Arthur Buchner: Market commentator, Nedbank Securities

MONEYWEB, Erika van der Merwe, 14 September 2006

The rand and the current account deficit, and Moneyweb Business.

MONEYWEB: Arthur Buchner from Nedbank Securities – today’s market? Not a bad day, considering what the rand did.

ARTHUR BUCHNER: Well, you know, the rand hedges now make up about 55% of the all-share index so, with the rand weakening, that actually supported the market quite a bit. We did see a sell-off late in the afternoon where the rand actually came back. And sometimes these comments are not necessarily bearish on the rand. You know, they shake out all the weak hands – the guys that were long of the rand, expecting it to strengthen because it had been over sold, and they suddenly decide oh, hold on a second, we’re wrong, the fundamentals are wrong. They go and cut, the exporters go and do all the hedging and the next thing you know it’s actually good for the rand. And I wouldn’t be surprised to see the rand actually have a nice 1% or 2% pull-back in the next two or three days, because it’s a comment. It’s not a fundamental shift that’s happened. You know, when we saw the current account deficit it had already weakened the rand, so we already had it in the market. And now suddenly someone comments on that. Well, we already knew what was happening two, three days ago. Don’t be surprised to see a 1% or 2% pull-back in the rand in the next two days.

MONEYWEB: Talking of rand-hedge stocks, Richemont moved up nicely today with its rand-hedge qualities and also an upbeat trading statement.

ARTHUR BUCHNER: Correct, and at the end of the day if you want to get exposure to a rand-hedge stock and you are a rand bear, then you want to first of all get a stock which is listed in a foreign country because, if that stock stays the same price in that country yet the rand weakens, it goes up. So that’s your number one benefit. The second benefit is if they are selling their product in different currencies, hard currencies, when they expatriate that money back to South Africa it gives you an added win. So don’t only got for a rand-hedge counter that necessarily sells overseas but is only listed in South Africa. You must go for the dual. You must go for the one that’s listed overseas and the one that is selling in hard currencies, and that’s what happened with Richemont today. You’ll see that Richemont’s outperformed a couple of the other rand-hedge stocks precisely because of that.

MONEYWEB: Arthur, give us some other examples or rand hedges according to your criteria.

ARTHUR BUCHNER: Well, SAB, for example. It sells a lot in South Africa, but its majority now is selling to the international market so that is one that is dual-listed and it’s selling offshore. If I have to think off the cuff, Old Mutual is not a classic example. Old Mutual, even though it’s listed overseas, makes a helluva lot of its money out of South Africa. Now with the Skandia acquisition it will make a lot more money overseas, but it’s making a lot of money here – and hence it underperformed all the other rand hedges. And that’s a classic example of three that I would look at.

MONEYWEB: The market punished Illovo for its trading statement, which to my mind seemed quite positive, although it did warn that the high base of last year’s second half could undermine this year’s full-year performance.

ARTHUR BUCHNER: You know, sugar’s come off a hell of a lot and Illovo’s really been underpinned by the fact that someone’s picked up 20 or 51% of it at R21. Now what happens is, if you’ve sold your stock at R21 and it comes back down to the level R17.50, I think you’re going to buy in at least a fair portion if you believe it offers value. But with the sugar price having fallen as dramatically as it has, and I think it’s about 30% off its highs, that impacts. And once those bottom pickers, the guys who sold off at R21, start to buy in a little bit of their holdings you will see a sell-off. I think Illovo’s share price has actually outperformed the sugar market, and I wouldn’t be surprised to see some more profit-taking.

MONEYWEB: Banks gave up some ground today. Was that rand-related?

ARTHUR BUCHNER: Typically rand-related. In fact, as a trader the first thing you see is when the rand starts to go weaker you start to sell the financials. It doesn’t mean that because the rand is weakening that it’s actually bad for financials. I have the opposite view. But traders and asset managers out there – the rand’s going weaker, let’s sell out of that and let’s buy into the resources. And that was a classic example. I don’t think there was one of the banks that actually withstood any of the selling today.

MONEYWEB: And resources, looking more specifically at the details?

ARTHUR BUCHNER: Resources – because of the gold there were a couple of bottom-pickers in there. Anglo American actually held up quite well until the late afternoon sell-off, and very aggressive buyer out of London this morning, because what happens is we also get arbitrage trade in the market, and it traded at a higher price in London that what it traded in our market, so we actually found South Africans selling Anglo American and foreign guys buying it. But the resources held up very, very well. Billiton are announcing their buy-backs every single day. Looks like those are the place to be at the moment – so long as the rand remains weaker.

MONEYWEB: Well, just a wrap up using the Satrix numbers. Satrix 40 up 0.7% to R19.67 today. The Resi up 1.48% to R40.43, so illustrating what Arthur said how resources stocks gain on a weaker rand. The Fini up 0.13%. Interesting there that although the financial index was weaker, the Satrix Fini was up slightly.

ARTHUR BUCHNER: Well it was up, but you must look at it in relation to what the rest of the market did. So the resources were up, what, 1.5%, so the Fini underperformed. So there was good demand. We had a strong Dow overnight; we had the market which was up about 3% in the early morning supporting it. The Fini – I’m surprised that it was actually up. I would have thought it would have been down slightly. The Findi, which is a combination financial and industrial index, was actually up quite a bit as a result of SAB and Richemont making up a fair portion of that index. But you can see that that financials definitely underperformed the market today.

MONEYWEB: Well, Arthur, with us in the studio Hilton Tarrant, who’s in charge of putting together Moneyweb Business. What do you have for us tomorrow, Hilton?

HILTON TARRANT: In tomorrow’s Moneyweb Business in The Citizen an exclusive story on Dave King. The fraud accused tells us his side of the story. Old Mutual looks for growth in the US, India and China. Read two pages of insight from the world’s leading business publication The Wall Street Journal, and Barry Sergeant takes an in depth look at how Brett Kebble managed to add R5bn to the value of Western Areas. That’s Moneyweb Business in The Citizen tomorrow.

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