Arthur Buchner: Local Market Report


BROADCAST TRANSCRIPT: Arthur Buchner, the head of derivatives at BoE, joins us now. Arthur, interesting to see that in recent weeks we’ve had a number of companies reporting on this programme that they have made substantial gains from their overseas investments. Yet Intervid, small cap company involved in creating video cameras, fire alarms, that sort of stuff, went into the international markets last year. The decline of the rand is what must have got them?

ARTHUR BUCHNER: I think what really happened with them is that they needed to first of all take South African rands and purchase cameras, etc. These are all products which are sourced outside and maybe they started their internationalisation programme a little bit too late as the rand started to weaken. Now suddenly you have to go and purchase foreign goods and that costs you a hell of a lot of money.

MONEYWEB: And Comparex? Byron told us about that trading statement issued earlier today. It is a bit disappointing?

ARTHUR BUCHNER: It is a bit disappointing. They actually didn’t do too much on the market today. In fact closed unchanged and they were well bid and offered – 378,000 shares trading, so the market didn’t take it too badly. It was issued a couple of minutes before the market closed, so there was time to actually get involved in it. They do at the end come out and say that they still expect a little bit of an increase, and not really hurting the share price that much.

MONEYWEB: Today’s story has definitely got to be the rand and rand hedges because we did see the rand down to below R17 to the pound at one stage. Also substantially worse off against the dollar as well. Very close to R12?

ARTHUR BUCHNER: It does sound sad but if you came in on Monday the rand was at R11.67 to the dollar and I must say on Wednesday there were cheers in the dealer room as it went through the R11 mark. And now suddenly we’re back at where we were on Monday, it’s all doom and gloom. The rand is falling out of bed, but actually it hasn’t done anything on the week, so I think you can expect it ahead of the weekend. Whenever there’s any uncertainty in the market, people will hedge themselves. I personally believe people have gone and shorted the rand because they believe that nothing positive will come out of Zimbabwe. Either Mugabe will win and that will be negative, or the MDC will win and Mugabe will have a civil war, so that will be negative. And when people take that view invariably the rand will strengthen because those people are short already and they need to come in and cover later on. That’s the view I’m taking, it’s not the view that the market took today.

MONEYWEB: But you anticipate rand strength back on Monday again?

ARTHUR BUCHNER: Whether Mugabe wins, whether the MDC wins, people will come in on Monday to try and cover their shorts which they have on the rand and the rand will stabilise and even strengthen a lot more.

MONEYWEB: It’s very interesting to see the key rand hedges today – Richemont, Liberty International, South African Breweries – whenever there’s bad news around the rand those three move, but Richemont has been an incredible story because it’s literally double the price it was at its worst level following September 11th. It closed today at R27.

ARTHUR BUCHNER: An all-time high on Richemont. It is an amazing stock – when the rand was strong on Wednesday it was one of the only stocks to be up. I think it was up about 40c on Wednesday. That was giving you an indication that this will be stronger. LVMH came out with results this morning. They were also up quite considerably – 4.5% at yesterday’s prices. And the whole luxury goods sector’s looking at the American data coming through, the economies are turning around, people are going to spend money on watches and precious goods – and where are we going to put out money? Into Richemonts. That’s what the market is telling you at the moment.

MONEYWEB: Talk in the market today of interest rates going up, and I suppose the declining rand and that sort of talk is what drove the banks lower. Just to give you a couple of those figures, BoE and Investec down 4%. FirstRand and Stanbic, which is reporting results next week, down 3% as well. So lot’s of negativity still in that sector?

ARTHUR BUCHNER: Correct, and to exacerbate the whole move down, the futures were trading at quite a large discount for most of the day today and reverse arbitragers were responsible for selling spot market. Now when people have already got a negative connotations attached to certain sectors like the financial sector when the rand is under pressure, those actually don’t have any support because the arbitragers sell at any price. They need to just sell and get out. And whereas the resources could actually absorb all that, the financials couldn’t, and that’s why they were down as much as they were.

MONEYWEB: That is Arthur Buchner, the head of derivatives at BoE.

Posted in Market commentary

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