Arthur Buchner: JSE Report


BROADCAST TRANSCRIPT: Joining us now is Arthur Buchner, head of derivatives at BoE.

Arthur, the big story today has got to be Marinus Daling. He’s been at Sanlam for, I don’t know, 30-odd years. He’s been in charge, he’s been the chairman at least for the last seven years of that, and he’s stepping down. Is anybody, to be quite respectful, going to notice the difference?

ARTHUR BUCHNER: I don’t think so. I think those conglomerates really are so well structured at the moment that each division handles pretty much their own and you just need a figurehead who can actually represent you. I think he’s done fantastically well. I mean he’s overseeing the listing without too many problems and after 30 years with the same company, I hope I can also retire.

MONEYWEB: But this time last year, when he announced that, because of his illness, he was splitting the role of chief executive and chairman, the chief executive post went to Leon Vermaak. And basically, he’s structured his own departure, which has been appreciated by the market, I suppose.

ARTHUR BUCHNER: No correct. I don’t think there’s any gaps, it’s not like someone dying and suddenly you need to get your key man deposit out and you have to find someone in a rush. I think he’s done it very well, structured it very well, structured it very well and the group will continue forward.

MONEYWEB: Having a look at the volumes today, we are sort of heading into the holiday season in serious fashion. Where the volumes any lower today than we have seen recently?

ARTHUR BUCHNER: No, on the contrary they were actually quite big. I think futures close out on Thursday, it’s a big day. There’s a lot of open interest on the option side and a lot of guys tussling to see who’s actually going to get the market in a direction.

MONEYWEB: We’ll pick up on that futures closeout with you on Thursday I think, because it is quite a technical matter and guys like yourself, involved in the futures market – it’s a fairly technical thing. Look for an explanation in English if you can, on Thursday, exactly what it means and how it all pans out.

ARTHUR BUCHNER: Yes, I think guys like ourselves really just sit on the sidelines and hope the bigger boys don’t hurt us too much, because at the moment there are a couple of big boys throwing around a lot of weight and they tend to do it in this closeout, which is December, which is supposed to be a little bit illiquid. But at the same time when you’ve got two big boys who both have the same idea, except in two different directions, it makes for good brokerage volumes and a volatile market.

MONEYWEB: We look forward to picking up on that one on Thursday. Talking about illiquidity, we must talk about our currency, I suppose. Monday afternoon, four o’clock, the rand was sitting nicely at R11.78 to the dollar. By the end of the Classic Business programme last night it was at R12. Today we saw it go to the R12.20s again. What’s your reading?

ARTHUR BUCHNER: And yet again it’s the weakening after our market sort of closes. I don’t think the currency traders leave their desks, but I do think that their institutional clients or the corporates or individual stocks or shares that are exporters or importers, they sort of go to bed, and it can only be someone offshore that’s trying to push this thing. And when you’re not fighting – I always take the analogy, if you’re a thief and you get caught and nothing happens to you, you’ll continue to do it. And at the moment that’s exactly what’s happening with the rand. Someone’s stealing from the South African public and is pushing it and no-one’s stepping in. The Reserve Bank’s not stepping in. I know that the Reserve Bank gets criticised for then they do step in but, please, just provide some liquidity.

MONEYWEB: Can our currency policeman, Mr Mboweni, actually do anything about it right now?

ARTHUR BUCHNER: I think he should find out who this foreign hedge fund is, sell him a couple of dollars, as many as he wants, $1bn or $2bn, and then hike rates 5%, 10%, and let’s see if the guy is really happy to be short of the rand then.

MONEYWEB: We’ll be testing that theory, I think, with Dennis Dykes from Nedcor in just a little bit. Having a look at the market today, we have seen resources over the last couple of weeks run very, very strongly, due to the weak rand with people almost panicking into rand-hedge shares. But today the rand, look it got to Friday’s levels again, but it was the day for financials. People buying those up again.

ARTHUR BUCHNER: Well, the amazing thing about the rand is that every single one of those rand-hedge stocks and resource stocks that are, let’s say, listed in London, for example Billiton and Anglo American, they were down last week in pound terms yet in rand terms they excelled. I think Anglo American was up 30p on Friday, it was up R18 in our market. So it’s not like everyone’s piling in there overseas. It’s just that when it trades over in London and it trades here, it’s got to take a rand price. And the problem with that – it’s not really a problem because 90% of us are actually long through our unit trusts – the problem with it is that when Anglos turns around in pound terms and the rand maintains its levels here, we’ll have an even bigger squeeze on the upside. So I don’t even think that Anglo American is overdone at these prices, because in pound terms its the same as what it was two weeks ago.

MONEYWEB: Having a look at companies Metcash, Illovo, two of our industrial companies, they hit new highs today. People are going for value, it looks like. And they’ve both got some offshore elements to them as well.

ARTHUR BUCHNER: Yes, I think it’s the offshore element and also they have haven’t been disappointed in the recent results. So let’s get in. You know sugar is dollar-denominated, same as wheat. I mean we trade wheat futures and you cannot believe how that things running – as a rand-hedge it’s a great rand-hedge. Maize. Anything which has got any aspect of selling overseas the guys are looking and saying, well, where can we find it, why hasn’t it run yet?

Oh, it hasn’t run, let’s grab it.

MONEYWEB: You talk about agricultural futures. That’s got to be good for companies like OTK for example, for Tiger Brands, that sort of thing, where the futures are telling us that these stocks could make some good earnings in the year ahead.

ARTHUR BUCHNER: Correct. I know for a fact that Tiger is very active in CBOT, the Chicago Board of Trade, where 90% of commodities are traded. And, for them, if there’s a price discrepancy between South Africa and let’s say Chicago, they export. They go and buy futures there, they sell here. They go and buy stock there, they sell here, or they sell here and they buy here and sell there. So very good for them, because they have the mechanisms in place to actually take advantage of the price discrepancies – in other words arbitrage between the two markets.

MONEYWEB: And farming used to be so simple. You put stuff in the ground, things would grow, hopefully, and you’d harvest them and sell them at the local co-op. But it’s not quite that simple any more.

ARTHUR BUCHNER: No it’s not, but then the surprising thing is that futures actually started in agriculture. They didn’t start in the financial markets. We just took and annexed it as if it was our idea.

MONEYWEB: Arthur Buchner from BoE. Thank you very much for joining us on Classic Business.

Posted in Market commentary

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