Bad news for some is inevitably good news for others. Anxiety is building about unsavoury political developments in Ukraine, with the risk of war reflecting in a rising gold price, as Biznews publisher Alec Hogg and market commentator Sasha Naryshkine (@SashaNaryshkine) of Vestact discuss on the CNBC Power Lunch.
Meanwhile, bad news in South Africa’s platinum sector has been offset to some extent by global demand. Although the workers have signalled their intention to keep striking until wage demands are met, platinum stocks have performed a bit better today. The strikes are hammering mining companies, but excitement around fuel cell technology appears to be making up for some of the negative news.
Clover’s results were also released today. It plans to raise prices to boost profits instead of aiming to grow market share. Naryshkine’s not a big fan of the JSE-listed stock, though. He thinks it is better to be in a diversified company like AVI or Tiger Brands. – JC
Why gold, platinum stocks are up, plus a fresh look at Clover: Sasha Naryshkine
To watch this CNBC Power Lunch video click here
ALEC HOGG: In company news, Clover Industries reported a 90 percent rise in first half headline earnings while Camac Energy reported a 6.6 million dollar increase in its full-year losses from continuing operations. To get a more in-depth view of how the market’s trading today, Sasha Naryskine from Vestact is with us in the studio. Sasha, we were just talking off-camera before we came on air, about Clover. I have many old friends in the Mooi River area where I farmed for a while, who are investors in Clover – big dairy area. You have clients who must be very happy with the way that the profits have gone up in the six months.
SASHA NARYSHKINE:  Well exactly, if you’re losing on the side and the company’s pressurising you, at least you’re winning as a shareholder provided, as we said, that you’re still holding those shares. Many of those farmers probably would still be shareholders. I think it’s basically a proxy for the economy, so as long as you get more consumers moving toward middle-income, they become more consumers of fresh and long-life dairy products as opposed to the old days, when people were maybe accessing the milk markets through condensed milk or ideal milk. I guess it’s a good proxy for the economy. It’s doing okay, but you have to ask yourself in the broader space, would you prefer to be in a diversified company like AVI or Tiger Brands. I think the short answer is probably ‘yes’, but well done to the company because they seem to be improving, which I think is good news essentially, for their shareholders.
ALEC HOGG: Lose market share and improve margins. It’s the old story, isn’t it? You push up your prices and your market share falls, but your profits go up…for how long…
SASHA NARYSHKINE:  Well, they have indicated… We’re all customer of milk. Almost everyone uses milk. Milk is a staple – under pressure. I don’t think people would necessarily watch their milk consumption, but people are very sensitive to price at that end of the market.  If you’re looking at a litre of milk and its sudden R1.00 or R1.50 more over a year, you’re certainly going to be using it a little bit more sparingly.
ALEC HOGG: Yes, and if you have a competitor who’s milk is better priced, you might just switch to that one.
SASHA NARYSHKINE: Â Exactly.
ALEC HOGG:Â Your forefathers were from the foreign world.
SASHA NARYSHKINE: Â My great-grandmother was from the Ukraine.
ALEC HOGG:Â Your great-grandmother.
SASHA NARYSHKINE: Â It means I can speak with great authority on this.
ALEC HOGG: But we’ve all been following it and we should be following it, because there is a concern that this could spin out of control. You have a controversial fellow by name of President Vladimir Putin who appears to have no fear for the international reaction to what he’s doing. He moved into Crimea, they’ve had the vote, the West has said ‘we don’t like what you did in the first place’, and he says ‘well, tough’.
SASHA NARYSHKINE:  He has great support back home. In the polls I think, he’s polling at an all-time high in terms of his own popularity. The Russians view Crimea and essentially, the ethnic Russians inside of the Ukraine as part of their people, so I can appreciate where they come from. However, from an international law violation point of view, you can appreciate where the West and the US come from. They’re saying no because this is a bit reminiscent of things we’ve seen before in Europe. In fact, we also said off-air, Gary Kasparoff the ex-world number one chess champion…
ALEC HOGG: He was here for the Discovery Leadership Summit a few years ago – very impressive.
SASHA NARYSHKINE:  He wrote a very interesting article over the weekend and he said ‘is Putin Hitler’ and saying ‘sorry, bad comparison’, but ‘is this move akin to the same type of moves Hitler made’.
ALEC HOGG:Â Czechoslovakia and Sudetenland.
SASHA NARYSHKINE:  Correct – in 1938.
ALEC HOGG: The timing was interesting. In March ’38, Hitler went into the Sudetenland. In September ’38, six months later he went…
SASHA NARYSHKINE: Â Into Poland.
ALEC HOGG: No, in September ’38, he went into the rest of Czechoslovakia and then a year later, as you know, he took Poland and that was World War 2.
SASHA NARYSHKINE:  I guess the memory is a bit fresh in the Europeans’ minds and of course, the whole East/West/Iron Curtain falling: that’s still very fresh in many people’s minds.
ALEC HOGG: Gold is up. That’s telling us… We’re not saying that there’s going to be a world war, but we’re saying the risk of a world war has gone from zero to something, with the gold price going up.
SASHA NARYSHKINE:  The big difference now is that Russia is an integral part of capital markets, so they can be punished on that basis. I was looking at the valuations of Gas Prom on Friday. I think it’s closed on a two-and-a-half multiple, so that tells you nobody really wants to own any Russian assets and most of the selling has probably already happened. You probably think there are a few people who are outliers, using this as an opportunity as ever, to say that tensions will calm down. You can’t believe in… We live in 2014. Could there possibly be another area of conflict? I think in the end, capital markets will punish Russia to the point where they take a few steps back, because Germany is their biggest trading partner. I think there’s over 100 billion dollars’ worth of trade between Russia and Germany. If Germany decides to start sourcing their natural gas elsewhere, that’s not good long-term news for Russia.
ALEC HOGG: But if the West imposes the sanctions – as has been threatened – Germany will have to source its natural gas elsewhere. It’s an interesting development.
SASHA NARYSHKINE:  It has longer-term implications for Russia, so I think everyone needs to tread tightly. They might come to a conclusion where they say… Sevastapol is essentially the port where the Black Sea Fleet…it’s the only deep-water port that isn’t frozen over where they keep their Black Sea Fleet. Who knows if there’s a compromise around that? Maybe this is the end.
ALEC HOGG: Just around the corner was the Charge of the Light Brigade, back in the Crimean War. How many years ago…? Let’s go from ancient history to present day. Platinum stocks actually did a little bit better on the market today. Is there any reason you can think of for that?
SASHA NARYSHKINE:  The whole idea that fuel cell technology is getting closer and closer…you would have seen fuel cell technology stocks in the U.S. go bananas. Everyone’s getting quite excited about that because essentially, as an application 10/15 years ago, people were very excited about it. They were saying it’s going to take the automotive industry by storm, but essentially, it has only been used in forklift technology so far – successfully. However, there are early signs – and maybe Tesla will drive this – that there could be secondary applications for fuel cell technology. That would be a great underpin for the platinum price because you’d get secondary demand in the automotive industry.
ALEC HOGG: So the strike for the moment has been put on hold. It’s the fuel cell technology driving those stocks.
SASHA NARYSHKINE:  I think so. Those are all the avenues that…I remember an interview with Dave Brown on this channel. He said everything from diesel engines to leaf blowers and everything in between, essentially, could be using platinum. Fuel cell technology has very interesting applications and again, Tesla ultimately… Watch that company because if not as a stockholder of what essentially, is an overpriced company – maybe – look at the battery technology they’re going to be at the forefront of.
ALEC HOGG: The boy from Pretoria Boys High is now called America’s greatest entrepreneur.
SASHA NARYSHKINE:  It’s fabulous.
ALEC HOGG: You can follow him on Twitter as well. I did that over the weekend.
SASHA NARYSHKINE:  Okay, I’ll have a look.
ALEC HOGG: Sasha Naryskine. You can follow him on Twitter as well. Do you tweet a lot?
SASHA NARYSHKINE:  Yes, I try to tweet two to three times per day, just keep a little bit relevant, and make it funny, because Twitter is also personal. You must sometimes make it about yourself, but I don’t have anywhere near the number of followers you do, Alec.
