David Shapiro: Johannesburg Stock Exchange Report

MONEYWEB, BY ALEC HOGG, 10 JUNE 2003

David, Sekunjalo has got a really good business. Think about it – if you have anchovy toast anywhere in South Africa, the chances are you’re putting a couple of bucks into Sekunjalo’s back pocket, because they’ve got Redro and Pecks Anchovette. We will talk to Iqbal Survé a little later in the programme, David. But that gold price came under some pressure today. It’s not a good omen for the big deal between Mvela and Gold Fields?

Yes. I’m trying to find the background to this. There’s a massive long position in Comex, which is the commodity market in Chicago.

And just reading some reports there, it’s something like a two-decade high, they haven’t seen this

Just explain what all of that means.

What it means is that you get a lot of speculators who act between the producers and the end-users. So there’s a massive financial market in gold futures or in gold itself. We always hear about the gold mines hedging. Where do they hedge? Mainly on the futures market. Somewhere along the line, you’ve got to deliver that gold or undo your position. So there are massive open positions in gold.

You say long positions – what does that mean?

Long means you’re going bullish, you’re buying them.

You think the gold price is going up?

You believe that it’s going to go better. So you go long of a contract.

But that should be good for the gold price.

Well, what’s happened is that you’ve got huge long positions.

How do you satisfy long positions? The people who sold you the gold have got to deliver that gold or alternatively, it’s got to be undone in the futures market. So when you’re long, you kinda say, to whom am I going to sell them, when I sell these positions? Whom I going to sell them to? And suddenly you start to panic and the whole thing starts to unwind.

It’s almost like when all the foreigners were buying into the rand and pushing the rand down to R7 to the US dollar. The question was, who was going to blink first? Because, once you start selling, if there’s a rush for the exit, before you know where you are, the rand has

That’s exactly what happened. Sometimes you deal in these commodity markets in significantly more value, or underlying commodity, than is every produced.

All right. So there’s a massive long position on gold. People have made an enormous amount of money riding it up for the last few months. Now there comes profit-taking. Is this why it’s under pressure?

That’s exactly what’s happened. It was triggered by a slight improvement in the dollar, but I think that, once you get one person rushing, everybody goes out until you’re at a more stable position or a more acceptable level. So I think that’s why.

Down at $350.

It’s not a market we know a lot about, but we can only attribute it to that. As far as the rest of the market is concerned, both Mvelaphanda and Gold Fields share prices were down. But I guess you could put that down to the gold price rather than the deal.

Sure. Gold price was hovering $351, $353. Gold Fields down a little further than perhaps the other gold shares, but maybe because foreigners don’t quite understand the deal. They say, well, you’ve sold 15% of your South African assets at fair value. What does that mean for the future? So there might be a little bit of scepticism about the deal. But I think once it’s explained, at least it’s out the way, and we can get on with doing the business of gold mining. So I think it did come off slightly more than the others, but not too serious.

We have our single-stock futures portfolio that’s running again, and today I took the bold step of closing out our long position on Standard Bank, taking our profits on that side. Do you think it’s a smart move?

I’m trying to think. I like the market. I actually like the market. I think if interests rates are going to go down

But remember what Arthur Buchner said the other day:

“You’ve got to trade in five minutes, 15 minutes, 20 minutes.”

I withdraw my comment, yes. On that basis yes, I think we are due for a breather. We’re up about 20% in a month. Global markets are up similar amounts, but higher.

Bank shares are very strong.

So I think against that background, we are running out of topics, we’re running out of reasons to buy the market at the moment. So I think that we’re in for a profit-taking period.

But, as we know on the single-stock futures, I was boxed around the ears enough times for acting like a long-term investor when on single-stock futures long term – as Arthur has said to us on this programme, how many times before – is three hours. So we’ve made a bit of profit on this.

Take it off the table.

We’re taking it off. We are still short on Dimension Data.

I agree with you, yes.

We can stick with that for the moment?

I think so, definitely.

David, some of the big movers on the market today – how about Bowler Metcalfe up, Iscor up? Iscor up!

I can’t understand it, against the troubles with the strike action. I don’t know whether that’s been resolved.

The headline story on Classic FM news tonight was that the union is now really upset about the scab labour that’s been brought in.

That’s been picking up and I’m surprised to see it picking up against that kind of background, because that was the top performer in the top 40 shares today – up over 5%.

Outside the Top 40, Basil Read had a good day as well.

No reason for that. Alec, I think what is happening in the market, if we look at it generally, there is a view that with interest rates coming down – and we are expecting dramatic falls in interest rates over the next year or so – I think we are starting to see money shift out of money into shares. So we are seeing the smart money coming into shares, and I think you’re going to get that trend.

A bit late. We’ve been calling this for a while now.

I know that. But you are seeing that trend starting to pick up momentum. So you’re going to find quality shares or, where there’s a good outlook, you are going to find those shares being supported.

So, if you bought your Afrox shares at R13 when we were raving about them, they are R15 now, you stick with them.

Absolutely.

And the same with the Tiger Brands and others.

I think we’ve got a lot going for our market, if the rand does weaken slightly against that. So, yes, I think that’s underpinning the market.

We had Nail shooting up yesterday, shooting down again today. Some people thought that William Kirsh was going to win it, other people I suppose today think William Kirsh is not going to win that bid as easily. And then the other two big losers today of the top five losers were Durban Deep and Randgold, I suppose that’s a gold price story?

It’s only on the gold price, that’s all.

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