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A difficult month

13 July 2004 Angelo Coppola

The true extent of the difficulty of managing money in an economy with a volatile currency was once again revealed during the month of June.

As we know, says Adrian Clayton at PSG Fund Managers, June was again a month when the rand firmed more tightly than King Kong's pectoral muscle, gaining about 4.5% against the dollar.

Against this background, the All Share Index received a sideswipe, falling 2.71%, with the hardest hit area being mining stocks, down 7.41% and Goldies, in particular, declining an alarming 14.3%.

The two-tier market persisted of course and stocks reflecting the buoyant domestic economy rose to the challenge. Financials had another solid month, rising 1.1% with banks climbing over 2%. Bonds also raised their beleaguered heads, giving a return of over 1% in June. But, what does this all mean?

Well, at the expense of sounding like a complete genius, the answer lies in our currency. Those managers that have played on rand strength and remained attached to local industrial and financial exposure are smiling, with commodity and rand hedge bulls gritting the remaining barbs of their canines.

But, as the rand hedges experienced alarming reversals in fortunes in mid 2002, a similar, but more diluted argument must be in the making for rand plays. We must surely be nearing the nadir on the rand, when even our good Reserve Bank Governor is twitching his thighs.

Many of the commodity shares have been de-rated by the market and on a forward dividend yield and P/E basis are finally beginning to look more respectable in terms of investment opportunities.

Whilst gold stocks are still discounting gold prices, which are more applicable to the platinum market, the larger diversified miners are now far from expensive, especially if one considers their world-class status.

Anglos trades on an historic P/E of about 14 and a dividend yield of 3%. Added to this, many of their expansion projects have been undertaken during periods of rand strength, implying enhanced leverage to the currency.

Of further importance is that most astute managers have avoided resource stocks like the plague and unit trust weightings are low - this could lead to explosive buying at some point in time.

So, having not felt the urge to buy commodities for a long while, I must now be honest and concur with various of my wise colleagues that these stocks must too be nearing their low point and clever money will be collecting crumbs in weakness.

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