Arthur Buchner: JSE Report


BROADCAST TRANSCRIPT: Arthur Buchner, the head of derivatives, is standing by. Arthur, the volumes seemed to be fairly small this morning but they picked up this afternoon.

ARTHUR BUCHNER: Yes, Bruce, but you also need to look at the fact that a couple of block trades in the market share accounted for the vast majority. There is a spread between Gencor and Implats, which accounted for 25% of the total volume just on the day alone.

MONEYWEB: For those of us less into market speak and perhaps yourself ? “block trades” and the “spreads”?

ARTHUR BUCHNER: Basically, there is a correlation between Gencor and Implats and the cross-holding which the two have, and traders in the market like to take a view of whether Gencor will outperform Implats or whether Implats will outperform Gencor, and what essentially happens is one trader will short Implats to another trader and , in turn, will buy Gencor to that same trader. So a neutral position in terms of how much they are long and how much they are short ? each one just taking a different view on the underlyings and whether the Implats will outperform the Gencors. Now, that was 25% of the market, and therefore, if you scrap that ? and there were also a couple of others that went through ? there was not too much activity.

MONEYWEB: But certainly the financial service sector once again very active, today negative after a fairly sustained period of positive news coming out of the financial services sector. Interesting to see huge volumes in Sanlam. Something like 35m shares traded.

ARTHUR BUCHNER: Correct. That was also part of those block trades that I was mentioning. Sanlam was one of the stocks that actually had a block trade in it. I am not quite sure what the size was, but it was one of them that had a block trade today.

MONEYWEB: Because, immediately, one looks at Sanlam and one looks at BoE, the second largest stock trading today, 19m shares. One might suggest there might be some sort of correlation between that and rumours of not only just a Nedcor/BoE possible tie-up but a Sanlam/BoE tie-up.

ARTHUR BUCHNER: Well, if you look at the block trading in Sanlam, there was 29m out of the total volume.

MONEYWEB: So bang goes that theory, in other words.

ARTHUR BUCHNER: Correct. And there is a lot of talk on the BoE/Nedcor merger. We have heard Tom Boardman come out and say that he thinks that BoE offers a lot of value. I know that David has been saying the same thing and we feel the same way. We are surprised that there is only one person mentioned ? we think there could three or four actually looking at the stock. And if you have an underpin from the Reserve Bank, for example, which is saying to you we will protect this bank in terms of its deposits, and they are still making profits, then they must offer a great amount of value, but I don’t think there is any correlation between the Sanlam and BoE deal as such.

MONEYWEB: You say three or four possibles for BoE. What’s the talk in your offices?

ARTHUR BUCHNER: Well, it’s highly speculative. Funnily enough, I have said Sanlam is not involved, but there has been talk of Gensec also being involved in it. Nedcor always to the fore, and then you have a retraction from the Nedcor asset management side, but we are saying that it’s not the Nedcor asset management side, definitely not Stanbic, even though BoE holds quite a large stake in Stanbic, but any one of the banks could look for critical mass and we believe it’s cheap at the moment.

MONEYWEB: The other big story in the market today ? gold shares down nearly 4%.

ARTHUR BUCHNER: Correct. They have had quite a large run and another thing that came to the fore is that you had Harmony buy back a lot of their gold hedges. I think that they took a R120m loss on buying back their hedge. AngloGold came out and said we are going to buy back our hedge. Now, if I am a punter and I am looking at the gold price and I am saying it’s moved up a dollar, its moved up two dollars, and we have had these guys coming and buying the hedges back, which means that they are actually physically buying gold price, maybe what they are doing is that they are supporting the gold price. The minute they have bought the hedge and pulled out of the market, the gold price falls. And I think that is where some of the negativity came in today in the gold stocks. The guys are just saying that maybe its artificial, that it is a gold hedge buyer, and not a natural purchaser of the gold, and let’s take some profit while it’s on the table.

MONEYWEB: Well, the gold price is just above $300 an ounce in New York at the moment. $300.65. Looking at some of the industrials, which were highlighted today ? South African Breweries, R2.80 up, R85. That’s looking quite frothy.

ARTHUR BUCHNER: It’s looking very good and the fact that they came out and said there was no counter-bid from anyone for this Miller deal means that they are not going to fight. It’s not like the gold stocks that have had to fight in Australia with counter-bids and increasing their bids. They are going to basically increase their overseas holding and that was taken very positively by the market.

MONEYWEB: Then, having a look at Profurn, it’s not one of those you necessarily follow very closely, but it has been in the public domain. It has been a very, very public story for a while. FNB saying that it will underwrite the Profurn rights offer. Do you think we are going to end up with a bank owning a furniture retailer on that one?

ARTHUR BUCHNER: No, I think pretty much, because the rights offer comes in, I think they’ve altered the price to 14c, trading at 9c. So if I really wanted to buy it, I wouldn’t take up the rights, I would buy a whole lot of stock at 9c. So I do think that they are going to have to take up most of that stock in the market.

MONEYWEB: Let’s take a look at a couple of the others. The rand hedge stocks today, not doing very well. Richemont was negative, Anglos was down, Sasol was down. The Brent crude price has been falling as well.

ARTHUR BUCHNER: I don’t think it was really a scenario of rand hedge. What we saw was, up until about 2:30, 3 o’clock in the market, everything was pretty stable and then between 2:30 and into 5 o’clock, there was a futures structure that came into the market. Quite aggressive selling on the basket side. That definitely had an effect in the last half hour of trade, and I think in the last half an hour of trade, we saw the index fall about 50 to 60 points. So a little bit artificial at the close, and not really rand hedge, as much as that someone was just saying, listen we want to be out ahead of the weekend. We had very bad American markets yesterday. We don’t want to be in it for today. The PPI data came up in the States, which wasn’t great, so, maybe over a weekend someone just deciding to protect themselves a little.

MONEYWEB: What about next week, Arthur? It’s been very much a holiday fortnight. Getting things back to normal on Monday?

ARTHUR BUCHNER: I think so. I hope so from a volume perspective, because a lot of the guys have been twiddling their thumbs and hope that the volume would pick up. And definitely this week has been a very, very small volume week from the previous four or five weeks. The explanation may be in the fact that the Israel scenario has not sorted itself out with Palestine, and the guys are hoping that they will come to the table and actually start chatting, and then we can get back to doing our business and worry about earnings rather than external factors.

MONEYWEB: Arthur Buchner, the head of derivatives at BoE. Very interesting stuff there indeed! The talk within BoE seems to that the Nedcor possibility of a takeover of BoE is very much within the corridors, at the water cooler. Possibly even Sanlam via Gensec, and Stanbic, although denials are there. There are rumours within BoE on that one and, as Arthur also said, in the last hour of trade 50 to 60 points ? artificial really, but in the last half hour we did see 50 to 60 points wiped off the all-share index.

Posted in Market commentary

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