The JSE is in record territory back above 32 000 points, but all is not as it seems.

Bruce Whitfield:
Graeme Korner, BoE Private Clients, is tonight’s market commentator, and my personal hotline Mr Korner, has been ringing all day from various people warning me that it is Graeme Korner's significant birthday, or yet another one, and I just want you to know from the bottom of my heart that you have never looked better from where I sit, bearing in mind, that Graeme is in Johannesburg and I am in Cape Town. The market however, is very close to record territory, if not in record territory, over 32 000 once again, 32 117 is where it closed but it is a story of a market made up of five shares.

Graeme Korner:
Good evening Bruce and thanks for the birthday wishes. If you take Anglos, Billiton, Sasol, a couple of the platinums out of our market then quite honestly, this market looks decidedly tired. The fact that we were up almost 300-points on the top 40 today whereas virtually all other world markets were under a bit of pressure, not massive pressure but a bit of pressure, I think it really just tells you that if you didn't have this heavy weighting of resources shares in the South African index our performance I think would have been quite starkly different from what we actually ended up with and it has really been a case of the big banks, some of the big industrials, really are looking very skittish and I think you know this commodity story is really starting to introduce significant fears that inflation while it may not spiral out of control is going to bite and is going to stay with us for a little bit longer and that is starting to affect almost all of South African industry. Even somebody like Sun International who one would have thought would have been quite immune to a contraction in discretionary spending and really talking about tough conditions.

Bruce Whitfield:
Absolutely and one looks at what is going on in this market and traditional investment theory says diversification is the rule, you need to diversify so that you are protected against a downside, but if you had been diversified and had had a balanced portfolio in this market you’ve actually probably not done very well. You are certainly probably underperforming the index simply because the resources sector is just so powerful at the moment.

Graeme Korner:
Yes very much so Bruce. People always look just at the equity component but you know bond yields have moved up you know 250 or 300-basis-points in a fairly short space of time that obviously has led to capital erosion and people might have locked in lower yields so that is uncomfortable, the listed property market which I have been quite cautious on for some time has taken a fair amount of pain as well and you are absolutely right I think very few investors in South Africa are probably at weight in Anglos and BHP Billiton to the tune that they are in the index which would be around 15 percent and clearly the likes of the big banks which are down I guess 35 to 40 percent in some cases and you know even the likes of Reunert, Imperial, Barloworld, all of them have come off quite sharply so you are absolutely right a balanced portfolio across various asset classes and within the equity market itself the out performance has not been as great as a 32&bsp;000 all share would suggest.

Bruce Whitfield:
Which again makes the case very strongly for anybody who buys index tracker funds they get terribly excited because they look like geniuses.

Graeme Korner:
Yes but I think there is a very strong case to be made for that. You know you take the guesswork out of it, it is low cost, it is simple, and where you are saying essentially I largely want to track the market and yes I think your average index tracker would probably have outperformed the average active manager who I suppose on balance of arguments would have been underweight the stars of the last few months. Yes the index trackers I think have performed well.

Bruce Whitfield:
Graeme Korner from BoE Private Clients.

Bruce Whitfield:
Graeme Korner is our market commentator in our Johannesburg studio, I am in our Cape Town studio this evening, he is from BoE Private Clients. We had what wasn't a great trading update from Old Mutual today, the margins are down, sales flat, and they are saying that some of their targets especially the assets under management targets which is something they have been pursuing quite aggressively that is potentially under threat as well. The global economic cycle is clearly beginning to take its toll.

Graeme Korner:
Yes I think you're quite right Bruce. In terms of the assets under management I think the problem there is a combination of fairly pedestrian inflows and I think that is an industry wide, almost a global problem, and then with the markets not playing ball it is also sort of weighing a little bit on that but you know again when you take a step back, if memory serves with the previous update for the year ending December I think the assets under management were up I think 11 percent in pound terms and I think those were very good numbers so arguably the base effect is quite high and I think the reason Mutual underperformed yesterday was probably more on the back of the guidance from Nedbank that the rest of the year is probably going to be tough. I think a lot of people saying for example the demutualization of Skandia for example and there is some very positive initiatives.

Bruce Whitfield:
Sure I mean Mutual and Federal update today as well, the Nedbank one out yesterday wasn't great, but Jim Sutcliffe has told us in the past, I think more than once actually, that in uncertain times investors like to invest more because they get worried about the long-term future of their savings and that theory I guess is to be tested in the months and years ahead, depending on just how tough things do get. Sun International, you referred to them in the first half of the programme, I've found it interesting to see although their hotels division is doing quite well casino revenues under quite a lot of pressure.

Graeme Korner:
Yes and I think that is one of the reasons why life sales at Mutual for example might not be great because when people are worried about the future they tend to sort of batten down the hatches and save more but I think disposable income is under pressure and that is a global problem and I think that is exactly what Sun International is showing. You know through the rate hikes through 2007 they remained very resilient to that and it was probably about two or three months ago that things started getting very tough and they were talking about a perceivable cut in their allocation of wallet and not because people didn't want to gamble but really there just wasn't the cash for it is so I think there is a lot of South African industry and financial services that are probably experiencing the same sort of squeeze on wallet.

Bruce Whitfield:
What’s interesting is Grand West still seems to be doing okay but Carnival City and the Boardwalk casino in Port Elizabeth, those are ones that are struggling a bit at the moment but the resorts division as I said doing better. I guess they have to do better, they have got to pay Charlize for doing all the adverts.

Graeme Korner:
Yes but even so I mean it wasn't a spectacular change. I think the room occupancy ratio, I'm not entirely sure that 81 percent was necessarily entirely accurate; I think they probably had sold off rooms almost to the industry at low rates. So my personal sense was always that maybe 81 percent was overstretched so that is like contraction in the occupancy rate at the hotels division whether the likes of City Lodges remaining robust in a way is actually a positive thing because it is probably telling you that the base effect is going down. So I think hopefully over the next couple of years Sun will focus more on the synergies between gaming and the resorts and hotels business and that I think good represent great opportunities and then of course there is some technical factors, for example Easter falling in one quarter in one year and in a different quarter in the other year. So on balance of arguments I think it is not the end of the world type of quarterly update but it is definitely showing signs that consumers are under quite a bit of pressure.

Bruce Whitfield:
You and I have got less money in our pockets, not that we were going to throw it on to the gaming tables Graeme because we are sensible chaps, but fewer people have got money to gamble away or take a chance, and the Sun International share price has been under quite a lot of pressure in recent months. I don't have it in front of me but it is around R105 a share, R102.10 is where Sun International closed today so it has been knocked back quite sharply. Harmony, the second of the big gold companies in South Africa to report today, we saw AngloGold Ashanti come out earlier this week, the market liked of those results. Today's results from Harmony good on the profit line, not so good on the operational line though.

Graeme Korner:
Yes very much so and I think when you speak to Graham Briggs that is obviously the big question. There is a lot of promise that the business does seem to be turning around but it would have been I think more encouraging had the operational performance, including the grades, been a little bit better. But finally the gold mines seem able to capitalise on the runaway gold price and in the last quarter the weaker rand so it is great to see but I think it is probably early days in the turnaround and the key question, as you were saying, is how they are going to address those operational problems.

Bruce Whitfield:
Graeme Korner, thank you very much indeed, go and enjoy what is left of your birthday. Thank you for sharing part of that with us this evening.