Arthur Buchner: Local Market Report


BROADCAST TRANSCRIPT: Joining us in the studio now is Arthur Buchner of BoE Securities with our look at local markets today. Arthur, if we have a look at the JSE’s performance, up 68 points. Driven predominantly by the resources sector. But not just because of rand weakness but strength in the gold sector?

ARTHUR BUCHNER: Yes, I wouldn’t even classify it as a resources run. I’d classify it as a gold run. If you look at the platinums, they were pretty flat. Anglo American for the first day in four, I think, had a positive close, which was on the back of AngloGold’s rally, and if you look at the gold sector, the surprising thing is that the bounce was so big. Because from a gold price of 1991 to 1994 we had, I think, 4%, 5% movements on the upside. It’s a classic example of people looking for any opportunity that they can at the moment, to dive in and make some money, and they all feel that if they don’t get in now they’re going to lose out on the run. So if you look at yesterday, the capitulation of the gold sector, where they actually dropped AngloGold about 9% at the low. That was a capitulation of the bulls saying, well we’ve seen it before, this market’s not going down. And then suddenly today, we cut, we were wrong to cut, let’s dive in, and it shows that no one really knows where the market’s going.

MONEYWEB: Well considering where gold is now, currently at $292.50, and the gold index – do you think there’s still more value to be found in gold shares?

ARTHUR BUCHNER: I think the bounce today was just too big. I think that they do offer value. I was speaking to our analyst, who is highly rated in the sector, and he said even if the gold price came down $250 an ounce the gold mines would be making great profits. But the gold stocks have just run a little bit ahead of themselves … I deal predominantly with institutional clients but I do have the odd man in the street who phones me, and a lot of them have been phoning me in the last two weeks, saying they’d like to get into gold. I would hold back a little bit and I would wait. I think that there’s still a little bit more downside. It stabilised nicely at the $300 levels, pulled back down to about $285, then I would be getting in, I wouldn’t be getting in now.

MONEYWEB: Just to clarify that number, you said the mines would still be very profitable at $250 per ounce?

ARTHUR BUCHNER: That’s correct, yes.

MONEYWEB: Let’s move onto financials. Not a good day for those. Nedcor down 2%, Stanbic down 1% and yesterday Stanbic, of course, taking a big smack, down 6%. What’s going on there?

ARTHUR BUCHNER: Sorry, on the gold thing, $350 an ounce.

MONEYWEB: OK. Just coming back to the financials, like I said, not a good day for those. Standard Bank in particular yesterday not a good one. Down 6%, today Nedcor off 2%. Standard Bank another 1% today.

ARTHUR BUCHNER: We did have the rand quite strong yesterday and on Wednesday after the Budget, and it weakened a little bit overnight. It’s almost like people are looking for a reason to buy or sell. If the rand goes stronger they buy the financials. If the rand goes weaker they sell the financials. I know Standard Bank had quite a nice little run-up until the last three days, Monday, Tuesday, Wednesday. Some profit taking on that one. Nedcor, I wouldn’t be too sure, but you can look at Didata. I think they were down 6% or 7%, and with Nedcor’s big stake in them – definitely a factor.

MONEYWEB: We’ve got Old Mutual’s results out on Monday. That share losing 2% today. Anything we could read in that ahead of these results?

ARTHUR BUCHNER: Yes, there were two articles which came out by the London brokerage houses just indicating that with their exposure to the rand and all their earnings being in South African rands, in pound terms they maybe don’t offer that great a value, and they were actually knocked in London and therefore followed through onto our markets.

MONEYWEB: Arthur, we’ve got the overall index sitting at just over 10,600, only about 500, 600 points off its all-time high. For anyone looking to get invested in the market at the moment, is this a smart time?

ARTHUR BUCHNER: If I look at international markets, and I classify basically the Dow, because we tend to follow it more than we follow the European markets, I wouldn’t be getting involved in it. I think that there is a lot of hype behind the rand-hedge predicaments of the resource sector. I think that the rand has stabilised. I don’t think you’re going to see some excessive negative movements. There is the factor of dividends which may flow out of the country. We had Amplats which had results this week. That money has got to flow out of the country. Anglo American’s got large foreign stakeholders, that money’s got to flow out of the country. It indicates slight rand weakness, but at the same time I think it’s been factored in, and I wouldn’t be getting involved in the resources for the long term.

MONEYWEB: That’s Arthur Buchner from BoE Securities.

Posted in Market commentary

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