A double hedge with Sasol

Dear, oh dear, with the exception of the share market that regularly hits new highs, the rest of the news is bad. To make matters worse, next week the petrol price will do another leap. But as the rand has lost 7% against the dollar since the start of the New Year and the oil price risen by 2,7%, higher prices at the pumps was a foregone conclusion.

South Africa is classed amongst the emerging economies where, because their financial structures have not been around for centuries, are not expected to be as stable of those of the first world. Not, that is, that the big boys can claim much stability in the past five years, but currently ours is the only emerging market currency that is losing fast against major currencies. I don’t have to list all of the reasons why, just the first one, labour unrest.

It is Sod’s Law that just as a glimmer of light signalling the end of the world economic woes is ignited, we suffer widespread and often violent strikes. If only mines and farms were in full production with the rand’s weakness, exporters would be shipping boatloads to counties that have let stocks run low.

The Commodity Research Bureau spot index which measures all commodity prices worldwide has risen 2,43% since a November low and so signalling better things may be ahead. Most metal prices, including platinum have been rising, and likely to continue. But we can’t take full advantage of the situation when our labour force is either staying at home or rioting.

At time like this when the value of our currency is on the slide, I’d recommend rand-hedging; that is investing in shares of companies whose earnings are in foreign currencies. Traditionally top of the list come mining companies, but even before the strikes, mining shares were soured by nationalisation threats. Other good rand hedges are typically food producers that export a goodly portion of their output. Then there are the shipping companies that transport the goods, but with fewer metals, minerals and agricultural products to ship, outgoing cargoes may be limited. There are companies like Richemont selling oodles of luxury goods to far eastern tourists, and industrial companies exporting finished goods. However, the one I am most happy to stay with is Sasol, which operates abroad and earns in a range of currencies. Added to this when the oil price is high, it doubles its rand-hedge value.

The chart shows how the plotting of Sasol (bar) follows the price of Brent Crude (blue line). Also following the two is a moving average convergence/divergence (MACD) plottings in red and green. When the oil price goes up or down, so does the price of Sasol while the cross-over of the two MACD plottings tell you when to buy and sell.

Jean Temkin


The Balgowan witch says it’s time to get serious about investment

The silly season, when uppermost in most minds was the weather and the biggest decision was what pizza topping to choose, has ended. Along with our return to work comes a return to reality. After having been starved of it for weeks on end, we are greeted with a plethora of news about more can-kicking further down the road in the case of America, continued European messes and our own strikebound economy.

At the latest news from Anglo, the closure of platinum mines, pushing the workforce in the already long jobless queue, hands are raised in horror. It’s reminiscent of when the British miners killed that country’s mining industry. The difference is that Britain wasn’t as dependent upon mining as South Africa is on both mining and agriculture. Currently both of these industries look doomed. Britain’s alternative was to turn itself into a service centre, but only people with brains can operate services and particularly financial services. We have just as many brains in South Africa, but with many left unchallenged by inadequate schooling, they are not of much use in the service industry.

Those of us who have been lucky enough to have had our brains sharpened by a decent education better understand the difficulties experienced by the mining bosses and farmers. At the same time, we have sympathy for workers facing redundancy. However, while they certainly don’t enjoy the kind of nanny state described by RASKI writer Paul Perton in his Nanny Society - fish may contain small bones story, some, and, I must repeat, only some workers and their families are treated well by their employers. However, lacking a proper education, many are unable to understand the consequences of their actions. Added to those are the ones who have been intimidated into joining the disgruntled.

But what does all this mean to the rest of us and our pockets? Coming after the others, the Fitch downgrade has extended the poor opinion that foreigners have of our country. Nevertheless, I understand from an isolated report, that they may have begun nibbling at our investments again. Is this because they perceive hope for the future in the guise of our new business-orientated deputy president?

Meanwhile, heading back into oversold territory, the rand looks sick and has begun heading down again after its welcome 5% recovery at year-end. It has given a warning of a possible fall to around $1/R11, E1/14,6 and L18. However, bear in mind that the currency market is the most fickle of all the markets, and can change on a tickey. Thinking positively the tickey could be the perception that at last our government looks as if it knows what it is doing.

Nevertheless things are not all that gloomy especially for those who had a reasonably good 2012. Good or bad depended on where they kept their money and how they spend it. Last year, thanks to its 11th hour boost, the rand lost only 5 % against the dollar, while the share market gained 25%. As the intrinsic value of a share is the currency in which it is denominated, the rand’s loss was almost negated in the case of share values. There was also a 5,5% loss in the spending power of our capital through inflation, which chewed away a bit more, but still left us with a worthwhile gain. Also on the plus side, there was the dividend income collected throughout the year.

Dare we hope that if the government runs it house in a more orderly fashion, and South Africa again becomes a country of merit, and this year’s market performs even better? However, as international stock markets are influenced by each other, even if things go right in our own country, our market could be clobbered by overseas happenings as was the case in 2008.

To illustrate what happened to the share market last year, I have used a simple candlestick chart overlaid by a standard error band. It shows how, during the middle of the year, the chart plotting fell to the lower edge of the band. This told us that the market was oversold and therefore it was a good time to buy. Those who correctly read the chart and acted on it, made a gain of around 20% before year-end.

Currently the plotting has broken through the top of the band showing that the market is overbought. Unless something spectacular is in the cards, so spectacular that all share markets head skywards, (which is unlikely), the market will ease back. The chart is telling us that apart from special situations, this is not the right time to buy shares. Rather wait until the plotting falls back, possibly to the equilibrium (centre line) currently around 38 222. The worst short-term case scenario would be a slump right back to the lower edge of the band, currently at 36 378, but I think this highly unlikely. Rather, after the fall, I would expect the humps and dips in the plotting to make it up gradually towards 48 906.

Jean Temkin

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Ben & Jean share their thoughts on the Investment World & its opportunites, plus anything else that they think will be interesting