Arthur Buchner: Futures closeout


BROADCAST TRANSCRIPT: We go over to BoE now, where Arthur Buchner, the head of derivatives is standing by. Arthur, it’s been futures closeout day – fairly busy?

ARTHUR BUCHNER: It is incredibly busy, I think it must have been a volume day, at R6.5bn worth of stock traded, and a good two-way fight, ending on the upside and, funnily enough, only on the upside, with about ten minutes to go, because suddenly the rand really took a knock. It did take a bit of a knock this morning, but this afternoon was the biggest move and that really catapulted everything up over the last ten minutes.

MONEYWEB: But again, the big movers today? Financials were all over the place. Old Mutual gained 5% – is that more of a London issue?

ARTHUR BUCHNER: In London, to give you an idea, it was down 2 pennies and right across the session, Breweries were down 9 pennies, 39 pennies on Anglo American. All these stocks were down in London terms, and they were all up in rand terms.

MONEYWEB: Extraordinary today that we did see Billiton adding 8%, Anglo American 7%. Anglo American now, if you look back before the 4-for-1split, Anglo American would now be over R800 a share. It is extraordinary what impact the rand is having on this market.

ARTHUR BUCHNER: Correct, and you mention 6%, 7% and you’ve got a devaluation of the rand by 6, 7%. So basically the investor out there is looking at it and saying, I’m glad I’m breaking even, because that’s virtually what he’s doing.

He may be making rands, but he’s not making any money really.

MONEYWEB: Having a look again at Richemont for example, there was some positive news from LVMH out today, Richemont being a luxury goods producer. It also did a share split – 10:1 earlier this year. It would now be worth more than R250 a share. You could have bought it at R137, I think, just after September 11th.

ARTHUR BUCHNER: Correct. The irony, going back to the international markets, it’s actually down about 3% in Switzerland. So that LVMH news didn’t really do too much for it in Switzerland, but fantastic here.

MONEYWEB: And Liberty International, another one that has been running very, very strongly. It was in the mid-sixties a couple of weeks ago?

ARTHUR BUCHNER: Yes, and if I’m not mistaken, Donny Gordon switched into LBH out of LGL and everyone said he’s a bit crazy, but he doesn’t look that stupid at the moment, does he?

MONEYWEB: On the downside though, looking at some of the shares that were punished quite severely, the retailers, Metcash, JD Group, Profurn, all of those down 10%?

ARTHUR BUCHNER: I hope that some of those retailers have actually got a large amount of stock, because they can make a lot of money, and our analysts have come out and said that if they hold a lot of imported stock, next year they could just mark those prices up and make money. But I know they have cut back a lot in inventories, especially in Metcash’s case and that could also be having a negative effect on it.

MONEYWEB: Discovery – is the market beginning to take notice of the fact that perhaps Discovery is not going to win its battle with the Registrar. Down 10% today, closed at R9, that’s a new low for Discovery?

ARTHUR BUCHNER: Yes, definitely, every news article that comes out just seems to be blocking their path. You’ve got their competitors, who are also against any proposals which they’ve come to he fore with, and I think the market is saying listen, when in doubt, let’s get out.

MONEYWEB: Any concern with the announcement from Energy Africa this afternoon – it came out quite late, you may not have seen it – but they have secured a $15m revolving credit loan in Europe basically to keep prospecting in the North Sea. $15m? Revolving credit? It sounds as if it could be dangerous?

ARTHUR BUCHNER: I think that everyone wants to get access to capital outside of the South African market. They have done this from ABN Amro Bank in London and Tokyo Mitsubishi. So they financed it from international banks. The rand has weakened considerably, it’s a dollar-based loan. Hopefully they’ve done it at these levels and not at the lower levels.

MONEYWEB: But a $15m revolving credit loan for a small cap JSE company is certainly not bad going?

ARTHUR BUCHNER: Correct. Someone must believe that they are on to something, and that they may actually use this money to discover the little oil well at the bottom.

MONEYWEB: We wish them luck with that. Just having a look at the action on the JSE overall, the futures closeout was today; when the market closed at 4:00pm that was the end of the fourth quarter officially. Tomorrow the markets, next week, likely to be very, very quiet?

ARTHUR BUCHNER: Not if I look at the futures close because, funnily enough, our futures close did about 150 point discount to fair value which implies maybe some profit-taking in the markets tomorrow, depending of course on what the rand does overnight and what the US markets do.

MONEYWEB: We will be watching that one with substantial interest. Arthur Buchner, the head of derivatives at BoE.

Posted in Market commentary

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