Arthur Buchner: JSE Report


Let’s go to Arthur Buchner from BoE Securities to take a look, a more in-depth look, at what happened on the JSE today. Arthur, a pretty flat way to end the week off with?

ARTHUR BUCHNER: Correct, Byron, but I wouldn’t call it a flat week. There’s been incredible volatility and, when you look at the index, the index may show flat, but you’ve had golds up a whole lot of rands, then you’ve had them down a whole lot of rands, you’ve had industrials down at the beginning of the week and they rallied at the close to actually have a fantastic week. So traders in the market have had ample opportunity to climb in and climb out and make their money and leave on the weekend or, vice versa, lose their money.

MONEYWEB: Now, Arthur, you’re a specialist as far as futures are concerned. Which way are the traders or the speculators, which way are they gambling as far as the gold shares are concerned? Are they more long or are they now taking short positions in gold stocks, expecting perhaps a pullback in the gold price in the near future?

ARTHUR BUCHNER: I think if you look at the international markets, you know, the speculative positions on gold at the moment are at their highest-ever levels on the long side. In the South African markets, funny enough, we find the gold shares actually pre-empt the gold price, so what you see is when the gold shares actually hold and the gold price is going down, more than likely there’s going to be a spike up on the gold price. In other words, what you find in South Africa is the gold price doesn’t move first, the share prices of the different stocks move first. And if you look at the golds over the last few days, they’ve actually been under quite a lot of pressure and today gold actually hit a new high, I think $329 at some stage in the afternoon, yet the gold shares never rallied at all. That’s showing you that there’s some profit-taking coming in. You’ll most probably see the gold price fall back next week. The other thing which is a big factor is that people don’t look that carefully at the inverse correlation between the dollar and the gold price. And the dollar has had a nice little afternoon against the euro, and that’s caused the gold price to also fade a little bit.

MONEYWEB: Let’s talk about the financial sector. Some commentators are saying that it’s run up a bit too strongly in recent times and there’s a bit of consolidation, or perhaps even pullback, expected in the near future. Is that a view that you agree with?

ARTHUR BUCHNER: I think there is some profit-taking that can come into the financial sector. If you look at some of them, they actually haven’t had that great a run up. When people talk about a run up they say it’s up 25%. But no-one caught the 25%, and normally what you find then there will be a pullback of 5 or 6% but people will be looking to get in and I don’t think the financial sector’s a bad place to be. I do think they can come back from here, because my view on the rand is that you’ll see some weakness. The rand has had quite a lot of strength. The Deutsche deal bringing in R800m in reserves has had a good effect. I think importers have stopped trying to hedge themselves forward and exporters are now climbing into the market, and I wouldn’t be surprised if the rand actually weakened and that will bring the financials under pressure. But I think as a longer-term index punt, I would look sometime the middle of next week to pick up those.

MONEYWEB: Well, value investors like Allan Gray reckon that industrials is the sector to be focusing on for now. Are we seeing that kind of support coming through from perhaps private clients and more speculative types into industrial type stocks on the Johannesburg Stock Exchange?

ARTHUR BUCHNER: You can definitely see a switch in the futures market. The guys over the last three to four days have been selling resources and buying industrials, or those indexes have been moving up. A couple of people don’t believe it, but I think that’s the way to be.

MONEYWEB: Any stocks in particular that they’re getting into from an industrial point of view?

ARTHUR BUCHNER: Well over the last few days the guys have been piling into Richemont, but that’s more on the fact that Phillip Morris, after the SAB announcement, actually shot up , and Phillip Morris being something connected to the cigarette industry, guys needed to hedge themselves, climbed into Remgro, climbed into BAT, climbed into Richemont. So that is one of the industrial stocks that has actually almost had an all-time high and it’s unbelievable, taking in that everyone has said there’s been a slowdown in the economies, and they’ve got all these legal problems. So that’s one of the stocks that has looked very good. Remgro has looked fantastic over the last two to three weeks. I’d look at those.

MONEYWEB: What about the week ahead, Arthur? What should investors look out for?

ARTHUR BUCHNER: As I said, I think you can see some profit-taking coming in on the gold price, not necessarily the gold shares, into Monday and Tuesday of next week. Resources , I think you can stay pretty much with the other resources. When I talk about the Kumbas, they’ve been under a little bit of pressure recently but, with the rand weakness, those I expect next week, you’ll most probably find that those will move up. And part of the reason that I expect the rand to weaken also is that, if the golds do come back, you’ll find Americans selling gold shares into our market, therefore taking their currency and taking it offshore.

MONEYWEB: So perhaps look at some of the put warrants on gold stocks?

ARTHUR BUCHNER: I think there’s maybe another 3, 4% downside on them. I think most of the move has already happened over the last two days on the gold stocks. As I say, the gold price I think will come back. I don’t know if the gold shares will come back too much.

MONEYWEB: Arthur Buchner from BoE Securities.

Posted in Market commentary

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