David Shapiro: Market watcher, Sasfin, and Kevin Lings, Stanlib

MONEYWEB, Alec Hogg, 28 June 2006

As the rand improves slightly, the spotlight falls on Anglos, BHP Billiton and Richemont.

MONEYWEB: Well, on the stock market today, well, more of the same, more of the same – share prices down slightly, not terribly seriously, but I don’t know how many losing days in a row it is.

DAVID SHAPIRO: The fourth day in a row.

MONEYWEB: The fourth in a row? …

DAVID SHAPIRO: I think most emerging markets have been battling. We had a slightly better day. We were up for most of the morning and it was only in the afternoon that we came down. I think the stronger rand, there was a slightly improved rand, may have had something to do with that. But a few buyers came in, particularly for financials and industrials and some of the shares that had been marked down quite sharply I think recovered – a lot of the retailers and a few of the banks.

MONEYWEB: Why is the rand getting better now, David, let’s just get the stats quickly?

DAVID SHAPIRO: Yes, OK.

MONEYWEB: We’re at R7.24 to the US dollar, that’s 10c on the last couple of days. We’re just about R9.00 to the euro, and we got to I think R9.50 at one point, and we are R13.11 to the pound, which is also an improvement. So all three of those doing quite a lot better on a day when the gold price is, well, not doing a whole lot – $580.

DAVID SHAPIRO: I wouldn’t get too carried away with the currency. I think we’ve come from a very weak level. I think if you go back two/three weeks ago, we were about round about the R6/dollar level, probably over the month, so we’ve depreciated about 16% so there is always a pullback. Just simple Dow theory and our market will move and fall back to a certain extent. So a lot of the people who were short on the rand, are probably covering in and …

MONEYWEB: What does that mean?

DAVID SHAPIRO: Well, you know, if you had bought dollars and sold rand, what you are doing now is you are selling the dollars and buying back the rand – so I think that’s given the market support. I also have to say, there was quite a bit of comment about Mr Mboweni’s address in London yesterday, where he came out and said that South Africa’s growth prospects are still sound. And also on inflation he was fairly benign, he said that the action that central banks are taking will get on top of inflation. So I think that also gave comfort to people who were invested in South Africa and brought a few buyers back in. So we have certainly seen [that], but there wasn’t much conviction in the demand that we saw today for markets. You know, it’s all right for it to bounce after three days of losses, but I think what you have to see in the market, you know, is buyers coming quite aggressively. And I don’t think anybody is going to take major action until we know where US interest rates are headed, and we will know tomorrow. I don’t think we’ll get the full answer tomorrow night, but it’s going to be one step closer towards that.

MONEYWEB: Steinhoff, there’s a stock that, well, you remember we had – on Friday I think it was – Markus Jooste, the chief executive, saying to us the R19.00 a share that the price had dropped down to is normal when you have bond issues like this. It will rise again – man, you could have made R2 a share if you’d listened to him. Up to 21 today.

DAVID SHAPIRO: Yes, I think it’s also a company which is very well placed to take advantage of a weaker rand. They manufacture in developing countries and sell their products to developed countries. And I still think the global economy is on track, it’s still positive.

MONEYWEB: You know you’re in trouble.

DAVID SHAPIRO: Why?

MONEYWEB: Because yesterday you said that the foreigners were selling South African shares. Now stand by, because Kevin Lings from Stanlib has done some research and Kevin, according to your information and the stats that you have looked at – in fact it’s not the foreigners who are selling South African shares, it’s the locals.

KEVIN LINGS: Yes, I think that’s right, you know, foreigners obviously were huge – I think everybody is aware that foreigners were huge buyers actually over the last couple of years, and certainly the course of this year. And year to date, if you look at it, foreigners have bought R54bn, almost R55bn, which is huge. The debate, I guess, is this weakness that we have had in the market and the weakness we have had in the currency is that due to foreigners selling. And if you look at the data from the JSE for June to date, and that’s up until yesterday, foreigners have bought R481m net, which is not huge and it’s way less than they have been buying – in fact it’s something like only 10% of their regular monthly purchase that they have been doing. But still, it’s a net positive and foreigners haven’t really been big sellers of South African equities.

DAVID SHAPIRO: Kevin, I think we need to look at the foreign buying. You see, if you look at where the foreigners are buying, and I’m putting “foreigners” in inverted commas, you’ve got heavy shares like Anglos, Billiton, SABMiller, Old Mutual, where we are sellers. Those shares are emigrating, never to come back here again. So yes, there are inflows but we’re actually selling our assets. So what you need to do is differentiate between those big shares which have their primary listings on foreign markets and those which are local shares – you know, the banks, etc, which only have a local flavour. And that’s where a lot of these statistics are distorted, because there is a massive demand for Anglos in a resource market. So if there’s huge demand in Anglos in London, yes, they will come to our market and try and pick that up. So I think the statistics are distorted by these kinds of movements. We have to differentiate between the various classes of our shares.

MONEYWEB: What do you think, Kevin, what do you think about it?

KEVIN LINGS: Yes, look, I think that for me the way the data is measured is it’s measured fairly consistently over a long period of time now, and we definitely saw huge inflows from 2004 on, and that’s reflected certainly in various things. It reflected in share prices, it reflected in currency, and it reflected in what emerging market fund managers were telling us about their holdings in SA equities broadly – whether its resources or whether its domestic plays.

MONEYWEB: So are they selling, the foreigners, or is the selling coming from South African institutions, Kevin?

KEVIN LINGS: Well, for me a lot of the big institutions locally were very overweight or had a lot of equity content leading up to this weakness. They had done very well out of it, and then when nervousness started to come through, which was really sparked by the US Federal Fund’s rate going up and the subsequent weakness around the globe emerging markets, then we found certainly local institutions were lightening equity. So I would say that local institutions selling or lowering the equity content was a big component of what we have seen in the markets.

MONEYWEB: Our thanks to Kevin Lings. David Shapiro doesn’t exactly agree with him, but I think …

DAVID SHAPIRO: You see if we’re lowering, those shares go, you know, Anglos and that, they will never come back again – that’s the sad thing. And the foreign content or the foreign ownership of our big companies, you know, Anglos and that, are emigrating and making our market actually smaller.

MONEYWEB: David, on to the big five today, and the JSE overall index was down just a little bit. Of the big five, four of them were lower – Anglo American, BHP Billiton down 2%, each had big moves again. Richemont 1.75%, and then SABMiller was only slightly down and then Sasol – what a big move for Sasol in the right direction.

DAVID SHAPIRO: Yes, up. Look, the oil price over $72 a barrel – I think there has been some very positive views for …

MONEYWEB: How’s your Mini looking – I suppose pretty good, hey?

DAVID SHAPIRO: Yes, I can get 700 km on a tank there. I put 55 litres in the Mini – can you believe it? Great car!

MONEYWEB: And you do 700 kilometres?

DAVID SHAPIRO: And I do 700 kilometres.

MONEYWEB: OK, so you’ve just done your advert for Mini. [Laughter.] Not by mini me. But Dave, are you expecting then that we’re going to see a hefty increase in the petrol price, because the rand is weaker and all of this?

DAVID SHAPIRO: You’ve got oil at $72, you’ve got the rand at, call it R7.30 now – there has to be an increase in price. I think the other sad thing is that the maize price has also been creeping, which wasn’t in the inflation numbers today. So, yes, there are a few obstacles ahead of us, you know, in the months ahead.

MONEYWEB: But there was some good news – Sasol up 2.5%. Barry Sergeant told us later that in New York it was 6% higher on the hedging. We’re going to talk to Arthur Buchner about that, exactly how it works, a little later in the show. Then we saw Steinhoff, as mentioned earlier – that went from R19 on Friday. If you’d listened to what the chief executive, Markus Jooste, had to say, you would have been able to predict the 10% increase – R21 it trades at today. And then in the banks we saw Standard Bank, FirstRand improving. Naspers, a muted response to some pretty good financial results yesterday. And then Edcon up 3.5%. So just to close off with, Dave, that company, AfroCentric, you mentioned it briefly yesterday – Brian Joffe being the shareholder – it’s a shell, somebody likes it, Dave, and it went up another 31% today to R11 – and that must be pure speculation.

DAVID SHAPIRO: It’s crazy, of course it is, because they haven’t announced what they’re going to do. There is no strategic or business plan out, but it has three heavyweights – you know Motty Sacks, who was behind Netcare and was also behind Clinic Holdings, as well as Meyer Kahn, who we all know very well. I think Brian has been Johnny-come-lately but big, big heavy hitters there. So if they’re going to do something and I think it’s going to be South Africa’s equivalent of the Gates and Warren Buffett Association – it’s big, big things.

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