Arthur Buchner: BOE Securities

MONEYWEB, BY BYRON KENNEDY, 18 APRIL 2002

BROADCAST TRANSCRIPT: Well, in this week’s trading update Byron Kennedy speaks with Arthur Buchner of BoE Securities. Byron?

BYRON KENNEDY: Well Arthur, futures are definitely not for beginners, but if you were looking to make the transition, having gained a lot of experience in the warrant market and the like, what are the benefits of trading futures over shares?

ARTHUR BUCHNER: Well, it’s a relatively new concept in South Africa. We’ve been trading index futures for ages, but the individual equity futures, the benefits are first of all cost. It works out at far less than selling the actual physical stock or purchasing the actual physical stock. The second thing is that futures were designed as a hedge product. In other words, people wanting to come in and sell. Now if you go through your broker you would have to actually first go and lend [borrow] the stock, whereas with the derivative you just phone your broker and say I want to sell, he goes and sells the physical, he has access to the scrip lending and that enables you to do it.

BYRON KENNEDY: Now when you say sell the physical you mean going short on a stock.

ARTHUR BUCHNER: Correct. If you wanted for example to hedge your Anglo portfolio or you wanted to sell Anglos because you thought it was overdone but you didn’t actually own it, you just phone us up, we will show you a bid in the market where the future is on Anglos, and allow you to trade on it. And then the third thing about derivatives is the fact that you can margin yourself. So if you wanted to sell R100,000 worth of Anglo America you would only need R10,000 worth of margin in order to do that.

BYRON KENNEDY: Now because futures cut out a lot of the costs associated with ordinary trading on the JSE, do you have a lot of day-traders as customers?

ARTHUR BUCHNER: We do have a lot of day-traders, not the man in the street, guys who sit behind screens, Reuters screens, they’re watching the JET movements of the market, they trade intraday. They’re looking to sell Anglos for example, make a rand out of it, and therefore not really your man in the street who’s trying to gear himself for a two-week or a three-week or a four-week period.

BYRON KENNEDY: So if it’s not geared at the man in the street, what is the least amount of cash that a person would need to trade futures?

ARTHUR BUCHNER: I think a margin of around R20,000 which would allow you to have access to R200,000 of the underlying, that would be about the minimum.

BYRON KENNEDY: And spread trading firms base their spreads on future prices? is that perhaps an option for traders who can’t afford R20,000?

ARTHUR BUCHNER: Correct. Spread traders do, and the thing with spread traders is that it’s very difficult for them to hedge out in the underlying, whereas with the derivatives we hedge out on the underlying and our doubles would be slightly closer than what theirs would be.

BYRON KENNEDY: Now you’re close to the action on the trading desk, where do you see local markets moving in the short term?

ARTHUR BUCHNER: We made a new high yesterday on the all-share. I see the technical traders are coming up and saying that the market is going to new highs, there’s been a technical break on the Alsi 100. I personally don’t see it that way. I think that we’ve bumped our head, I think that the gold price has bumped its head against this $305, it’s trying to go through it. It was the driver today on the all-share, and actually saved the all share from getting an even harder knock. I think there’s a little bit of consolidation, maybe a 2 or 3% pull-back and then we can go again to new highs.

BYRON KENNEDY: The Alsi 40 is a popular index traded on the futures board, so is the Indi 25 ? that tracks the twenty-five biggest industrial companies on the JSE. Most market commentators are bullish on that front. Just briefly, is it a view you agree with?

ARTHUR BUCHNER: On the fact that the Alsi will go up?

BYRON KENNEDY: The Indi 25.

ARTHUR BUCHNER: At the moment we’re definitely seeing a switch from the Alsi into the Indi and you can see that in our markets. The all-share’s been trading at discounts and the Indi has been trading at premium. Now remember futures are supply and demand driven, so if there’s excess supply of all-shares, it drops it to a discount and if there’s excess demand for Indis, it takes to a premium. So institutions have been switching over the last two weeks from all shares to industrial holding companies.

BYRON KENNEDY: So there has been support for the Indi 25. That’s Arthur Buchner from BoE Securities. If there’s anything you didn’t understand about that, you can send me an e-mail. It’s byron@tradingweb.co.za

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