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Resources experience significant uptick

Weak dollar positive for EM currencies, Comair up 9% and potential Brimstone acquisition – Carmen Mpelwane – Seriti Asset Management.

SIKI MGABADELI:  Let’s check those markets then. After a really slow start we managed to just edge into positive territory on the all-share today, up just three points at 51 428. The Top 40 index down 0.1%. The rand is at R14.70/dollar, R20.91/pound and R16.79/euro. Gold is at $1 257.50/oz, platinum at $988.90/oz and Brent crude oil at $42.80/barrel.

Carmen Mpelwane is portfolio manager at Seriti Asset Management and joins me now. Carmen, thanks for your time today. It seemed to be a bit of a slow start to the JSE.

CARMEN MPELWANE:  As you said, it was a bit of a flat day today. However, having said that, we obviously see that on the resources side there was a significant uptick, and that was obviously on the back of stronger commodity prices globally, which had a positive impact on the mining companies in South Africa as well.

SIKI MGABADELI:  And that momentum in commodity prices – where is it coming from?

CARMEN MPELWANE:  A difficult one to say. You’ve got to look at a plethora of different things. For example, the US dollar at the moment is down, a little bit weaker. On the oil side specifically, you’ve got to take into account that the US came out with inventory levels that were much lower than expected, and obviously the expectation as well in terms of Opec’s meeting on the 17th April, which people are hoping will see a pull-back in production.

SIKI MGABADELI:  Well, that weaker dollar also benefited emerging market currencies. You saw the lira, the rand, the rouble– all of those currencies actually gaining on the day.

CARMEN MPELWANE:  Absolutely. I think the sentiment is that people are looking for high-yield areas to get some more traction. At the moment the emerging markets have come back into the spotlight. I think a significant thing also has been the decline in the sentiment in terms of the more developed markets in terms of their growth, which has also had a dampening effect on the developed markets.

SIKI MGABADELI:  Any reaction to the Chinese inflation data? Is that also helping the story of a stabilising Chinese economy and then obviously being beneficial for those of us who are mineral producers?

CARMEN MPELWANE:  I think in terms of the Chinese also remember next week the GDP numbers  are coming out, so that’s something to look out for. The expectation is slightly down. So it’s difficult to pinpoint exactly what the impact is, but obviously everyone is hoping that there will be more good news than bad news.

SIKI MGABADELI:  Certainly. Alright, then, let’s look at the US. Last week was their worst week since February on the equities front. And of course it’s earnings season that’s kicking off this week. What are the expectations there?

CARMEN MPELWANE:  Today the US markets have opened slightly up and the view is that that’s on the basis of people already having priced in the negative earnings expectations for this first quarter of the year. Having said that, you never know the surprise factor in terms of what might happen and also we’ve got to remember that the first quarter is something that’s happened in the past. We’ve got to look forward and the expectation is that yes, the first quarter was significantly bad. But that would be sort of a floor going forward. But we are not expecting anything the likes…

SIKI MGABADELI:  Was it a factor of particularly the stronger dollar hitting profits?

CARMEN MPELWANE:  Oh, absolutely. No expectation in terms of the Fed as well. People are confused by what exactly the trajectory is going to be. Governor Yellen has come out and said exactly what she wants to do. The view is on the inflation and expectation in terms of the US numbers that are coming out in the rest of the week – that these are short-term measures that we are looking at and she generally looks at a more long-term perspective. So I don’t think we’ll see much movement. Having said that, she is meeting with President Obama later today, so let’s see what comes out of that.

SIKI MGABADELI:  We’ve got a cautionary out today from Comair on talks to possibly acquire another business. The share price at one point was up 9% – I’m not sure where it closed on the day. But what’s the speculation?

CARMEN MPELWANE:  I think it closed up at about 3% for the day. A slight pull-back towards the end of the day. Having said that, we’ve been trying to dissect this into figuring what could be the target for Comair’s interest? The only two that we could possible think of …you might never know what could happen in this country. So the first thing could be maybe they are in talks with Skywise. Secondly, maybe more realistic, perhaps they are talk with government in terms of their restructuring of their enterprises and possibly looking at a purchasing of part in one of their airlines.

SIKI MGABADELI:  It’s not been an easy time for those in the airline industry.

CARMEN MPELWANE:  No, absolutely not. Despite oil prices going down, the dollar impact is still having a serious negative pull-down in terms of earnings in the airlines in general. If you take it down to the consumers, well, everyone is pulling their purse strings very tight, which means that it’s likely to have an impact on the number of flights that people are taking, so at this point it does not bode well

SIKI MGABADELI:  And finally, Brimstone proposing to increase their controlling stake in Sea Harvest. A very interesting development there for them and for their strategy going forward.

CARMEN MPELWANE:  I think that’s also on the back of Sea Harvest acquiring an associate in Australia, which obviously is very interesting to Brimstone as it is. And in terms of their restructuring they are looking to increase their stake to 85% in Sea Harvest so as to regain and have a strong foothold in the food industry as well.

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