Platinum is vital to our lustre

24 January 2012 - 02:14 By David Shapiro

Excuse me if I celebrate, but last week the JSE's All Share index reached a record high, surpassing the previous peak recorded in the latter half of May 2008.

Sceptics reckon it's not much of a big deal. For most of last year the umbrella index traded within touching distance of its all-time high, its progress hampered by a series of destructive natural disasters, a confidence-sapping debt crisis in Europe and an emasculating political deadlock in the US.

The recent move above the former top represents no more than a 1% rise ahead of levels logged in January last year.

Further, they argue that if one computes lost opportunity costs over the past four years (interest that one could have earned on a risk-free investment in the money markets less dividends received on index-related shares), the index needs to advance at least another 15% before we could consider popping the champagne corks.

I can't dispute their claims, but our present position is a prodigious achievement few of us could have envisaged three years ago as we brooded over an uncertain future in the aftermath of the Lehman Brothers' collapse.

Two decades of vigorous growth, funded largely by a bountiful supply of easy credit, came to an abrupt halt with the bankruptcy of one of the US's largest investment houses in September 2008, raising questions about the solvency of other important banking institutions.

The fears detonated a global credit crisis, the consequences of which world leaders, central bankers and Nobel Prize-winning economists are still attempting to untangle. By November 2008 the JSE's All share index had plunged to almost half the record value registered six months earlier and belief, at the time, was that the market's dive was far from over.

It was only the speedy remedial action enacted by US Secretary of the Treasury Hank Paulson, Federal Reserve Governor Ben Bernanke and New York Federal Reserve Governor Tim Geithner, with the support of president George Bush, congress and a reservoir of taxpayers' money, that calmed investors' nerves and prevented financial markets from spiralling into a deeper black hole.

The passage back has been nerve-wracking and not one in which everyone has participated.

Along the way, many fellow travellers abandoned the journey, agitated by thoughts of returning to those dark, murky times.

All credit though to those companies in the private sector that remodelled their business strategies to adapt to the hostile environment, shedding non-core operations, effecting efficiencies and searching for new markets for their goods and services.

With interest rates at historically low levels, investors were lured by a selection of these corporations that produced sustainable profits, generated vast amounts of cash and paid ample dividends.

Praise, too, must be showered on the authorities in the fast-growing emerging countries whose unremitting industrialisation policies and frugal fiscal management provided the only asylum against the austerity measures, favoured by the dominant developed nations, to restore equilibrium to their economies.

But with slowing external demand, countries like China, India, Brazil and Russia are beginning to show signs of strain.

It's not good news for our stock market and any chance of extending our record run into this year.

Our hope, though, rests with these countries introducing measures to fire-up domestic demand to compensate for the fall-off in exports to the developing world.

Any such move would energise international trade and buttress the prices of commodities, a much-needed tonic, particularly for our mining counters.

Last year the resource index was the worst-performing sector on the JSE on the back of negative performances from our highly capitalised platinum shares and heavyweight, diversified miners Anglo American and BHP Billiton. A positive contribution from these constituents of the overall index is crucial for our future prosperity.

It was impressive gains from the likes of brewer SABMiller, luxury goods manufacturer and distributor Richemont and tobacco company British American Tobacco (only included in the index from this year), with supporting contributions from our lower-valued retailers, that provided the underpin for the JSE's steady performance last year. Repeating the feat this year would be too much to assume as earnings play catch-up with the recent climb in share prices.

Mining shares have had a good start this year, endorsing my contention that the upward momentum in the JSE is sustainable. But news last week from the country's two largest platinum producers has obliged me to rethink my position.

Impala's well-liked and very able CEO, David Brown, resigned to pursue other interests, hardly a decision one makes when the company you are managing is at the top of its game.

Brown's decision was followed a day later by a profit warning from Angloplats, revealing that earnings for the year to December 2011 would be significantly lower.

South Africa produces at least 80% of the world's platinum supply and the metal is by far our largest mineral export. But escalating administrative and wage costs, lengthy safety stoppages and ongoing political meddling have stalled efforts to increase production.

The success of the platinum industry is critical for our growth, indispensable to job creation and essential for attracting direct foreign fixed investment and the JSE's chance of continuing to make new highs.

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