Never a dull moment on the JSE, but in this market update with Garry Booysen of Vunani (who got the memo on dress code) Â there’s more bad news than good, especially as it relates to SA’s partners in BRICS . The Evraz Steel disaster missed most radars, but it provides a cautionary tale for Russian investment in South Africa; and then there’s the Chinese Bold Defaults which are sending shivers through trading rooms worldwide. And, as Gary points out in this CNBC Africa Power Lunch interview, there was a spike in forex futures trading with 36 times the normal volume changing hands yesterday. Â – AHÂ
ALEC HOGG: There were lots to talk about in the market today – not least Evraz, which came as quite a big shock, and then the Chinese Bond default, but also the National Assembly passed legislation that makes changes to mineral laws concerning government ownership. Some say it’s nationalisation by stealth. We’ll be talking to Gary about that as well as about Dawn’s results. Here he is – the one and only Mr Vunani, Gary Booysen. Thanks Gary, for showing up in your outfit. Evraz came, the Russians bought the old Highveld Steel, and now they seem to have made a total muck of it.
GARY BOOYSEN:  To be honest, I haven’t looked at it in too much detail. It’s one of the smaller companies.
ALEC HOGG: It’s an incredible story, though. They announced their results yesterday. They said they’ve run out of money, and they’ve run out of borrowing capacity. What happens – we talked to the principal of it – in a case like this, when you’re listed?
GARY BOOYSEN:  As I said, I haven’t looked into it too much. The last time I followed Evraz was when the Russians actually came in to buy it out. Generally, even listed companies run into trouble. You can expect many rights offers, a lot of restructuring, and all of it never good news for shareholders.
ALEC HOGG: Talking about that, did you ever meet the lady who came here to do all the transactions – from Evraz? She was a supermodel.
GUGULETHU MFUPHI: Â A Russian princess, maybe.
ALEC HOGG: Not quite a princess, but I can tell you she was close to it – a gorgeous lady who, I think, swept everybody off their feet – a bit like you, Gugu. Somehow, they managed to pull off this deal that didn’t seem to make a lot of sense. Maybe she had something to do with it. I’d like to see her coming back here to South Africa and settling it all out. What about this petroleum law?
GARY BOOYSEN: Â Which one?
ALEC HOGG:Â Where the state gets 20 percent of all oil and gas exploration and then has the right to go up to another 80 percent, i.e. 100 percent, which they can buy out companies at the market price.
GARY BOOYSEN:  On the face of it, you need the lawyers to look into it in a little bit more detail than we have. However, on the face of it I would say it does probably look like nationalisation by stealth (I think that’s the way you described it), which again…I don’t know if that’s the right way to go about things in South Africa at the moment. It seems like a trend towards privatisation would make more sense economically, especially if you look at our GDP growth forecasts. It’s an old economic paradigm: state intervention does not generally equal efficiency. As I’ve said, we’d need to look at the ins and outs of exactly what powers the government is getting because of it, but on the fact of it, I don’t think – again – good news for private shareholders.
ALEC HOGG:Â Well, Gugu and I had a chat yesterday with Luke Havemann.
GUGULETHU MFUPHI: Â They put it up to 80 percent of any new ventures regarding the energy sector in the country.
ALEC HOGG: It was one of those interviews where I said to him, ‘are you serious?’ He’s a lawyer. ‘Is this really the case?’ I can’t remember how many times we asked him just to repeat himself in that instance, but it kind of beggared belief.
ALEC HOGG:  You talk about state intervention. The big story in the global markets now, is China and those Bond defaults. What’s going on there?
GARY BOOYSEN:  Looking at China, as far as I understand the Bond defaults…they’ve been trying to manipulate the currency a little bit, because everyone’s been taking one-way bets on the Yuan, and they wanted to get a little bit of volatility coming into the system, just to really shake out the speculators. Looking at China I obviously think it’s backfired a little bit. That’s a severe impact for the emerging markets, especially someone like South Africa because we’re so commodity-heavy – copper, I think, is at a four-year low at the moment – so there are definitely concerns there, but there have always been structural concerns around how China operates (the shadow banking system). The concerns around China from our point of view are very valid. While China’s moving, it’s a market economy. It’s still run by a communist party. It’s a place where it’s difficult to get allocated efficiencies. A lot has been priced into China’s development over the next ten years. If that misses expectations, there’s a huge sell-off to be had, especially in resources. If you look at a chart of the resources boom that’s happened over the last 10/15 years, that really is when China started coming to the fore. If they take a step back now, some of our commodity counters could be hit very hard. That’s why our trading strategy for the whole first quarter…everyone has been preaching ‘this is the turn back into resources. Finally, we’re getting some sector rotation out of the industrials, which are all overvalued’. We’ve been very sceptical around that, because when China doesn’t come in and it doesn’t really fire on all cylinders, these companies are going to be crunched. Yes, I’d say our strategy is still ‘cautious trading around resources’ because of what’s going on there.
GUGULETHU MFUPHI:  You touched on commodities as well as the resources space in South Africa, which I’m not too sure if you’re bearish on, given the fact that we have so many changes taking place: the proposed changes to the law, and China taking strain as well. What is your outlook, as an investor, on the resources space?
GARY BOOYSEN:  Our outlook remains the same on resources. It has been for the last two or three years. It’s a sector where you’re going to struggle to see long-term gains. We’ve looked at it as a value trap for a long time. Everyone’s looking at the PE saying ‘they’re so low. It has to be a buy-down here’. That’s a very dangerous mentality. You’ve already mentioned many of them. You look at the power concerns in South Africa. You look at the labour situation. I was just reading about…obviously, the way the platinum industry is now shifting to open-source mechanised mines. The problem in South Africa – if you look at a platinum mine, for example – that’s a tiny little seam, it’s almost like a cake with a little seam deep underground, and you can’t mechanise that. Those mines are no longer viable now, but that’s not a sector I’d personally want to put my money on. It’s great for trading because it’s nice and volatile…lots of announcements, etcetera. In the longer term however, we’re definitely sticking more towards the industrial counters.
ALEC HOGG: It’s interesting to see how the precious metals have been reacting lately. Gold’s getting back towards 1400 Dollars
GARY BOOYSEN:  On gold, everyone was calling the technical break at about 1260 and they said once it’s at 1260, you’re looking at about 1400. It seems to have found resistance around 1375 now. It’s definitely interesting there.
ALEC HOGG: Did you see Dawn – the results? We’re going to talk to Derek Todd a bit later.
GARY BOOYSEN:  Yes, I saw it very briefly. It seemed to be reasonable results. It seems to be growing revenue. It seems okay, but I haven’t looked at them in too much detail.
GUGULETHU MFUPHI:  Looking at some other share price movements, it seems as though retailers are having a fairly good day today. Truworths and Shoprite are up quite strongly. I’m surprised at Truworths – up by three-and-a-half percent.
GARY BOOYSEN:  I think the retail accounts have been hit very hard and it’s about time for a recovery. I don’t know about Truworths, but I think that on Shoprite it might be a little bit of an opportunistic buy ahead of the dividend because it’s the last day to trade – today. It’s Thursday and normally it would be on a Friday, but that’s because we obviously have a public holiday next Friday. There might be a little bit of interest there, trying to grab dividend play out of Shoprite, because it has been very hard. I think investors might be able to scoop the dividend quite cheaply, but I don’t think it’s going to fall off too badly tomorrow.
ALEC HOGG: Somebody likes FirstRand…big volumes in that stock – up one-and-a-quarter percent.
GARY BOOYSEN:  One interesting thing…I don’t know if you guys saw, but the currencies’ future market yesterday… I don’t know if you guys saw what happened there, but currency futures… Obviously, we had the Rand fluctuating all over the place, but we got the volume numbers off the JSE this morning. That market normally does about one to two billion in a day. Suddenly yesterday, 56 billion went through the JSE currency futures. It’s a spike like that, so something interesting’s going on there. We’ve been looking around the big banks as well, trying to find out exactly what’s going on. Many of them say ‘the current account deficit came out. We had a weak link’. That didn’t make sense, so if you guys are looking for something interesting, something definitely went on there yesterday. We haven’t quite worked out what yet, but a huge volume going through.
ALEC HOGG:Â Thirty-six times the normal volume.
GARY BOOYSEN:  There’s definitely something going on.
ALEC HOGG: What’s your guess?
GARY BOOYSEN:  Some player was obviously doing something yesterday. I’ve rather narrowed it down. There are about three or four big bank players. I’ve taken out one of them so far. We’re trying to find out who was actually doing it, but at the moment, it remains a mystery.
ALEC HOGG: You have our numbers. That was Gary Booysen from Vunani Private Clients.
