Arthur Buchner: Market watcher

MONEYWEB, Byron Kennedy, 01 November 2004

The US election and the markets, resources still under pressure, Nampak’s announcement, the rand’s volatility and the gold price.

MONEYWEB: Moving on to our market watcher this evening, we speak to Arthur Buchner from Nedcor Securities. Let’s kick off with the markets, up 1% today closing 113 points better off, did the overall index, so it’s just marginally shy of 11,800. But it was looking a lot stronger at one stage, wasn’t it?

ARTHUR BUCHNER: Yes, it was up about 180 points at lunchtime, and actually had some profit-taking. Well, I wouldn’t refer to it as profit-taking, but generally fell down, an uneasiness with what’s happening in America. Tomorrow’s going to determine what direction their market is taking and you can see their markets have been very flat for the last four to five days. The dollar itself has been trading in a range between 1.2730 and 1.2770, so anyone who is going to take a really big view ahead of this, it’s not going to happen – and you’ve seen that in our market, we’ve had R2.3bn traded in the market of which R300m of that was in a basket bookover so…

MONEYWEB: You’d call that a quiet day?

ARTHUR BUCHNER: It was a quiet day today, even though the market was up. Normally in a day where you find a market rallying 180 points and then dropping back 70 points, quite a lot of volatility, it did it on very, very thin volumes.

MONEYWEB: Now George W Bush is the bookmaker’s favourite to win this election which starts tomorrow. Are our markets reflecting exactly that?

ARTHUR BUCHNER: Well, I don’t think so because, if George W Bush wins, I’d expect the US dollar to actually weaken considerably. Since he came into office he’s increased the deficit and he hasn’t really taxed the American consumer, and if that happens that means that there’s no real going forward to say “how are we going to keep the dollar in check?” So the market is not telling us that George is going to win, in fact the market’s telling us that no-one is going to win and no-one really knows who’s going to win. In fact, on Bloomberg’s today they came out with a statement saying that every presidential election year, the weekend before the presidential election, if the Redskins had won then the incumbent won, and if the Redskins had lost there was a new president . So they don’t even know, they’re looking at the odds.

MONEYWEB: What are the Redskins? A basketball or baseball team?

ARTHUR BUCHNER: No, they’re an American Football side.

MONEYWEB: An American football side? So they’re basing the outcome of an election on that – that’s absolutely ludicrous, isn’t it? Let’s get back to our markets then, and some of the features. We have seen resources under pressure over the last while. Has there been a change in that trend at all?

ARTHUR BUCHNER: Not at all. Over the last few weeks we’ve definitely been seeing a switch in our markets. Institutions are selling the resource sector, they’re buying into the industrial holdings sector, and they’re buying into the banks. We had Bidvest, which has had about a 10% rally, Barlows had about 8% rally, Imperial’s incredibly strong, all the banks, it’s been reported over the last week have been very strong and if you see Anglo American has come from a high of R158 three weeks ago to bottom out about R133 on Friday.

MONEYWEB: We spoke to John Bortlan, the chief executive officer of Nampak, a little while ago and he said they’d sold that short-run business of theirs in Europe, £8m shy of the net asset value. Does that change your opinion of the company at all?

ARTHUR BUCHNER: Not at all. I actually sometimes find that companies should look at themselves and say “this is a loss to us”.

MONEYWEB: Cut your loss?

ARTHUR BUCHNER: Yes, we’re going to lose money for the next five, 10 years on it – let’s give it to someone else. They might be able to turn it around and make a whole lot of money. We can use this money better, especially repaying back debt, I think it’s a good thing to be doing in the European context and with the rand sitting where it is – and I don’t view it as a negative. In fact, I view the fact that they’d held on to it as being more negative for the company.

MONEYWEB: Quite a volatile session for the rand today. It did touch R6.17. The last time I looked, about R6.10 against the dollar. What do you put that down to?

ARTHUR BUCHNER: The rand at the moment is being pushed left and right on very thin volume as well. No one knows where the dollar is going and the dollar is determining the rand direction. And until such time as there is stability in the world as far as elections are concerned you will see that the rand will be incredibly volatile.

MONEYWEB: So the thin volume suggests that speculators are sitting on the sidelines, sitting on their hands, maybe, and waiting for the election and the result of that out of the US.

ARTHUR BUCHNER: It’s order-driven. If an importer comes in and phones up the currency desk and asks for US $100m, they’ll sell him a little bit and then move the price out again, whereas normally in our currency market they’ll trade a couple of billion a day. Even those volumes are getting very thin, and the market is moving 1% on literally no volume.

MONEYWEB: Arthur Buchner of Nedcor Securities and he will be staying with us in the programme.

[Ad break]

MONEYWEB: Before we get into tonight’s top story, Arthur, let’s talk about the gold price at $428. It did tick up. That has also moved down quite a bit, what does that suggest in terms of the American election?

ARTHUR BUCHNER: Well I think the commodities are saying that they actually expect the dollar to weaken, because we found a stable dollar, no movement either side, left or right, and yet the gold price is up four or five dollars since Friday’s fix. Our market actually has a very interesting thing happening at the moment here. We have this Harmony Gold Fields quandary, but the other factor that is determining where our gold stocks are going is the fact that the scrip lenders have retracted all their stock. Now what basically happens is that people who are short of gold or short of a stock will go and borrow that stock and they borrow that from institutions. If the institution needs to vote, he needs to recall that stock – and what we’re finding with Harmony for example is that the institutions are going to vote on the deal on the 11th or 12th November, and they’ve recalled all that stock. So you’re finding the shorts having to buy back Harmony, but at the same time Harmony hasn’t been rallying with the increased buying, so there are definitely sellers of the gold out there evening with the gold price sitting where it is.

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