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There are many reasons directors buy and sell shares. It is finding a pattern and a track record that is key to working out whether the directors dealings you witness have any validity as a signal for investors.

I noticed some buying of BHP (BLT, 1191p) a week ago, on December 1st  by Mr A Mackenzie, who is a ‘Group Executive, CEO non Ferrous’. This was followed by  further purchases on December 3rd, 4th and 5th, amounting in total to 55,000 shares, an investment of around GBP 500k.

Mackenzie was accompanied by a Mr K Rumble, another Director of BHP, who invested about GBP 50k on December 3rd.

Looking through the BHP corporate website, I discovered that both Mackenzie and Rumble had recently been given Group Director or Executive positions, Mackenzie when he joined from RTZ in November, and Rumble in September.

BHP are very good at corporate disclosure, showing full details of their numerous Long Term Investment Plans and Share Plans on the group website.

It seems from the details of these plans, that in order to be eligible for the Group Long Term Incentive Plan, senior directors are ‘subject to a minimum shareholding requirement’ (Source : BHP Group website).

This would suggest that Mackenzie and Rumble have been buying shares in order to join the Incentive Plan, not because the shares have upside here.

I’ve just this minute been going through yesterdays regulatory announcements on the London Stock Exchange, and I find that, lo and behold, Mr A Mackenzie has been granted 225,000 ‘Performance Shares’ as part of the Long Term Incentive Plan, as well as a further 100,000 ‘Performance Shares’ as compensation for forfeited incentive awards at his previous employment (Awards granted Dec 4th, announced Dec 9th 15.28- Source London Stock Exchange). Worth him buying those 55,000 shares then!

Risks to Miners (my view):

The Australian pointed out earlier this week that the ‘China Iron and Steel Association…. wants 2008 agreements to terminate three months earlier than scheduled’. Not a good start to 2009 contract negotiations.  I guess RTZ are fully aware of the levels of volume and price the Chinese are looking for, hence their layoffs announced today.

We first heard of the Chinese delaying iron ore shipments as long ago as October 12th (see post on Mt Gibson, HSBC, China here).

It could be that when the broader market becomes more aware of the lack of growth/downturn in China in 2009, we may see another setback in equity markets, especially those with high input exposure to China.

No reason to buy BHP or RTZ quite yet.

In HSBC (HSBA, 790p) I see a strong, well managed, diversified global bank, with a higher exposure to the growth markets of Asia than its (now nationalised) compatriots on the London Stock Exchange.

I notice though the first significant signs of Chinese slowdown in the announcement on Thursday by Australia Iron Ore producer Mt Gibson (MGX, 71c)  that their Chinese customers want to delay shipments.

In their statement (link to co website) Mt Gibson say ‘ Customer and iron ore sector analysis indicates a slow down in demand for iron ore in China due to current economic uncertainty and the tightening of credit facilities’.

Whose ‘credit facilities’ I wonder, the Chinese or their Western customers? 

I also notice directors share sales at HSBC, wth a DD John, a ‘PDMR’ (senior manager but not group board member) selling 61434 shares at 907p on October 1st.

Reviewing other directors sales over the past twelve months I find  sales taking place at between 766p and 884p between October 2007 and June 2008 totalling around 400,000 shares or GBP 4m.  Directors who have sold include Hughes Hallett (non exec), Almeida (non exec), Green (Chairman), Flint (CFO), and Geoghahan (CEO). For full details go to www.digitallook.com or to the HSBC company website.

I wonder how long HSBC can weather the storm that banks in the rest of the world are currently embroiled in. I think the price levels at which share sales by six directors took place are a good indicator of a medium term peak level for HSBC shares.

Signal: Negative- Directors selling

Signal Strength: MEDIUM

October 17: Anecdotal information on the Chinese economy from a contact in Hong Kong:

Second largest Chinese port shows exports down 14% since July.

40% of the Chinese toy companies are now insolvent.

Also see: ‘Credit crisis casts gloom over China’s exporters’ (October 14th, Associated Press)

For subsequent comments on HSBC (November 10th and November 14th) see here.

 

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