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Baltic Dry Index lower than it was 20 years ago

‘I think there are grounds for suggesting that we may be bottoming out’ – Chris Gilmour.

HANNA ZIADY: We are talking markets now with Chris Gilmour of Absa Wealth and Investment Management. The all-share index was weaker on the day by 0.65%, closing down at 49 429 points.

Weakness, really, across the board. The gold index was strong though, resources actually having a cracker on the day. Lonmin up in the order of 17.5%, Royal Bafokeng Platinum up more than 15%, AngloGold nearly 13% higher, Harmony up 11.8%, Gold Fields up more than 11%, and Angloplats up – and so it goes.

Resource stocks were significantly stronger. But, Chris Gilmour, you’ll have to weigh in here – it does indicate just how much the likes of stocks such as Naspers can move the whole index because I think that share is down about 4.5% today. What’s behind the fall?

CHRIS GILMOUR: Look, when we opened up this morning we came in on the back a weekend that started with the US market not doing nearly as well, because the jobs figure that came in was way below what people were expecting. So you’d have thought with that being the case – and it did filter through this morning in the Far East and we saw the so-called risk-on trade getting better. But as the day progressed we had this usual situation which we’ve had now since the beginning of the year coming in, and people are getting a bit of sick and tired of it.

Now you mentioned the resources stocks, and this is truly fascinating. For some time now a lot of people have been asking well, with what’s happening, is it time to get back into commodities.

Now you have to look at something like the Baltic Dry Index, which is an indication of commodities being carried on the deep oceans – and that is now plumbing new depths. For example, if you take a 20-year view of this, it’s lower than it was 20 years ago. So we are just not seeing the kind of trade in commodities that we saw even a few years back.

So yes, I think there are grounds for suggesting that we may be bottoming out, and I think that comes back to your earlier point about the commodity stocks. And if you feel that we are getting to the bottom, maybe it’s time to jump in and get them. I would argue, though, I’d issue a note of caution here and that is yes, while we might be near to bottom, the dynamics that would impart a very big upwards kick are just frankly not there. The demand is not there, there is too much supply. And unless and until those dynamics are brought back into equilibrium it’s going to be a bit of a problem.

But to your earlier point about companies like Naspers, if you look at the composition of the top ten companies in the index now, only three of them actually have a South African domicile, Naspers interestingly is one of them. You’ve got Naspers, MTN and Sasol. But even there you are looking at these companies deriving the bulk of their earnings or should I say a big chunk of their earnings from outside South Africa. So is our index necessarily a reflection of South Africa’s Incorporated, given the very, very heavy weighting towards global stocks and not national stocks?

HANNA ZIADY: Absolutely, a good question to be asking. Probably not when you look at the value of the index relative to our own GDP. But, as you say, weakness in global equity markets definitely is filtering into our market at this hour, with the S&P 500 down more than 2%, the Nasdaq down 2.5% and European markets also significantly weaker on the day.

Let’s come back to some domestic company news that was out today. We had a fair bit. For one, Anglo American Platinum issued results for the year to December, reporting a R12 billion loss for the year. Obviously weak commodity prices show through in those numbers. But it does seem that it’s rationalising cutting loose a bunch of mines and wanting to focus on a far smaller number than before. The question is – will that be enough to save them?

CHRIS GILMOUR: It’s a very, very good question, and it injects a dose of reality into the whole equation, as we were discussing a few moments ago. So it’s all very well for speculators to think we are getting to the bottom but, when you see the slew of poor results and poor outlooks from the mining companies, it does kind of bring you back to reality. So you’ve got Angloplats looking to close the Twickenham mine, for example, losing 1 000 people there – and so it goes on.

It’s difficult to see the light at the end of the tunnel but you are quite right, Hanna, if you can’t control your revenue, if you can’t control the external dynamics, all you can control is your costs, unfortunately what that means is the great bulk of your costs are in the form of headcounts, and then the only choice really that you’ve got is to slash that.

HANNA ZIADY: Absolutely. And I think we’ll be hearing a bit more about that from Warren Dick, who is attending the Mining Indaba, where I’m sure a lot of this is being discussed in terms of how we save the sector.

Just briefly, some of the other corporate announcements out today. Bidvest announced it would like to spin off and separately list its Foodservices business. Interesting. That accounts for more than half of the Bidvest Group’s turnover, and it’s a very global business, the Foodservices business.

Also Illovo Sugar jumped on the news that its controlling shareholder, Associated British Foods, which owns Primark, have expressed some interest in acquiring all the shares of Illovo Sugar that it doesn’t already own.

Finally, Alexander Forbes was up more than 7% after the news – I’m not sure if there is any connection here – that its chief executive Edward Kieswetter has effectively stepped down as the CEO. Those are some of the announcements that we had today. We will be speaking to Edward Kieswetter later.

Chris, would you like to jump in on any of those three stories?

CHRIS GILMOUR: I think first of all, the Ed Kieswetter story is interesting, because he really is an incredibly clear thinker. I’ve shared a couple of forums with him and he really is. I think it’s a great pity he is retiring, but he has his own reasons. I think he is primarily responsible for taking Alexander Forbes and really transforming that company. So it’s with a great deal of sadness that we see him going away.

Obviously with ABF and Illovo, some years ago they came in with British Sugar as a subsidiary of ABF and bought out that in the face of competition from Tereos, a French company. Nevertheless, they obviously feel it’s time to buy the minorities and send it up higher

The really interesting announcement was Bidvest. Some years ago they had this kind of unwelcome bid from a foreign company who would have liked to have bought their Foodservices business. What they did, they went back to basics, looking at how to get their Foodservices business even better – and it’s a world-class operation. So I now think they feel its right to actually spin it off, and I suspect this is another case of unlocking value from this behemoth of the industrial sector.

HANNA ZIADY: There we go. The empire that Brian Joffe has built.

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