Agree with PH - however - This warrants asking AGL is a Rand hedge stock potentially moving into a cyclical uptrend but still down 85% from her highs in her main market (The LSE) - why on earth would you want to short her? Yes she will have pullbacks - but so what?
actually I would say that AGL is the opposite of a rand hedge. Historically resources require a strong rand to perform. I know this sounds contradictory - but the correlation is really strong. The reason is that the underlying product (resources) is inversely proportional to the strength of the dollar. When the dollar weakens, resources strengthen (the cause being they are priced in USD) and this has clearly been the case over the last month or so. Now, the million dollar question - since the Rand is strengthening like all other emerging market currencies - can we rely on our fat fool president to open his mouth again and send the ZAR in the opposite direction of emerging market trends? That will be the perfect storm scenario that resources need to rake in the big profits.
Anglo is a Rand hedge! She sells in dollars - pays in Rands, Pesos, Real, whatever... Over time these currencies get weaker and commodities drift higher. You are being drawn into the short-term currency bumps caused by an extended bull market. The Rand may also weaken due to its own internal dynamics - quite removed from the general emerging market (commodity currency) dynamics. Then we will get to see her true hedge nature.
pull up a chart - I challenge you. Anglo has probably the tightest inverse correlation to USD-ZAR exchange rate you could ask for. A couple of stats here for you - AGL cyclical 10 year low - Jan 2016 - ZAR 10 yr low - jan 2016. AGL post 2008 highs - Feb 11 2011. ZAR post 2008 lows - actually Jan 2011, but stretched will into march. From there on out you can pinpoint with almost pinpoint accuracy the swing highs and lows to the ZAR lows and highs. Extremely tight inverse correlation. No hedge at all
You are citing the crash of 2008 - it is a bit disingenuous to use this as an example of general behaviour for a given stock. Extreme selloffs give little insight into a through the cycles pattern for a stock. Bear in mind that Anglo had just distributed MONDI at that stage so add MONDI and MPACT back to her price. She has also just offloaded KIO and EXXARO if memory serves. What is more - she had invested in huge iron ore projects at the top of the cycle. No commodity stock is a hedge in a crash. In a crash - commodities and junk currencies all get sold down and ANGLO reacted to this aggressive selling. (Excessively perhaps as she had been investing in new mines.) I did, however, say that I felt that she will come into her own as a hedge against the Rand for reasons attributable to the Rand itself - not just emerging currencies in general Between 1995 and 2008 AGL moved from 50 to R550 a gain of 1000% + overd R500 of dividends in cash and in specie - so over 2000%. Over this same period the rand fell from 3,4 to 8 to the dollar - a weakening of some 135%!
In fact, SKAAPTJOP, while I absolutely concur that metals move, in general, in the opposite direction to the dollar - which is why I advocated getting in to these shares from December - I suspect that these companies are going to prove to be much more reliable hedges once the fat has been rendered out of the supply side of the commodity market. That would make them higher quality investments in general. Time will tell!
The correlation is not confined to Anglo. All the gold stocks share the same correlation, as do all the platinum stocks. ARM shares an identical correlation. Only Iron Ore stocks don't - but theirs is not a product sold on an exchange. Bottom line - the single biggest factor that drives resource stocks is currency exchange. Production volumes, investments, management, etc - well that just separates the outperforms from the also rans - but they all share the same basic trait. Trading resource counter is basically trading a derivative of the currency market.
This is due to oversupply largely due to cheap money and the China effect; AND just as importantly, it follows, central bank currency intervention. In a market that is short - the price climbs notwithstanding the dollar. Let's ignore iron ore which was contract based and gold which is money and must, therefore, move in lockstep (inverse) with the reserve currency, the USD. Over time diversified mining companies should improve their operations and grow. Over time currencies trend lower. Granted - if you are trading the price - ala SIMON - none of this matters, since in the moment, you see the currency fluctuations play out in the commodities and these drive the mining houses. It takes years to deliver on this scale of investment but due to the high level of beta, I don't think most investors stick around in these stocks for that long. Spikes aside - over the years - commodities have gone up - in dollars. The Rand has gone down. More importantly - the dollar has gone down too. It is internal inflation that is the enemy of these companies... closely followed by the sheer scale of their "built in expiry date" investments.
In short, these have not been great investments for the last 8 years as a direct result of the 2007/8 crash which never really played itself out. Jim Rogers warned of this. BUT that may change after this washout - at least for a cycle (holding thumbs!) I predict - the Rand will be lower 5 years from now... and the RESI will be higher. Which companies will be in the RESI - I can't say. What are your thoughts on this?
Even after this crash - if we go back to 1972- the Rand has lost 95% of its value - while the RESI (or equivalent) must be up 1000's of percent. BIL has climbed from R12 in 1998 to R170 now, after a crash in commodities. I am going on about this a bit because I am building a position based on this theme and I am using you as my devil's advocate!
Actually I am saying it is rallying because the dollar is weakening. Ordinarily that would translate into Rand strength - but I won't bank on that because of "El Presidente, his cronies and the rest of the "Entitlees." BUT - I am also saying that miners should be a decent medium/long term hold because metals will go up while the Rand will go down.