will the balance sheet, the share price and cash-flow be affected? Are they responsible in the management of these risks?


• Pension funds should disclose how their responsible investment strategies are put into practice. What are the exclusions and affirmative criteria? Can your analyst explain how the shortfall risk has been minimised?


• Does the fund have a large surplus and how does it intend to invest this?


• A company may be heavily involved in alternative energy initiatives, but look at the bigger picture -- what does its core business entail? BP is an object lesson, because about 3% of its capital spending is in renewable power: wind, solar and biofuels. So BP may have a better reputation than its peers -- like ExxonMobil, for example, which invests only 1% in renewables -- but does this make a difference in the face of the oil spill?


• Singh points out that South African pension funds of companies are separate legal entities and thus the assets of members may not be used to fund claims against the company. In terms of the members' exposures to the company assets, pension-fund regulation in terms of prudent investment guidelines stipulates general maximum limits for investment in certain asset classes, and further restricts the investment in sponsoring employer assets.

First published Mail & Guardian's Smart Money site, 26 August 2010.

Is your divorce a corporate risk?

There's only one thing more fascinating than a celebrity marriage, and that's a celebrity divorce. Particularly when it's messy, vituperative and, yes, expensive.

But it's when we think of divorce as a corporate risk that it takes on another whole dimension and provides cautionary tales to give CEOs nightmares. It may be bad enough that the dirty laundry of CEOs is aired in public, but the whole process can cause a chain of complex reactions: damage to company brand; shareholders asking questions, which can ultimately benefit the public but not necessarily the company; and the tricky financial fall-out of some truly convoluted deals.

Not to mention how the hits a company takes may affect the average employee.

Take Elon Musk's divorce from his wife Justine, for example.

Musk ploughed most of his own money into Tesla, off the back of his sales of Zip2 and PayPal to Compaq and eBay respectively. Tesla has been his 'baby' in a certain sense -- his electric car venture has consumed him. He netted $48-million in income investments between 2005 and 2008, which were sunk back into Tesla and SpaceX, a space exploration concern. But court filings brought his cash-flow problems to light, revealing he was living off personal loans from friends since October 2009.

Tesla also had cash-flow problems and had borrowed from the United States government (a cool $465-million in low-interest loans) through a Department of Energy loan programme.

At the time, Tesla was looking to go the IPO route -- but the Securities and Exchange Commission (SEC) pored over Musk's personal financial affairs, asking whether Tesla was forthright enough in its filings regarding how his impending divorce would affect the company's bottom line. Tesla was relying heavily on Musk's continued financial interest in his entrepreneurial venture, reimbursing him for his private jet flights in return, as well as awarding him 6,7-million stock options in December 2009.

The situation looked liked this. Musk's shares in his company, Tesla Motors Inc, were held in private trust -- but his wife sought half his stock in Tesla and 5% in his stake in SpaceX as part of a divorce settlement. If Musk's shares had been declared marital property, he would not have been able to sell his holdings without permission from his ex-wife. If he lost a large shareholding, Tesla would be in default of the Department of Energy loan and the company's IPO could have been in jeopardy. (As it happens, the IPO went ahead -- Tesla raised more than $226-million.)

Justine, a fantasy novelist, went into some detail about the divorce on her blog (http://moschus.livejournal.com), stating: "For those who want to know the extent of my golddigging, this is what I asked for, from my ex-husband and the father of my five children Elon Musk, who is a billionaire -- albeit with cash/liquidity issues, which I would work with him to work around -- and utterly brilliant.

• The house


• Alimony and child support


• 6-million cash


• 10% of his stock in Tesla


• 5% of his stock in SpaceX (and he retains all voting rights)


• A Tesla Roadster (I really, really want one...)"

During divorce proceedings, Justine contended that the postnup Musk had asked her to sign could be dismissed as fraudulent as the value of his X.com stock was millions of dollars more than he had reported on the postnup (a postnup, unlike a prenup, requires complete financial disclosure because of 'marital fiduciary duty').

Musk eventually won the case 'due to a technicality', Justine wrote.

This, then, is how corporate divorce can wreak havoc. The personal goes public and legal wrangling can affect shareholdings -- and investors.

What shares and perks are worth
"Few shareholders would consider that the divorce of its CEO could affect their investment, but the risk exists," says Colm Tonge, national leader of PricewaterhouseCoopers' Disputes practice. "A difficult scenario which has emerged in the US is where the divorced spouse could be awarded shares in a divorce settlement introducing risks of tactical voting, boardroom battles and takeovers. A company can be in breach of debt covenants if a key shareholder's stake is reduced."

Another key issue is the valuation of shares or share options. In Musk's case, he has little cash but his net worth is inextricably linked with the future success of the business. In many cases, it takes a public listing to unlock these.

"This holds true of BEE transactions in South Africa, where it is normal for shareholders to be locked in for a period of time," says Tonge. "In divorce cases, there needs to be a division of assets. One of the most contentious issues is often a spouse's interest in unlisted businesses or entities in which he or she is integrally involved. Valuation of shares or share options, vested or not, is often a major argument."

Typically, the 'breadwinner' will argue that options that have not vested are worthless and cannot be accessed or turned into cash at the date of divorce. But share options usually have a 'future value', says Tonge, or they would not provide the kind of incentive for which they have been designed.

Tonge says the Black-Scholes Option Pricing Model is often used to calculate the value of share options. But calculations can vary widely, depending on the assumptions used, so this can be a lucrative battleground for lawyers. Gone are the days of going after assets like a house or a car -- 'soft' assets like unvested stock options and pension benefits are now brought to the table.

Another international headline-making case was the divorce of Jack and Jane Welch (Beasley). The founder of General Electric (GE) found himself outplayed by his mergers-and-acquisitions lawyer spouse, who divorced him after 14 years of marriage. When Welch drew up a prenuptial agreement, Beasley insisted on a 10-year time limit to its applicability, so she left the marriage with about $180 million.

Beasley's attorney published an affidavit revealing a retirement package that allowed Welch unfettered use of corporate jets (worth more than $290 000 a month), a limousine, a cook and country-club memberships. The Securities and Exchange Commission duly took a closer look at the perks.

"A reasonable shareholder would certainly wonder how these expenses serve the organisation, assuming that is was aware of them in the first place," says Tonge. "Potential shareholders may shy away from organisations that are perceived to put the lifestyle of management before the company's interests. And how are those 'perks' to be valued?"

How indeed?

When it comes to divorce, settlement is the one thing that can make it all go away, but to achieve that seems well-nigh impossible in some cases. Forensic accountants are called in to examine tax returns, accounting records, invoices, contracts, financial projections. They search for hidden assets or hidden income. They perform business valuations and examine tax consequences.

"A major issue in divorces of the rich is offshore assets," says Tonge. "Most large estates will include some allegations of property and bank accounts in other jurisdictions. It was hoped that the South African tax amnesty of 2003 would minimise these issues but the reality is that if the assets were undeclared and undetected to that point the temptation to keep them overseas was real."

In fact, it is difficult for forensic auditors to trace overseas assets without knowing where to start looking. Periodically topped up overseas funds and a transfer of assets after divorce proceedings have been instituted can be detected. But if assets have been lying untouched for years they may remain hidden.

"Once identified, such assets can be ordered by the Court to be repatriated," says Tonge.

Reputational damage
Liza Segal, an advocate specialising in divorce and family law and a co-founder of Ad Idem, a family and divorce settlement mediation company, says that, in the majority of divorces in South Africa, the claim for a portion of the other's estate is a monetary claim and not a claim for a particular asset, that is, shares in a company. As such, the settlement agreement should not affect the other shareholders. Unless the parties specifically agree that the wife will acquire shares in the company in lieu of money, the wife will not become a major shareholder in the company.

What may affect shareholders in a company, or cause shares to decrease in value, is public perception regarding the stability or integrity of the particular director who is involved in divorce litigation. Usually, the company is not a direct party to the proceedings and, in the absence of the company being joined as a party, the court cannot make orders binding it.

Segal's business partner, Deanne Kahn, says that the only way around a messy, expensive, litigious process is through settlement mediation. "The mediator provides guidance for the couple on the anticipated range of likely court outcomes and helps them to reach a mutually acceptable resolution," she says. In other words, the outcome will be the same whether the matter goes to court or not -- but the process will be less protracted, less costly and, perhaps most importantly, not as disruptive to business. "The incessant flow of applications and counter-applications, pleadings and affidavits can be avoided," says Kahn.

Of course, both parties have to want to settle. By all accounts, both Musk and Welch resisted and the escalating hostilities played out on the pages of newspapers around the world. Embarrassingly, they're still on the internet for leisurely inspection. And although we might feel a certain schadenfreude seeing the cheating wealthy come unstuck in a way that smacks of karmic justice, we should also spare a thought for the employees, families and shareholders who stand to lose just as much, in their own way, when corporate divorce turns ugly.

How can you find out where your partner's wealth is kept?
Kahn says the first step would be to extract as much information as possible on a voluntary basis by requesting details of all assets, both movable and immovable, locally and abroad. In the event that this proves insufficient or unsuccessful, it is possible to subpoena third parties to produce documentation and to testify at court and to compel the other party by way of court order to produce the desired documentation.

Also, it is not unusual for parties to appoint a forensic auditor in complicated matters, or in matters where large estates are involved, to investigate the extent of the opposing party's wealth and to produce a forensic report containing details of that party's estate.

Geraldine Macpherson, a legal marketing specialist with Liberty, says that many wealthy business owners transfer their assets (including their shareholding) to trusts and set up multiple trust structures, to confuse matters more. If the soon-to-be-ex spouse can show that the trusts were not being correctly administered and used, she can potentially lay claim to the trust assets.

"In the case of Badenhorst v Badenhorst 2006(2)SA755(SCA), Mrs B, on divorce, was granted a share in the trust because the court found that Mr B basically ran the trust as if it were an alter ego of himself -- he used the trust assets as if they were his own, the other trustees were not actually consulted or involved in the administration of the trust and for all intents and purposes the trust was merely a sham," says Macpherson.

"From what I see in practice, most people who establish trusts do not run them correctly and in fact incorrectly consider the trust as their own personal property. If the spouse is a co-trustee, she will have a good idea of whether she was actually ever consulted on any trust matters and whether her input was actually given due consideration. If not, the information can be more difficult to come by, but a sharp attorney would be able to get his or her hands on it -- records of trustee meetings should be held, trusts need to have separate bank accounts and so on."

Macpherson says that trusts do not necessarily provide the protection that one thinks they do. She also says that if a spouse is married in community of property, she should have given her consent for assets to be moved into a trust -- if this was not the case, she has a right of recourse and may be entitled to share in the trust assets.

* First published December 2010, Mail & Guardian

Janet van Eeden interviews me about Oleander

Fiona Zerbst, author of Oleander, in conversation with Janet van Eeden Fiona Zerbst , Janet van Eeden

Mediocre poems are just not good enough.

Fiona Zerbst’s fourth collection of poetry, Oleander, shows a poet at the height of her craft. Zerbst confronts a diverse range of subject, from the ephemeral Butterflies, Moths and Wings to grittier topics such as the aftermath of Cambodia’s brutal past in Remembering S-21, Cambodia. All are approached with masterly skill. Zerbt’s control of poetic traditions enlivens her thought-provoking poetry. She is able to wield her pen with a surgeon’s skill as she dissects all aspects of the human condition. It’s a long time since I’ve read poetry which was written with such technical prowess while also resonating with the sensitivities of its perceptive author. JvE

JvE: You have travelled a great deal in your life Fiona and this comes through in your poetry. In fact it seems that your journeys into less than touristy areas such as Vietnam and Cambodia, the Ukraine and Russia for example, seem to inspire your work. Does your love of travel go hand in hand with your love of writing poetry? Which do you think comes first: the travelling or the poetry?

FZ: The love of poetry came first, before I had travelled anywhere. But when you travel you engage with so much – people, places – that you inevitably feel the need to talk about what you experience. Also, it is easier for me to talk about the politics of other countries than of my own country. It is easier to find a language, a lexicon, and achieve the necessary distancing.

JvE: I was very impressed with your style of writing. In the age of free verse it is refreshing to find such well crafted poems. You use all the literary tools which the master craftsmen/women of poetry used to have at their disposal: rhyme, meter, assonance for example in some of your poetry. I quote an example here where you use these devices in the beautiful poem Butterflies:
II
It was more
like seeing nature panic
than unhand that stir
of wings, a beauty
much too strange
to hold. In salt-worn
shells, the core
of death lay hidden
but, like duty,
life, unbidden,
rose on flaky wings
to beat as living things.

JvE: (Cont) So the question is what makes you draw on traditional poetry structure these days when it is regarded as slightly unfashionable?

FZ: I think a poet needs to master his or her craft before writing free verse successfully. Once you are comfortable in the language of tradition, you can begin to move away from it. Otherwise you may think you're writing effective poetry when in fact you're writing quite bad poetry. Poetry is a discipline, like any other art form, and as a young writer this was impressed upon me by the editors who mentored me. I'm very thankful to them.
For me, the most charged, intense, passionate poems are those that wrestle with their own constraints – they create tension and tension within a poem can be a wonderful force. There is nothing more irritating than loose, meandering, badly written free verse – it goes against the whole rhythm of what makes poetry an art form. However, some poets do use it to great and extraordinary effect – but usually because they have been ‘blooded’ in the veins of tradition.

JvE: Tell me more about your writing background. You have your Masters degree and I wondered if it was in English. Is that why you like traditional poetry forms perhaps?

FZ: Yes, I have a Masters in English, and I retain a fondness for more traditional poets. Every poet should read widely, without skipping the classics. How can you attempt to 'transcend' a tradition when you haven't explored its boundaries and structure? It takes a lifetime to absorb and use and pay homage to and then move away from a tradition, with your own voice and your own excellence. There are no short cuts in poetry, nor should there be. Some of my favourite poets - among them Joseph Brodsky and Derek Walcott - were sticklers for tradition and form and it served them very well. They haven't 'dated' in any sense. I know I will be reading them until I die, with a never-ending appreciation of their technical mastery and emotional range combined.

JvE: Do you see writing as way of expression of your views of political events? Your poem Remembering S-21, Cambodia resonates with your abhorrence of the atrocities which took place in that country. I quote this passage from the poem:

This was a school,
with blackboards, white-
and-tan-tiled floors. Children
filled the concrete stairwells.
Then it was wire, shackles,
prisoners taken
from their families. They were beaten,
starved, herded like children,
helpless, fed a gruel
of watery rice. Obedient,
they still starved.

FZ: I am outraged by these things, but it is often difficult to write about them. James Fenton has written (mostly) very good poetry about Cambodia – he was a reporter in Vietnam and Cambodia – and his poems inspired me to write simply and passionately about politics. After all, politics is about human beings.
When I visited S-21, where so many ordinary Cambodians were tortured and killed, what struck me was the very ordinariness of the place. And many people have said that about Dachau and Auschwitz and so on. It is almost unimaginable that awful things happened there. And that defines our own limits; we cannot get beyond the wall that is the present. It is an existential anguish, which is why writing about these experiences is difficult and why the writing frequently causes anguish in the reader. Think of how effective the poems of Paul Celan and Anna Akhmatova are, for example.
Of course, I wasn't in Cambodia at the time of the genocide, so I cannot write with authority about what people went through. But we have records; we are seeing trials taking place now; we have so many memoirs of survivors and of witnesses. So imaginatively speaking it is possible to respond to the events as a writer. But at the same time you have to choose your words very carefully. Rhetoric, cliché and false sentiment are so readily apparent in bad political poetry. You still have to write the poem from a place inside yourself. If you don't, your poetry will be disingenuous.

JvE: Apart from travelling, where do you get your inspiration for writing poetry from? What purpose does writing poetry play in your life?

FZ: I have been writing since I was 10 so I have never lived without poetry and I am not sure where the inspiration came from. It was a compulsion, unfortunately. I don't write as much now, but at least I have a sense of technique now, so I can say what I want to with fewer false starts. I was depressed for much of my young life, so that fuelled a lot of the poetry, I suppose. Depression is rather crippling in other ways, so poetry helps.

JvE: Do you regard yourself primarily as a poet or as a freelance writer? Would you ever consider writing a novel for example?

FZ: I consider myself a poet first. That is what I measure everything else against. The freelance writing is a way of making a living and it is a good way to live, but I have never striven to be a journalist in the way I have striven to be a poet. I love John Pilger and Robert Fisk and they represent the kind of journalism I would want to write if I were to dedicate my life to journalism, but I am really living to write another poem, then another, and, I hope, another.
I will probably try to write a novel, but I have no expectations as to what it will be like. If it is appalling, I will of course accept that I was not born to write fiction. But it might be fun to try.

JvE: What are you working on at the moment? And what direction would you like your writing to take over the next few years if you could have everything happen according to plan?

FZ: I am always writing poems, though fewer than I used to, and I am about five poems into my next collection. But as the last one took me about eight years to write, it seems unlikely I'll have another ready soon. I could write and publish a lot, but quality always trumps quantity. I think only about ten percent of my total output has been publishable, though. I am very hard on myself, very rigorous, and if a poem has even one false line in it, that I feel cannot be changed, resolved or made to 'talk to' the other lines in the poem, I abandon the poem. I know I could churn out lots and lots of fairly good poetry, but I don't want 'fairly good'. I stand by, and live by, what I write. So I want it to be my testament. Mediocre poems are just not good enough.

Copyright: LitNet.

Mail & Guardian Smart Money article

Making strides in shariah-compliant investing

FIONA ZERBST | JOHANNESBURG, SOUTH AFRICA - Dec 08 2010 10:57

You don't need to be Muslim to invest in shariah-compliant investment products -- as the credit crunch and fall-out showed, Islamic banking and investment products fared well by avoiding interest-bearing assets and securities, focusing on commodities and profit-sharing, for example.
As more shariah-compliant products hit the market, Sanlam Private Investments (SPI) has launched what it believes to be a unique product, largely because it's bespoke. The equity portfolio is tailored for an individual's particular needs and is not a "one-size-fits-all" option.
"With unit trusts, you are to some extent stuck with what you get," says Yusuf Moola, fund manager for the product. "But here, a client can say, 'Here's R5-million I've inherited -- I want R20 000 a month and the rest invested.' We'll then assess how to invest the balance. We look at quality stocks and we prefer well-known companies with sound management principles, high dividend yields and a positive cash position."
Moola says that mid-caps are preferred for diversification because, realistically, finding shariah-compliant companies is just that little bit more tricky. For example, Tiger Brands has pork operations and this makes up 7% of its business -- 5% would be acceptable because the earnings would be purified through the dividend.
Companies that operate in sectors such as gaming and casinos, tobacco and alcohol, arms and
weaponry and amusement and recreation are also avoided, and investments in the financial sector are eschewed because of the interest that financial firms pay.

The cost structure

How do the costs work? The minimum investment is R1-million, and the initial management fee is 1,5% for the first R500 000, 1% on a further half-a-million and 0,75% on the following R2-million. The next R8-million is at 0,75% and after R10-million it's negotiable.
"There are no upfront fees and no performance fees, nor are there exit fees, and there's no difference between buy and sell costs."
According to Moola, what makes the product unique is the fact that it's tailor-made, unlike other
shariah-compliant unit trusts on the market, and each investor's personal risk profile is carefully
considered before the funds are invested. No two portfolios have to be alike.
Moola and his team focus on quality, heavyweight blue chip stocks like Anglo American, BHP Billiton and Sasol. The portfolio is 13% invested in Billiton, 12% in Anglo and 10% in luxury goods group Richemont. Then 17% of the portfolio is invested in cash, and investing in shariah-compliant bonds is the strategy with regard to the risk-averse.
"Our minimum investment is R1-million and this new portfolio accommodates the investment of both long-term discretionary and non-discretionary funds, including retirement funds," says Moola.
The JSE shariah All Share Index advanced more than 10% for the year to October 12. Although that is less than the All Share Index's 16% gain over the same period, Moola says shariah investing is in general more conservative because it hand-picks shariah-compliant companies.
Sanlam Private Investments will consider launching more shariah compliant products for Muslim investors in the future -- it's currently looking into a shariah-compliant property portfolio, which would look to invest in property unit trusts listed on the JSE.

Source: Mail & Guardian Online
Web Address: http://www.mg.co.za/article/2010-12-08-making-strides-inshariahcompliant-
investing

Cellphones at the forefront of the literacy drive

SAVE THE TREES!
GET YOUR NEXT MAGAZINE ON YOUR CELLPHONE

Cellphones are at the forefront of the literacy drive in South Africa, as well as already being the first port of call for many avid readers. So what can you read on your cellphone these days? Fiona Zerbst investigates.

Kenny, 19, is in many respects your average young South African. He is studying full-time, likes music and soccer, and would love to buy a car in the not-too-distant future. He also loves his cellphone.

Like many of his peers, Kenny enjoys reading about what’s happening around him: news headlines, weather, gossip, soccer results. Best of all, he can read it all on his phone, thanks to the growing power of the mobile web.

Mobile content for cellphones is diverse, customisable and user-friendly. Take Kenny’s favourite mobisite, Soccer Laduma (soccerladuma.mobi). Breaking news, live scores, photos, polls, fixtures, TV schedules … everything Kenny wants to know about soccer can be found on his phone. And he enjoys reading the short, punchy articles.

According to Brett St Clair, country manager of AdMob, Soccer Laduma has about 5.4 million page impressions each month. To feed the insatiable hunger of soccer fans, live journalism keeps readers in the picture pretty much 24/7. “The stories and snippets are very popular,” says St Clair. “While most people blame cellphones for the death of reading and spelling, I believe that we need to explore this medium and exploit its benefits,” says Steve Vosloo, project manager of The m4Lit (mobiles for literacy) project, funded by the Shuttleworth Foundation. “South Africa is a book-poor but cellphone-rich society.”

It’s the content that counts
Both St Clair and Vosloo believe that teens and young adults are engaging with content on their cellphones in a way that is quite unprecedented, enabling educators and companies to take their content directly to a hungry audience.

“The most popular site is m.news24.com, which has concentrated on both the mobile web and mobile applications. Currently, mobile web consumption outstrips mobile application use, but this segment shows 30-40 percent growth a month, so applications should not be ignored.”

Another popular site is Independent Online (m.iol.co.za), which has outsourced its content to mobile solutions provider Thumbtribe. IOL, a news site offering the traditional bouquet of news, sport, weather, motoring, business and entertainment – everything you find in your daily newspaper – relies on excellent content.

Meanwhile, the Thumbtribe site itself offers readers a “Best of the Mobile Web” experience, including access to some of South Africa’s favourite magazines, like Heat, FHM, Getaway, Go!, CARmag, Cosmopolitan, Men’s Health, PC Format, Shape, Sports Illustrated and many more. Other much-viewed sites include The Times (m.timeslive.co.za) and the Mail & Guardian (m.mg.co.za).

Even books make it to mobi
Steve Vosloo’s m4Lit mobile literacy project has even brought books to the mobile web – no mean feat! “The project is about using cellphones as a way for teens to read and write,” says Vosloo. “We provide mobile novels (m-novels) to read, as well as inviting writing in the form of reader comments and writing competitions – all on cellphones. If teens don’t read and write enough, but love their phones, then that is what we have to work with. Go fishing where the fishes are!”

Vosloo’s popular, successful m-novels can be found on a mobisite (www.yoza.mobi) and on MXit at MXit Cares > mobiBooks > Yoza.

The first two m-novels in the Kontax series were read over 34 000 times in seven months!

“Our goal is to build a library of cellphone-based stories in multiple genres – called Yoza – that is available to teens not only in South Africa, but ultimately throughout Africa,” says Vosloo. “For the foreseeable future, the cellphone, not the Kindle or iPad, is the e-reader of Africa. We will exploit that to improve Africa’s literacy levels.”

Kontax is a teen adventure story about four graffiti-loving friends in Cape Town. It was first written in English by Sam Wilson and then translated into isiXhosa by Nkululeko Mabandla. Readers asked for soccer stories too, so Charles Human wrote Streetskillz: Golden Goal, about an aspirant young star in Du Noon township, Cape Town.

“Also on offer is Confessions of a Virgin Loser by Edyth Bulbring, about a boy in Jozi who has to navigate around issues of peer pressure, teenage sex and HIV/Aids while just trying to be a cool kid at school. Fiona Snyckers, who has written the Trinity Rising series, penned Sisterz, about two girls in Johannesburg who can’t stand each other - only to find out that they are half-sisters. It’s high drama in the teen chick-lit genre,” says Vosloo.

Most of the stories follow the same format: chapters of around 400 words, told in daily serialised form.

Like teenagers in Japan, who sent the popularity of m-novels soaring, Kenny enjoys m-novels. “They’re easy to read and you really, really want to know what happens next!” he smiles. He may not be able to afford books every day, but Kenny can get all the information and inspiration he needs on his cellphone. Who says cellphones aren’t driving the most powerful revolution in Africa?

My interview with Stefan Hundt, curator of the Sanlam Art Collection

What a first-time art investor needs to know

Fiona Zerbst | Johannesburg, South Africa - Mar 31 2011 14:05

Investing in art may seem like an arcane or dubious investment practice to the uninitiated, but we do know it can bear fruit. Art does have investment potential -- it's considered an alternative investment that offers investors the chance to diversify out of equities and bonds. It can enrich a portfolio and, of course, it rarely shows vulnerability when it comes to the vagaries of financial or property markets.

Stefan Hundt, a specialist at Sanlam Private Investments' (SPI) art advisory service, and the curator of the Sanlam Art Collection, is well-placed to advise a first-time art investor of what to look for. For one thing, the art market isn't liquid, so you need to think long-term about this kind of investment.

"Selling a piece on the open market isn't easy, particularly if you want to realise full value," Hundt says. It's a slow process and you really do need to understand this before jumping in: "For part-time art aficionados and buyers, it's vital to understand that, like any investment, timing is crucial; as is good advice," he says.

Research your potential investment

It's vital to build up knowledge about the sort of art you'd like to collect. Research the artist and the market in general and speak to experts in the field, and artists themselves. You'd research a company before investing; the same applies here.

"Take your time, think beyond aesthetics and if you are only interested in the 'marketability' of a piece be careful not to become too emotionally attached to it," says Hundt. "Know that the value is not in the signature on the artwork, but the individual work itself. Consider the longevity of a painting, how prolific an artist is currently and what is unique about the art, the artist or the context for the art."

The tricky thing about buying on the basis of reputation alone is that this might not be the best kind of investment -- past performance doesn't indicate future performance. "Look beyond past performance and delve into the fundamentals of an artist's success before you invest," says Hundt. Basic advice is free and you can find information on the internet, in galleries and by speaking to artists themselves.

Get independent quality advice

Perhaps you're not familiar with the art world, but don't make assumptions about it. Don't purchase art without getting quality, independent advice. Hundt suggests you speak to dealers, agents and auctioneers with a long-term stake in the market, who also want to develop a long-term relationship with clients. They can provide good advice even when it isn't going to directly promote the stock they sell because they realise a healthy, growing art market is worth more than a quick sale. Ask around -- find out who can provide this kind of advice.

Avoid dodgy dealers

"Beware dealers, auctioneers and galleries without a fixed premises to trade from, and/or who promise unusually good returns, or describe each painting they offer as an 'investment'," says Hundt. "They have a stake primarily in their current stock only and this is what they will promote aggressively."

The art market is an unregulated industry (valued at about R2-billion a year in a recent survey), which simply means that anyone can participate, irrespective of knowledge or experience. Unfortunately, this means you may well come across unethical, unprofessional sellers, producers -- even buyers. "

Importantly, don't be put off by arrogance or haughtiness, because it could be
masking incompetence," says Hundt. Don't be afraid to ask "stupid" questions -- it's your money, after all. Discussions need to be transparent and information comprehensible.

What should I pay?

It's difficult to say what a beginner investor should pay, because it depends on your financial position and your capabilities. Investing in art shouldn't be done in isolation from other investments. You're best placed to know if an investment is feasible and affordable.

"You could acquire a good representative etching or lithograph by an artist with a growing reputation, or a smaller painting from an emerging artist with a good fundamental background and history, for as little as R5 000," says Hundt. Should you have more to spend, you need to refine the strategy, prioritise and differentiate between long-term, medium-term and speculative purchases.

With about R65 000 upwards, you'd be able to buy a good representative work by a recognised young contemporary artist well on their way in the market. If you have more substantial resources available you would be able to acquire a good artwork from a well-established artist from R100 000, Hundt says. "When purchasing art for investment, stick to your strategy and realise that sometimes you could be wrong. However, over the long term, the art market does prove to have some 'logic', and quality prevails."

Two other pros to investing in art: no capital gains tax is payable on art if it's owned by you as an individual, for your personal use; and you get to enjoy the ownership of the work and marvel at it hanging in your living room. Note that it's different when it is owned by a company or a trust, in which case the capital gain could be deemed as income.

Returns on investment

Although Hundt is confident about the art market's expecting, on average, returns of between 10% and 15% for good works, he says this isn't set in stone as expected returns are hard to predict. He says leaving an art investment to your children is an ideal way to transfer wealth without impairing investment -- inherited artwork often becomes a substantial store of wealth. But inheritors naturally need to care for the work in question: it could conceivably lose its colour, or mould could grow on the paper. Work that's inappropriately mounted means that the acid mounting has all but destroyed the integrity of the paper, making the work valueless.

Hundt's final advice is to have the work valued from time to time, like any other asset, as it forms part of a personal estate.

* Hundt has been the curator of the Sanlam Art Collection since 1997. The collection boasts a representative overview of South African art valued conservatively at R128-million.

Source: Mail & Guardian Online Web Address: http://www.mg.co.za/article/2011-03-31-what-a-firsttime-art-investor-needs-to-know