Johannesburg - Abax Investments, a South African hedge-fund firm part-owned by Affiliated Managers Group, is giving precious-metal stocks the short end of the stick.
The Cape Town-based investor, which has the equivalent of $6 billion under management, is betting that South African gold and platinum producers are going to fall after a rally that drove stocks to multi-year highs. The mining companies have already cut costs substantially, supplies remain robust and haven demand has eased since the US election of Donald Trump, Abax co-founder Anthony Sedgwick said in an interview.
“I don’t buy the platinum supply cliff story at all,” he said in reference to some forecasts that the metal could soon be hard to find because low prices have discouraged miners from investing in shafts. “I’ve been hearing that for 20 years and they always keep producing.”
Investors fled to gold for safety following the UK vote to the leave the European Union and immediately after Trump won. Since then, gold has dropped more than 7 percent, while platinum is down 8 percent.
Northam Platinum, Harmony Gold Mining Company, Gold Fields, AngloGold Ashanti and Anglo American Platinum are among the companies that Sedgwick is wagering will decline. He declined to comment on the size of the shorts and when they were placed.
Sven Lunsche, a spokesman for Gold Fields, said the company doesn’t comment on fund manager moves. Other companies didn’t respond to requests for comment.
The five-member FTSE/JSE Africa Gold Mining Index surged 179 percent this year through August 2, when it reached the highest level in more than four years. Since then, the gauge has fallen 53 percent. After rallying 83 percent in the first half, the FTSE/JSE Africa Platinum Index has dropped 8 percent.
Betting on banks
While being short on precious-metal producers hurt Abax’s performance during the early months of 2016, it’s helped since about mid-year, Sedgwick said. The investor’s funds under management gained 4 percent this year through October, mostly from financial institutions such as pension funds and banks, as returns ranged from 11 percent to 35 percent, he said.
South African banks offer opportunities to take long positions because they are inexpensive with relatively good growth prospects, Sedgwick said. The six-member FTSE/JSE Africa Banks Index, which includes Standard Bank Group, FirstRand and Old Mutual’s Nedbank, has advanced 23 percent this year.
Sedgwick said he’s concerned that a rebound in construction materials such as copper, iron ore and coal is partly based on precarious debt-financed Chinese home building. That is prompting him to reduce long positions in diversified mining companies, BHP Billiton and Anglo American. Authorities in the world’s second-biggest economy have implemented home-buying curbs to deflate a housing bubble.
“We worry about the sustainability of the credit-extension programme in China where a major beneficiary seems to be privately financed housing projects affecting copper and iron-ore demand,” he said. “We’re watching it quite closely.”
BLOOMBERG