XML Feeds

What is RSS?

This is the Sharenet company blog where we will bring you the latest news and events on the go at Sharenet, together with tips on using our site and our products.

Top Rated

    What's in a Fund Manager's size.

    Today I'm going to briefly touch on the difference between large and small asset managers, and what some of the more important differences between them are. You may automatically think that larger managers must be better, as they may have done something right to get where they are/ you have read about them a lot in the press, but this isn't always the case.

    Most funds start out small and as performance kicks in their assets grow, both as a result of organic growth (share price appreciation), but also as cash flows into the fund. One of the major advantages of being small is that you have a larger investable universe (when compared to large managers) as you are able to easily move in an out of smaller cap shares. This is especially true in South Africa (and is why some managers choose to cap their funds). For larger managers their initial successes can prove to be their downfall. As money rolls into their fund they find it more difficult to move into and out of small shares without moving the market significantly, and often need to change their strategy (not a good thing).

    The larger the assets under management, the closer the manager tracks the market. This is good for those investors that are worried about an extreme blow out (when compared to the market), but not great in that you lose out on the potential extreme outperformance that a smaller manager can offer.

    Generally smaller managers only have a couple funds at most, while larger managers have many funds. A quick count today showed that one of the larger managers in South Africa has 59 local unit trust funds! The attraction of a tighter range of funds is that it is the fund manager's best investment ideas, and you will be sure that everything will be put into ensuring that the fund does well, as there is nowhere to hide. On the other hand a manager with 59 funds will always have a star performer that can be advertised. Any laggards can easily be hidden! A larger manager may have a general equity, a value, a growth, a large cap, and a small cap fund! As investment consultants we need to know which of these is best going forward, not the one that won all the prizes last year. If the manager has one equity fund, we know that all his best ideas will be implemented in that portfolio.

    Smaller asset management companies are generally owner managed. As such there is a greater incentive for the fund managers to ensure that the funds do well. While incentives for these managers are higher, there is the key man problem in that if the manager has personal problems/is incapacitated in any way there could be an adverse effect on performance. Similarly if the company doesn't get sufficient assets under management, then the company could struggle to pay staff salaries, resulting in the manager getting nervous, and possibly taking his eye off the ball. A larger manager will generally be able to weather these problems better, as well as having a larger contingent of analysts who assist the manager in stock selection

    At Seed we make use of both small and large managers for our clients, extracting the best qualities out of both. We will for instance make sure that a small manager has the business side of their operation sorted out, so that they can focus their energy on managing the assets, while larger managers need to show that they are able to put their greater resources to work in garnering more insight than a smaller manager can.

    As I have often mentioned, getting a firm grasp of what you're investing in will help you understand your investments better!

    Kind regards,

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-31, 18:03:07, by ian Email , Leave a comment

    Market Awaits Interest Rate Decision

    LOCAL MARKETS

    The JSE is trading firmer today, boosted by a weaker rand and strong mining stocks. The market largely ignored local producer price index (PPI) data released earlier which was in line with market expectations - increasing by 10.3% year-on-year. Investors are looking ahead at the Monetary Policy Committee's decision on interest rates this afternoon. Analysts believe they will keep rates unchanged.

    The rand is sharply weaker, trading above the R7.40/$ level - a new 5 month low. Negative sentiment in the market and disappointment over the Fed's 50 basis point cut yesterday has weighed heavily on the local unit.

    OVERSEAS MARKETS

    Wall Street is set to open weaker today. Investors are concerned about bond insurers taking heat from the latest mortgage crisis and have largely ignored the Fed's latest interest rate cut.

    European markets opened lower this morning with the financial sector again coming under pressure.

    Asian markets closed mixed today. The Hang Seng closed 0.84% lower while the Nikkei gained 1.9%.

    COMPANY NEWS

    Gold output at Gold Fields will be reduced by up to 164 250 oz (worth R1 billion) at current prices because of the power crisis in the country.

    Graham Mackay, SABMiller's CEO, has accepted an invitation to join the board of Philip Morris International.

    Vox Telecom's proposed acquisition of Storm Telecom for R360 million has won approval from the Reserve Bank and the Competition authorities. The company has bought 12 companies in 18 months, raising R1.1 billion in cash.

    Permalink2008-01-31, 15:05:59, by Marika Email , Leave a comment

    What’s in a Fund Manager’s Size?

    Today I’m going to briefly touch on the difference between large and small asset managers, and what some of the more important differences between them are. You may automatically think that larger managers must be better, as they may have done something right to get where they are, or you have read about them a lot in the press, but this isn’t always the case.

    Most funds start out small and as performance kicks in their assets grow, both as a result of organic growth (share price appreciation), but also as cash flows into the fund. One of the major advantages of being small is that you have a larger investable universe (when compared to large managers) as you are able to easily move in an out of smaller cap shares. This is especially true in South Africa (and is why some managers choose to cap their funds). For larger managers their initial successes can prove to be their downfall. As money rolls into their fund they find it more difficult to move into and out of small shares without moving the market significantly, and often need to change their strategy (not a good thing).

    The larger the assets under management, the closer the manager tracks the market. This is good for those investors that are worried about an extreme blow out (when compared to the market), but not great in that you lose out on the potential of extreme outperformance that a smaller manager can offer.

    Generally smaller managers only have a couple funds at most, while larger managers have many funds. A quick count today showed that one of the larger managers in South Africa has 59 local unit trust funds! The attraction of a tighter range of funds is that you are sure that it is the fund manager’s best investment ideas, and you will be sure that everything will be put into ensuring that the fund does well, as there is nowhere to hide. On the other hand a manager with 59 funds will always have a star performer that can be advertised. Any laggards can easily be hidden! A larger manager may have a general equity, a value, a growth, a large cap, and a small cap fund! As investment consultants we need to know which of these is best going forward, not the one that won all the prizes last year. If the manager has one equity fund, we know that all his best ideas will be implemented in that portfolio.

    Smaller asset management companies are generally owner managed. As such there is a greater incentive for the fund managers to ensure that the funds do well. While incentives for these managers are higher, there is the key man problem in that if the manager has personal problems, or is incapacitated in any way there could be an adverse effect on performance. Similarly if the company doesn’t get sufficient assets under management, then the company could struggle to pay staff salaries, resulting in the manager getting nervous, and possibly taking his eye off the ball. A larger manager will generally be able to weather these problems better, as well as having a larger contingent of analysts who assist the manager in stock selection

    At Seed we make use of both small and large managers for our clients, extracting the best qualities out of both. We will for instance make sure that a small manager has the business side of their operation sorted out, so that they can focus their energy on managing the assets, while larger managers need to show that they are able to put their greater resources to work in garnering more insight than a smaller manager can.

    As I have often mentioned, getting a firm grasp of what you’re investing in will help you understand your investments better!

    Kind regards,

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-30, 17:38:34, by Mike Email , Leave a comment

    Miners Continue to Bolster JSE

    LOCAL MARKETS

    The JSE is trading firmer today as investors cheer the news that power has been restored to the mining sector. The market has largely ignored the latest CPI data which came in slightly higher than expected - 9% year-on-year (the market expected 8.9%) and CPIX came in at 8.6%.

    The rand is weaker today as risk aversion comes to the fore in global markets. The Reserve Bank is likely to leave interest rates unchanged when they meet tomorrow.

    OVERSEAS MARKETS

    Wall Street is set to open slightly lower today, despite ending the past 2 days positively. Investors are looking ahead at the Fed's decision on interest rates and a report on economic growth.

    European markets are trading negatively over fears of an ailing US economy and weaker local financial stocks.

    Asian markets have closed lower today. Investors are all worried about the health of the global economy and expect the Fed to cut rates further when they meet again. South Korea (Kospi) ended 3% lower, Hong Kong (Hang Seng) ended 2.6% lower and the Nikkei fell by 1%.

    COMPANY NEWS

    BHP Billiton and their joint venture partners have signed an agreement to supply Baoshan Iron and Steel (Baosteel), the leading steelmaker in China, with an additional 94 million tonnes or iron ore.

    Coronation Fund Managers have reported that first-half earnings for the six months ending March 2008 will be lower than the same period last year due to declining financial markets.

    Ford Motor Company of South Africa plans to invest more than R1.5 billion in order to expand operations for their next generation compact pickup truck and Puma diesel engine.

    Permalink2008-01-30, 15:06:30, by Marika Email , Leave a comment

    High levels of correlation call for improved methods of diversification

    We talk a lot about diversification, but looking at how all markets across the globe have fallen in a systematic way, means that correlations are running high. This tends to be the case. In “normal” market conditions correlation may appear low, but as soon as the appetite for risk wanes, correlations increase.

    Before today’s gain, the local market was down 11,3%. This was across all the main sectors, Financials, Resources, and Industrials.

    So diversification does not mean owning 25 shares, or shares across the 3 main sectors.

    Looking further afield, the heavyweight Dow Jones appears to have held up relatively well, considering that it is down just 6,6%. This compares to the FTSE10 down 10,3%, Frances CAC down 13,1% and the German Dax down 15,4%.

    The Japanese market has also been hard hit.

    So with so many global markets all tracking each other down in times of panic, you may ask if its worthwhile looking at diversification.

    We think that it still is. Naturally in an environment where prices are falling, the ones making money are the investors that are short. By this we mean that investors that have sold borrowed shares at high prices a while back and so as prices fall, they make a profit because they can buy in at a cheaper price.

    Also those that managed to protect capital using derivatives, such as put options or selling futures. Naturally the relevant trades must be put in place before any major price fall. Classically hedge funds have this ability, and in a bear market one would expect to see a level of capital protection and in some cases positive returns, especially given the tools and liquidity available today.

    As investment consultants, in some instances we have seen this, which is encouraging. Fund managers that can thus take advantage of high volatility and price declines, therefore have a place in a portfolio looking for adequate diversification.

    In times of market volatility, you should be looking at your portfolio to gauge the effectiveness of the diversification that you have in place. See also my article this week where we discussed cash and bonds.

    Sincerely

    Ian de Lange
    Ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-29, 18:12:04, by ian Email , Leave a comment

    Platinum Shares Boost JSE

    LOCAL MARKETS

    The JSE is trading positively today, boosted by higher world markets and surging platinum shares. There is speculation that mines could get back to work soon and this is providing support to recent ailing sectors.

    The rand is firm in noon trade as investors cheered the prospect of another rate cut in the US. Everyone will be keeping an eye on interest rates, both locally and in the US this week.

    OVERSEAS MARKETS

    Wall Street is set for a higher opening today. Positive world markets and the possibility of a rate cut has boosted the futures market. Trading could become volatile with the release of various company earnings reports.

    European shares are trading higher today on the back of overnight gains on Wall Street. Shares in Prudential rose by over 2.4% after the company reported better-than-expected full year sales.

    Asian markets rebounded after Monday's losses on hopes of a Fed rate cut this week. The Nikkei closed up by 2.9%, the Hang Seng closed 1% higher and the Shanghai Composite Index rose 0.9%.

    COMPANY NEWS

    All of Anglo American's coal mines are back in full production. "Every effort is being made to return to normal throughout Anglo American`s operations in South Africa."

    Liberty Life Properties is about to embark on a R350 million expansion programme at Johannesburg's Eastgate shopping centre. The project should be completed before the end of 2009.

    The JD Group has posted worse-than-expected sales figures for the fourth months ending 15 January 2008. Total merchandise sales across their 12 cash and credit chains has fallen by 4.8%.

    Permalink2008-01-29, 14:47:37, by Marika Email , Leave a comment

    Prices just get cheaper

    The JSE opened up down as Asian markets had already slipped sharply. Japan closed down 3,9%, Shanghai down 7,19% and the Hang Seng off 4,2%. The JSE All Share index closed down 3% or 809 points. It was weak across the board. The US is currently up into positive territory- but only just

    Newgold has been a steady investment as bullion in US dollar terms has remained up through the $900/oz level. The exchange traded fund, Newgold which tracks 1/100 of an ounce of gold has had further investments to the point where they issue a further 1,2m debentures following the 4,4m issued last week.

    The price gained 1,6% to 6620 as the market cap of this fund is now at R5,5 billion.

    The metal has outperformed the shares, as the latter struggle with cost and operational issues. The gains in the metal price are a reflection of the dollar weakness. Looking at graphs in other currencies, these have also moved up steadily.

    With the US under tremendous pressure to assist ailing banks and insurers, there is a high probability that they drop rates again this week.

    With no real reason for the US dollar to appreciate against goods, investors appear to be slowly but steadily moving some capital into bullion.

    Local new

    Datatec announced the appointment of a new finance director following the resignation of David Pfaff. Datatec shares have fallen from a high of 4495 to 2790c.

    Simmer and Jack Mines, which owns Buffelsfontein and a 62,4% stake in listed First Uranium, gave an operational update today, which largely revolved around the energy crisis and the impact on its operations.

    The share price fell 2,2% to 489c

    PPC issued a trading update following the chairman’s statements at its AGM. Cement sales have slowed from a high base, but they expect positive growth for the year. December was however down 1,5% from the previous year, due to a number of factors, while it said that power outages were cause for concern.

    The price fell 6,9% to 3710c.

    Murray and Roberts gave a detailed announcement on the power issue. On the one hand it has been affected where last week its underground mining contacting operations were suspended.

    They say that there is ongoing discussion with clients and Eskom concerning the guarantee of uninterrupted supply of electricity to the projects dedicated to the 2010 World cup.

    On the other hand Murray and Roberts is benefiting from capacity problem and announced that it has secured the construction contract to Hitachi for the Medupi and Bravo boiler projects. It is also a contender for the Medupi civil construction contract (around R2,5 billion) and the Ingula pumped storage construction contract (R6,5 billion). It will also partnership with Westinghouse and Shaw Group submit a proposal for a nuclear power plant.

    MUR shares fell 5,7% to 7860c


    For all those investors that have a high cash weighting, this is an excellent time to structure your asset allocation more appropriately. Over time cash will under perform inflation – governments keep printing. This is investor’s biggest risk. Contact me if you want to discuss this.

    Sincerely

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-28, 18:06:37, by ian Email , Leave a comment

    Lack of electricity now blackens the economy

    Power outages are now severely hurting the economy and the concern on everyone’s mind now is the depth of the problem. Anecdotal evidence abounds as to the cost that companies have to incur just on putting in generators. Today we saw a direct impact on the JSE as large mines were shut down.

    Today Eskom “forced” the closure of some of the large mining operations. The Gold index fell 5,8% as the overall market gained just 39 points to 26502.

    Anglogold Ashanti has stopped mining on all its SA operations. It cannot confirm how long this position will last. Investors marked down the price from R310 to a low of R287. It recovered later in the day, but still down.

    Goldfields, also one of SA’s large users (a so called Eskom Key Industrial Consumer) was forced to shut down from Thursday night. Unlike Anglogold however, Eskom has indicated to them that this it will be on “survival levels” for the next 2 to 4 weeks.

    Producing 7000 ounces a day at a margin of at a selling price of R6500/oz, this translates into R45m loss in sales per day. Naturally costs remain high, despite the lack of activity, given high fixed nature and high salary and wage component.

    Just how much company’s on behalf of their shareholders will be able to recover from government is very much up in the air.

    Impala Platinum (Implats) was also notified that electricity to its Rustenburg operation could not be guaranteed, forcing closure. The impact of this is approximately 3500 ounces of platinum per day, translating into a loss of R41,5m in revenue per day.

    Anglo Platinum made now announcement, but it is having its own problems at the Amandelbult mine because of flooding.

    The recent presentation by Jacob Maroga, ceo of Eskom left Kevin Lings, economist at Stanlib with the following conclusions:

    • South Africa’s electricity reserve margin has fallen substantially in a relatively short period of time from around 25% as recently as 2002 to 8% to 10% in 2007/2008.

    • The increase in electricity generating capacity has not kept pace with the growth in the economy.

    • In the 1960 and 1970, the growth in electricity demand exceeded the overall growth in the economy, reflecting the fact that South Africa was rapidly growing its industrial base. Over the past 20 years South Africa has become much more of a service economy . Consequently the growth in electricity has been lower than the growth of the economy.

    • Eskom is budgeting on the economy growing by 6% a year over the next 20 years and on electricity demand growing by 4% a year. This is potentially too low given that South Africa’s capacity utilisation is currently at a 30 year high and industry needs to build capacity.

    • Very worryingly, despite the planned increase in electricity capacity until 2014, Eskom’s reserve margin remains fractional. This is still the case even if we imports additional electricity from Cahora Basa. This is massively negative for the potential growth of the economy!

    • The current outlook for electricity demand and supply (as detailed by Eskom) would suggest that SA is extremely unlikely to grow the economy by much more than 4% a year on a sustained basis. 6% growth would seem extremely unlikely.

    • Eskom is arguing that the SA’s cost of the electricity is extremely cheap by world standards and not reflective of the replacement cost. They are arguing for sustained high but predictable price hikes.

    • Eskom is acknowledging that there is a National Energy Shortage and has proposed a number of ‘soft’ measures that could help over the next few years.

    • Eskom’s debt has been placed on “credit watch” by the rating agencies

    Lets see what next week brings.

    Have a good weekend

    Sincerely

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-25, 17:45:49, by ian Email , Leave a comment

    Energy Crisis Affects Rand, Gold Stocks

    LOCAL MARKETS

    The JSE is trading firmer today despite weaker gold stocks after some of the country's major gold and platinum producers announced a halt in operations due to the electricity shortage. The market underwent a correction yesterday, closing up by 5,28%. However, investors are still cautious and nervousness still persists in the market.

    The rand has taken a knock after miners' announcements over the energy crisis, trading around R7.08/$. Risk aversion is high at the moment and emerging market currencies are bound to take a knock over the next few weeks.

    OVERSEAS MARKETS

    Wall Street is set to open higher and post gains for the 3rd straight day. Positive earnings reports and government's plans to revive the economy have boosted the market.

    The FTSE is trading higher, spurred on by Wall Street's close overnight and gains in Asian markets.

    Asian markets rallied today as investors cheered gains on Wall Street. A tax rebate for American consumers, to form part of President Bush's economic stimulus program, spurred the market to close higher today. The Nikkei closed up by 2.8% and the Hang Seng surged to close 6.7% higher.

    COMPANY NEWS

    AngloGold Ashanti, Harmony Gold, Gold Fields and Anglo Platinum have suspended operations because of the lack of electricity.

    Barloworld has appointed various black CEOs in different divisions within the group after criticism in the past from the Public Investment Corporation over transformation.

    KWV has sold off its 87.5% held German distribution subsidiary, Eggers & Franke, for R83 million.

    Permalink2008-01-25, 13:57:05, by Marika Email , Leave a comment

    Rogue trader

    Its not enough that banks have to write off massive sub prime loans – now French bank Societe Generele, reports that unauthorised trading losses by a rogue trader resulted in a $7,2 billion trading loss, the biggest in banking history.

    This is France’s second biggest bank. There have been other large write downs due to internal bogus operators. Many will remember the collapse of Barings plc due to rogue trader Nick Leeson, who caused a $1,4 billion loss in the early 1990’s.

    The transactions essentially used stock index futures and so as the markets gained in 2007, they were in the money, but fell substantially since the beginning of the year and came to management’s attention on Jan 18th.

    This is exactly the last thing that the global banking sector needs at this point. It’s under tremendous pressure as large doses of value are being written off balance sheets.

    Societe Generale is one of the world’s top derivative participants and also a leader in risk management. The rogue trader was however able to hide bogus trades through multiple layers of risk screening. It just should not have happened.

    Its news like this, that should make investors think about their own investment process including some possible aspects such as:

    1. Large companies, even with all their risk management, are not immune to problems.
    2. Investors should look at the custodians that they use and try to assess the quality of administration.
    3. Investors should know if they own the underlying asset in their own right, or whether this is via a structure, a life company, a structure with additional nuances such as a life company etc. I.e. the structure itself may add additional risk to the underlying investment assets. This needs to be assessed.
    4. Increasing complexity can and often does lead to unintended consequences. As far as possible keep your investment affairs as simple as possible.
    5. Use the services of a professional and independent investment advisor.

    We discussed this in yesterday's report, saying that investment complexity creates opportunities, but also increases risks. You need to be sure that the potential opportunities outweigh the potential risks that exist before investing.

    I am always amazed when investors know that they have some investment “product”, but are unsure as to who is the promoter, the actual underlying assets, and who, if anyone is managing it etc.

    While naturally not on the same league as the a rogue trader wiping out $7 billion, investors should take the time to really understand what they are actually invested into. This means obtaining direct confirmations (i.e. monthly statements), hard copies of the original documents and ongoing communication

    In many respects lowering risk is about simplifying structures, diversifying assets, ongoing checking of the custodian and underlying investments, using investment advisors and working to a defined strategy.

    That’s all for now.

    Kind regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-24, 18:48:21, by ian Email , Leave a comment

    Bargain Hunting Boosts JSE

    LOCAL MARKETS

    The JSE is trading over 3% higher in noon trade today. "Investors are on a bargain hunt after the latest sell off and with the Dow ending higher overnight and overseas markets positive, the local market is having a good day. However, there is still volatility and nervousness," remarked a Cape Town based investor.

    The rand is steady and firm today, trading around the R7.07/$ level. The local unit has taken its lead from the stronger close on the Dow overnight and is expected to remain between R7.02-R7.10/$ range. If the Dow performs well today we could see the rand dipping below the R7.00/$ level.

    OVERSEAS MARKETS

    Wall Street is set for a slightly lower open today. Investors are cautious after a disappointing outlook from eBay and the expectation of further corporate results today.

    European markets rallied at the open today on the back of Wall Street's rise overnight and a bunch of good earnings updates.

    Most Asian markets posted gains for the second straight day. The Nikkei ended up by 2.1%, The Shanghai Composite Index closed up by 0.3% and the Hang Seng closed down by 2.3%.

    COMPANY NEWS

    Samuel Ogbu has joined Liberty Life as chief executive of Liberty Properties today. He previously held the position as head of large corporate business for Old Mutual.

    PSG Konsult has announced their intention to takeover short-term insurance administrator Brosist for an unknown amount. PSG Konsult forms part of the PSG stable and this is their fourth acquisition in less than 3 years.

    Lonmin Plc has cut their sales outlook for the current year after a 19% fall in first-quarter refined platinum output. Shaft closures, absenteeism and continued processing problems have affected production.

    Permalink2008-01-24, 14:03:45, by Marika Email , Leave a comment

    The Complexities of Investments

    In order to be able to retire at some stage (on more than just a government grant) we need to invest during our working years so that we are able to pull down on this investment in our ‘golden years’.

    There are different types of asset classes that you can invest in, but there are also many investment structures that can be used to ‘house’ your investments. It is important that you, or someone you trust (be it a family member, consultant, or wise counsel), fully understands what you are investing in, and makes decisions accordingly.

    We spent most of this morning in meetings with a couple asset managers. The first meeting was spent catching up with an equity fund manager whose unit trust we use. The second meeting was with a fund manager doing some fact finding on private equity investments. Tomorrow we will be catching up with a hedge fund manager who manages a fund that our clients invest in.

    These three meetings clearly illustrate the different types of asset classes, and investment structures, and the importance of understanding the dynamics of each.

    An equity unit trust is a relatively easy simple investment to understand. All investors’ money is pooled together, and managed by the manager. Each investor is issued with units from the pool, and these units are priced daily with investors being able to draw funds daily (although it might take a couple days to land in your bank account). Stock market gains are taxed at CGT rates on realisation.

    Hedge funds come in a host of forms; some are relatively straight forward, while others have complex mandates. A simple long/short fund will look to go long (buy) shares/derivatives where the manager perceives value, and short (sell) derivatives where the security is overvalued. Different funds will have different mandates, which will determine how much gearing the manager can use, and other important risk constraints. Hedge funds often come in the form of Limited Liability Partnerships. Hedge funds are often only priced once a month, and sometimes have a lock in period. There’s still some debate as to whether gains should be taxed at CGT or Income tax rates, there is also uncertainty as to whether these gains should be taxed as and when they occur in the fund, or only on redemption from the fund.

    The private equity investment is set up through an endowment structure, where your investment is locked up for at least 5 years (subject to certain withdrawal provisions); the manager then uses your money to invest across a range of private equity funds. As these funds aren’t publicly traded, they are only priced once a quarter, and withdrawals prior to the fund maturing can be penalised by 5%. The fund is taxed within the structure, and a favourable tax rate is used, so the value that you receive at maturity is tax free.

    Investment complexity creates opportunities, but also increases risks. You need to be sure that the potential opportunities outweigh the potential risks that exist before investing. If you can accurately ascertain the risk levels, and you believe that the risk/return payoff is justified, then it may well be worth looking at investments that are generally marketed for sophisticated investors. Be aware, however, that ‘sophisticated investors’ don’t always get it right, as evidenced by the sub-prime, and credit woes that we have seen over the past year or so where investors clearly didn't understand all of the risks involved.

    Having a thorough understanding of your needs will help you make the correct call when it comes to deciding on what asset class and what structure you should invest in.

    Kind regards,

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-23, 16:41:09, by Mike Email , Leave a comment

    JSE Waits For US Open

    LOCAL MARKETS

    The JSE is trading slightly higher after opening positively this morning. The market followed Asian markets who recovered from yesterday's slump to post gains but is now tracking the FTSE and a negative futures market in the US. "The JSE is very volatile today and investors will be keeping an eye on Wall Street when it opens later," remarked a Cape Town based trader.

    The rand is steady and range bound in noon trade. The local unit traded as high as R7.33/$ but recovered after the Fed announced a 75 basis points rate cut in the US. The rand will be tracking the Dow today.

    OVERSEAS MARKETS

    Wall Street is set to open weaker today on the back of a disappointing outlook from Apple and investors continued fears of a US recession. Traders expect a volatile day of trade.

    Most Asian markets rebounded today, ending higher after yesterday's disasterous close. Investors welcomed the Fed's interest rate cut. The Hang Seng closed up by 10.7%, the Nikkei was up by 2% and Shanghai Composite Index closed up by 3.1%.

    The FTSE has come under some pressure ahead of the opening on Wall Street.

    COMPANY NEWS

    RS Berkowitz has reached retirement age and has resigned as chairperson of Business Connexion. This takes effect from the 22nd of January. JF Buchanan will be the acting chairperson until someone else is appointed.

    Richemont has reported an 8% increase in third-quarter sales, up 14% at constant exchange rates. This is below analyst expectations of a 9.9% rise in sales and a 15% rise at constant currencies.

    Woolworths has been short-listed for the Responsible Retailer of the Year award, getting recognition in the international arena by the World Retail Awards.

    Permalink2008-01-23, 14:24:51, by Marika Email , Leave a comment

    Global markets get a reprieve on lower interest rates

    Global markets were fattened on large dollops of debt creation. That was until last year when it hit a crunch and started unwinding. But governments are not in the habit of watching as tighter debt markets hamper the actual economy and those voters. While the US Federal Reserve is a quasi government organisation, i.e. part private and part government, one of its mandates is economic growth, which it controls largely by adjusting the federal funds rate.

    Today it dropped this rate by a massive 0,75% to 3,5%, which is the biggest decline in the rate since the 1% decline in 1991. The recent trend since September 2007 has been down as it has tried to stimulate the debt based economy.

    The unexpected and unscheduled 0,75% decline is massive – bringing the fed funds rate to 3,5% and the discount rate to 4%.

    The interest rate tool seems to be central banks best “get out of jail card”, which the US Federal Reserve uses to best effect. It was aggressive following the decline in the economy in 2001, when it lowered rates 13 times from early 2001 to mid 2003 to an all time low of 1%.

    With the benefit of hindsight, Greenspan reckons that he probably left rates too low for too long.

    Now with the global economy stumbling due to excess debt created – as a result of the ultra low rates a few years back – the central bank does the only thing that has worked in the past – provided cheaper liquidity to the banking system.

    Locally:

    We saw a lot of volatility, with prices down at the opening. Then in late trade moving up on the news of the interest rate drop in the US, and ending flat on the day.

    A continued bear market especially in SA equities is unlikely because valuations are attractive.

    In 1998 when the market started falling, the PE was over 20 times. Central bankers were raising interest rates.

    Now certain value funds can structure a portfolio on a forward PE of 10 times and a 5% dividend yield. This is very good value, especially where interest rates have peaked and trend will be sideways to down.

    Therefore the probability of a protracted bear market in share prices from here out in local shares is relatively low.

    Naturally the investors that have held a relatively high cash component in their portfolios have benefited. They need to now take advantage – not necessarily rushing in, but definitely increasing exposure to real assets.

    Sincerely

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-22, 17:58:48, by ian Email , Leave a comment

    World Markets Suffer Biggest Losses Since 9/11

    LOCAL MARKETS

    The JSE has recovered drastically from opening almost 4% lower this morning. Buying interest in banking stocks has lent support to an otherwise ailing market. The JSE will be eyeing Wall Street's open later.

    The rand is lower but off its worst levels seen earlier today. Traders see more weakness for the local unit in weeks to come as emerging markets and commodities take the brunt of fears of a US recession. The rand is trading around the R7.26/$ mark with the R7.30 level a liklihood.

    OVERSEAS MARKETS

    Wall Street is set to follow other world markets by opening lower today. Investors will be looking ahead at various earnings reports before the open. President Bush is also meeting with policy makers to discuss a possible plan to revive the ailing economy.

    European markets remain volatile in afternoon trade, swinging between positive and negative after yesterday's losses. Some buying occurred after it was announced that the Fed, European Central Bank and Bank of England might collectively cut interest rates at the end of the month.

    Asian markets ended sharply lower for the second consecutive day. Investors are convinced that the US is heading towards a recession and panicked selling led to severe losses. The Nikkei suffered its worst 2 day decline in nearly 20 years, Indian shares dropped by more than 13%, the Hang Seng plunged by 8.7% and the Shanghai Composite Index lost 7.2%.

    COMPANY NEWS

    Altron's Chief Financial Officer, Diane Radley, has resigned from the company to assume the position as Group Finance Director of Old Mutual South Africa.

    Anglo American Plc plan to invest $16 billion until 2017 to boost iron ore output at their Brazilian mines to 100 million tonnnes annually.

    Brazilian miner Vale have admitted that they are in talks that could lead to the takeover of mining company Xstrata. They plan to bid as high as $90 million for the company.

    Permalink2008-01-22, 14:52:24, by Marika Email , Leave a comment

    Volatile markets identify the benefit of certain strategies

    In an environment such as this with global markets hit hard, the mindset of most investors turns from maximum wealth creation to wealth preservation. Many will be asking the question – “is it possible to actually protect capital?”

    The answer is yes it can. But at the same time, as with investing ahead of the stampede, working on your investment strategy, which must include a large dose of wealth protection, its no good closing the door after the horse has bolted.

    The JSE All Share index is down 12% since the start of the year - thus wiping out 12 months of gains and bringing the index back to the same almost the same level in January 2007.

    In times such as this investors appreciate the capital protection methods that they may have put in place, but up until now, were costing money in terms of lost opportunity as the bull market continued roaring along.

    It’s important to remember that volatility, while grabbing headlines, may not be the biggest risk that many investors face. For many the biggest risk is longevity risk, i.e. the risk of outliving your capital. Price volatility is an immediate issue, while longevity or actuarial risk has no immediate concern, only surfacing many years after retirement.

    While investments in local equity have been hard hit, certain portfolios have achieved positive performance in this time. Certain hedge funds are up for the month to date as their low and sometimes negative exposure to the market produces a positive return. It’s this negative correlation for some funds that make them very attractive in volatile markets.

    So with this risk in mind let’s look at some pointers that investors can take away from days and weeks such as this because its going to happen again – it always does.

    • Diversification is a must. No investor, despite the extent of models knows the future. Don’t diversify for the sake of it into expensive assets, but look for low correlation and value.

    Many investors don’t appreciate diversification because they remain fixed on the positive attributes of one asset class to the exclusion of others.

    Diversification includes offshore investments. It’s interesting that while many investors agree with this advice, many investors were burnt in 2001 and 2002 and have never recovered.

    • Having a plan of action, so that at times when quality assets are going cheaper, instead of panicking and selling, you can take advantage. Again just because a price has fallen sharply it is not reason enough that it will move up immediately. But over time buying quality assets as cheap as possible is a winning strategy.

    • Make use of expert fund managers, especially where they have the ability to use derivatives properly. As will all investments there is no holy grail and even hedge fund investors will get in wrong many times, but where they are focused on keeping capital intact, it can make a big difference.

    A 20% decline requires a 25% gain to neutralise the loss. For investors looking to discuss some of these points as they pertain to your circumstances, please don’t hesitate to contact me for a confidential discussion.

    Sincerely

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za
    082 921 0220

    Permalink2008-01-21, 17:40:43, by ian Email , Leave a comment

    Weaker Market, Lower Rand

    LOCAL MARKETS

    The JSE is trading lower in noon trade today, following world markets who are all weaker on the back of fears of a US recession and a slowdown in the global economy. "Investors are all panicking about the situation overseas and local factors such as Eskom's inability to provide sufficient electricity is hampering sentiment" remarked a Cape Town based trader.

    The rand is sharply weaker today, trading around the R7.17/$ mark. The euro has come under some pressure and this has led the local unit lower.

    OVERSEAS MARKETS

    Wall Street is closed today for a public holiday. Investors will be looking ahead at some economic reports released by the government before the Fed's meeting at the end of the month.

    European markets are trading sharply lower today amid fears of a global economic slowdown. The banking and mining sector has been hard hit.

    Asian markets ended lower today as investors remain convinced of a US recession. The Hang Seng plunged by 5.5%, the Shanghai Composite index closed down by 5.1% and the Nikkei ended lower by 3.9%.

    COMPANY NEWS

    Lewis has increased their revenue for the quarter ending 5 January 2008 by 8%, with revenue growth for the 9 months ending 5 January increasing by 10%.

    SA Corporate Real Estate Fund has sold a 25% stake in Umlazi Mega City to Sizovuna Investments.

    Dean Cunningham has been appointed the chief executive of TWP Finance Limited - a subsidiary focusing on the development of projects in the global mineral and resources industry. The company listed on the main board of the JSE in November 2007.

    Permalink2008-01-21, 14:02:39, by Marika Email , Leave a comment

    More Blood on the Streets

    We saw carnage on the local JSE again today, with the All Share Index ending the day down 1.43%. There was broad weakness with shares ending the day down outnumbering those ending up by almost 2:1 (283 shares down, 144 up). Most sectors ended the day down, with financials hardest hit. The Financial 15, which measures the movements of the largest 15 financial shares, was down 2.41%, in part from a 4.07% decline in life insurance companies.

    Some of the positive movements to come out of the larger cap shares were Impala Platinum up 1.19%, and that often maligned pariah Telkom up 0.66%. Maybe the negative attention that is usually focused on this parastatal is instead going the way of our favourite electricity provider? Interestingly another ex-government asset, Sasol, was also up, 0.62% on the day.

    Anglo Gold was the main drag on the gold mining index, as it ended the day down 7.71% on news that South African productions in Q4 2007 produced 55 000 ounces of gold less than the prior quarter. This decline in output came as Anglo Gold implemented a new “Safety is our First Value” campaign at the beginning of November.

    Truworths bucked the trend of falling retail prices by moving up 5.9% after releasing a positive trading statement. Basically second half (2007) earnings are expected to be between 20-30% higher than the corresponding period in 2006.

    JD Group ended the day down 6.39%, and is now down 61% from its high reached in March last year. This company has had plenty of bad news, but it is surely been knocked too far. Many astute managers have this share in their portfolio.

    A company that has been doing quite well in the last 6 months or so is Setpoint Technology (STO). It is up 56.67% since the end of June 2007, which compares favourably to the Fledgling Index’s (shares that make up the smallest 1% of market cap on the JSE) -5.09% over the same period. Setpoint provides, among others, expert analysis to the precious metal exploration industry, and fluid handling supplies medium technology, products and services to the petrochemical and mining industries.

    With no shares making new highs today, and plenty in the new 12 month lows column, this is surely the time when bargain hunters start to come to the table and pick up the scraps that have been abandoned.

    Have a good weekend!

    Kind regards,

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-18, 18:45:11, by Mike Email , Leave a comment

    US Recession Fears Hit World Markets

    LOCAL MARKETS

    The JSE opened lower this morning on the back of Wall Street's weaker close overnight. Traders believe the market could stage a recovery later today after news was released that the US government are going to come up with a plan to boost economic growth.

    The rand is trading weaker (just above the R7/$ level), tracking the Dow which fell overnight. Some profit taking might occur ahead of the public holiday in the US on Monday. The local unit is expected to remain between R7.02-R7.12/$ for the rest of the day.

    OVERSEAS MARKETS

    Wall Street is set for a stronger opening today despite the Dow plunging by over 2.5% yesterday. Investors are cheered by the news that President Bush is set to detail a new plan to boost economic growth in the country. General Electric is set to report their earnings before the market opens.

    European markets have opened weaker today on the back of a slump in the financial sector.

    Asian markets closed mixed with a bout of bargain hunting setting in after the US made an announcement about their plans to ease the recession. The Nikkei closed higher by 0.6%, the Hang Seng closed up by 0.4% and the KOSPI ended higher by 0.7%.

    COMPANY NEWS

    Rainbow Chicken are currently in talks with potential black economic empowerment (BEE) partners. If this transaction is successfully concluded, it may have an effect on the market price of the company's shares.

    Kumba Iron Ore has forecast a rise in full-year headline earnings per share from 677c to between 940c and 1 000c. The company has also seen headline earnings for the year ending December increase to R2.96 billion and R3.15 billion, benefitting from a boom in demand for iron ore.

    Highveld Steel and Vanadium has completed the sale of their Rand Carbide division to Silicon Smelters (a subsidiary of FerroAtlantica) for R300 million.

    Permalink2008-01-18, 12:57:04, by Marika Email , Leave a comment

    Performance Fee Calculations

    All asset managers derive their income from charging a fee on the assets that they manage. These fees are calculated in various ways, and the way in which your manager charges should be clearly stated somewhere where you can access it; be it on the company website, fund fact sheet, in your mandate, or perhaps by contacting them.

    For the last 5 years or so South Africa has been in an extremely strong bull market, with asset valuations appreciating significantly over this period. In periods of market strength investors pay less attention to issues like how large a fee are they being charged, or the basis of how their fees are calculated.

    Some managers charge performance fees as a way of aligning the interests of the manager and investor, which is a good idea. In practice the alignment isn’t as close as we would like to think. You will probably find that many fee sharing structures are one sided, i.e. the manager participates on the upside, but not on the downside. Do you think that this is a fair arrangement? Obviously if the market goes up in a straight line like it did from April 2003 until October last year, then there aren’t (m)any down periods for the manager to participate in (essentially you would recoup fees in these periods), but when there are significant down periods, then these kind of questions become important.

    Many funds will claim that they have a high watermark over which they need to improve in order to start earning performance fees again, and while this is better than no high watermark arrangements there are different ways to do the calculation with some methods ‘more fair’ to the clients than others.

    Each different way of calculating performance fees has its pro’s and con’s. One needs to ask whether a potentially flawed approach of calculating performance fees is preferable over a flat fee structure, where the incentive for the manager is not necessarily the same, or whether you prefer the certainty that comes with a fixed fee structure.

    Essentially these are some of the questions that you should be asking. There aren’t always right or wrong answers when it comes to which is better, but sometimes there will be a more favourable way for the fees to be calculated. It comes down to being educated on your investments, or having someone who assists you, and has an incentive to question the fund managers to ensure that you are being treated fairly.

    Seed Investments periodically sends out other in-depth articles that are more related to retirement issues. If you don’t already get this email, and if you would like it sent you your inbox, then send an email to info@seedinvestments.co.za with the request and you will be included on our mailing list.

    Have a good day.

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-17, 17:50:51, by Mike Email , Leave a comment

    Anglo, BHP Drag JSE Lower

    LOCAL MARKETS

    The JSE is trading weaker at noon today, pulled down by resource heavyweights Anglo American and BHP Billiton. The market is mixed despite opening positively as investors are still nervous over the situation in the US. The local market will be looking ahead at Wall Street's open for direction.

    A weaker euro and stronger dollar has led to a weaker rand today. The local unit is trading just below the R7/$ level ahead of Federal Reserve Chairperson Ben Bernanke's report on the near-term outlook for the US economy.

    OVERSEAS MARKETS

    Wall Street is set to open higher today. Investors will be keeping a close eye on comments by the Fed Reserve's Chairperson as it could dictate how the market performs for the rest of the day.

    European markets are trading negatively today after worse-than-expected fourth-quarter earnings released by Merrill Lynch.

    Asian markets closed mixed after a volatile day of trade. The Hang Seng reversed an earlier 2% fall to close up by its biggest rise since last November. The Nikkei closed up by 2.1%, while the Shanghai Composite Index fell by 2.6%.

    COMPANY NEWS

    Illovo Sugar expect marginally higher earnings for the current financial year. Adverse weather conditions in the latter part of the current season has resulted in lower sugar production in both SA and Zambia.

    Woolworths has increased sales by 16.1% for the 26 weeks ending 23 December 2007 compared to the same period last year.

    BHP Billiton has halted mining at their Cannington silver, lead and zinc mine in the Queensland state after a fatalty occurred underground.

    Permalink2008-01-17, 14:42:31, by Marika Email , Leave a comment

    Global GDP and global markets

    While there are a number of factors to consider when looking at how much of your investment capital should be allocated to offshore investments, an important one is South Africa’s low percentage of the world economy. True, size of economy does not necessarily automatically translate into return on investment, but it gives an indication of the concentration of risk.

    One of the biggest reasons for holding a larger percentage of your capital in South Africa would be when your pension income liability is local. This is the case for most retirees in South Africa, which means that there is definite merit in matching rand liability with rand assets.

    The other reason for holding a high weighting in South Africa would be where there is far superior value compared to global assets. However we have seen that South African asset prices have marched in tune with other emerging markets and therefore not the screaming value it once was.

    The IMF has recently released an update to their assessment of the global economy and GDP numbers. Its interesting statistics and gives a picture of how small the South African economy actually is.

    The global economy measured in terms of GDP (Gross domestic product) is $44 306, i.e. $44,3 trillion.

    South Africa’s share of this is minute at just 0,55%, ranked as the 29th largest economy. US GDP comes in at $12,3 trillion or almost 28% and with only 4,85% of the world population (total global population around 6,1 billion).

    Second is Japan, then Germany, then China, UK and France. In total Africa represents just 1,89%. This is something that global investors are excited about. I.e. Africa is at a very low percentage of the globe and this has the possibility of upside opportunity. SA is the largest component within Africa, but while ranked 29th in GDP terms it’s far behind in terms of income per capital in 57th position, with GDP/capita at $5162, running behind the global average of $7230.

    These statistics alone must make investors think about their allocation to offshore investments. An important factor is the valuation of local assets versus global assets. Then there is the rand. It’s been strong against a weak dollar, but not against other currencies such as sterling and euro.

    In rand and US dollar terms global investments have underperformed local investments, but this is unlikely to persist.

    Global markets were punished today. The JSE did not avoid the carnage falling 2,6% to 26911, off its lows of the day. All the main sectors were down and lots of new 12 months lows. This is not the time to be panicking. Instead some investment managers and hedge managers will be using this as a buying opportunity with the cash that they have held back. To wit, they know that it could decline further, but far better to buy on days with panic selling.

    If you are an investor looking for professional management of your total or the bulk of your investment portfolio across all asset classes, then don’t hesitate to give me a call for an initial confidential discussion.

    Sincerely

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za
    082 921 0220

    Permalink2008-01-16, 18:53:28, by ian Email , Leave a comment

    Global Markets Take A Dive

    LOCAL MARKETS

    The JSE is trading sharply lower today in line with other world markets. A sharp sell off on Wall Street overnight has led to most markets responding negatively today.

    The rand is also sharply weaker today. A slowdown in retail sales has pointed to another rate hike, while bank and economic reports due out in the US today has all put the local unit on the back foot.

    OVERSEAS MARKETS

    Wall Street is set to open sharply lower today after the Dow lost over 2% yesterday on the back of weaker-than-expected results from Citigroup. Today Intel also reported disappointing quarterly sales figures which has done nothing to allay fears in the market. The government is set to release their Consumer Price Index (CPE) data later today.

    European markets have opened lower with investors trading cautiously after Wall Street's slump overnight.

    Asian markets all tumbled at the close today. The Nikkei closed 3.4% lower, the KOSPI 2.4% lower and the Shanghai Composite Index fell by 2.81% - all reacting to news on Wall Street.

    COMPANY NEWS

    Bytes Technology Holdings has been successfully delisted from the Altron Group. In settlement of the Bytes scheme consideration, Altron will issue 8,495,016 Altron ordinary shares and 22,092,286 Altron participating preference shares as consideration for the Bytes ordinary shares.

    Sallies are re-engineering their plant at Buffalo mine to be able to process both fluorspar and rare earth minerals.

    Shares in Datatec leapt by almost 5% yesterday on the back of news that the company expect a good financial year ahead. They expect revenue of $4 billion for the year ending February 2008, an improvement from the $3.2 billion declared last year.

    Permalink2008-01-16, 14:29:36, by Marika Email , Leave a comment

    A brief look at sectoral ratios

    Fundamentally biased investment analysts spend a lot of time looking at financial ratios of a company within a particular sector in their capital allocation models. In addition to the standard financial ratios many analysts have developed sophisticated company specific models over the years.

    For value biased investors it’s about trying to assess where prices are trading at below intrinsic values. But there is no hard and fast rules because many value investors require value plus a trigger event, i.e. something that will trigger the release of value in the shorter period.

    The starting off point though for investors may be to look at a top down sectoral view and then drill down into specific shares. Absa economic research released a paper today on Sectoral Financial Ratios 1998 – 2007.

    It’s interesting to look back on the ratios over this relatively short time period for some of the sectors. Back in 1998 technology shares got to exceptionally expensive levels at just prior to the bursting of the IT bubble. Absa record that the average PE ratio for the software and computer services sector in 1998 was 46 times. The average price to book was 4,7 times. The cash flow per share was R0,48.

    A few years later into 2001 the PE ratio declined to 7,5 times, now at 12,5 times. The price to book declined to a low of 0,71 in 2003, now at 1,92 times. Investors paid too much for these businesses in 1998.

    Platinum was on a PE ratio of 7,95 times and a price to book of 0,69. Cash flow per share was at R4,67. This escalated to R26,77 a share in 2002, but now at R16,04. The PE is now at 16,4 times and price to book at 2,62 times.

    Construction shares were very cheap on an average PE of 7,02 and a price to book of 0,88. Cash flow per shares was recorded at R2,24. Cash flow per share has moved up to R3,52. The PE ratio up to 15,2 times and the price to book up to 4,07 times.

    Banks are interesting because each year they have increased their cash flow per share steadily from R1,10 in 1998 to R3,71. The PE ratio in 1998 was recorded at 11,5 times (no doubt after the decline in prices) and is now at 11,03 times. For banks the important ratio is price to book. This declined from 2,04 times to 1,22 times in 2003, now back to 2,03 times.

    By comparison gold mining earnings have been volatile but essentially flat over the time period. R5,22 in 1998 up to R10,88 in 2002 as the rand weakened, but now at R5,17/share again. The price to book was 1,03 in 1998 up to 5 times in 2002 and now at 1,22 times. So while historical earnings have been depressed the PE ratio looks very expensive at 50,11 times. Now with the price of gold moving through the $900 / oz level, this ratio will reduce.

    Remember when analysing – share prices are the most volatile. Earnings are a lot steadier, but net asset values are the steadiest. Price to book is a therefore a good number to look at. But it won’t give short term answers.

    These are just a fraction of some of the ratios that analysts look at. Each sector has its own ratios. E.g. when looking at banking shares, analysts look at provisions, non performing loans, return on equity, split of income between interest and non interest income, cost ratios, capital adequacy ratios, asset solvency ratios etc.

    If you are an investor looking for professional management of your total or the bulk of your investment portfolio across all asset classes, then don’t hesitate to contact me for an initial confidential discussion.

    Sincerely

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za
    082 921 0220

    Permalink2008-01-15, 18:27:53, by ian Email , Leave a comment

    JSE Dips On Profit Taking

    LOCAL MARKETS

    The JSE is trading slightly lower at noon today on the back of some profit taking in gold mining stocks. "Despite trading higher yesterday, the overall market trend is negative as investors are nervous about a US recession and further implications of the global credit crunch," remarked a Cape Town based trader.

    The rand is steady ahead of the release of US economic data that could indicate what the Fed does about interest rates later this month. The local unit should be relatively volatile today, trading around the R6.70/$ level.

    OVERSEAS MARKETS

    Wall Street is set to open weaker today as investors brace themselves for some important economic data and Citigroup's fourth-quarter earnings report. US PPI and retail sales numbers should give stocks direction today.

    The FTSE is trading lower today as investors await UK CPI inflation figures. Shares in Tesco are trading negatively after they announced weaker sales growth over the festive period.

    Asian markets closed lower today, giving up earlier gains on the back of concern over the US economy. The Hang Seng closed down by 1.6% while the Nikkei dipped below 14 000 points for the first time since November 2005.

    COMPANY NEWS

    Johannes van Heerden has been appointed the managing director of Harmony Gold Mining's international operations. The position is effective immediately.

    AngloGold Ashanti has acquired 100% of Golden Cycle Gold Corporation, a US precious metals exploration and development company, for about R1 billion.

    Permalink2008-01-15, 14:10:08, by Marika Email , Leave a comment

    Global markets got off to a poor start

    Global markets had some positive news today after a very poor start to the year. JP Morgan reported that up to end of last week Wall Street was off to its poorest start since 1982 with the S&P 500 down 4,6%. Technically the major global markets are weak as they have been battling to move up through resistance levels. But this is not necessarily negative for investors.

    For sure there has been plenty of negative news and this has continued to spread into the local JSE. Bloomberg reported that Citigroup, Bank of America and Merrill Lynch and Co are likely to report their worst ever quarters this week with more write offs of over $35 billion.

    The local JSE has come under pressure from its peak in October, down around 13% before today’s gain of 1,6%. This brings the PE ratio down to a respectable 13,8 times. While the longer term average is lower, over the last 10 years, the PE for the market is around 14,5 times.

    Current price and valuation is never foolproof as a method to predict shorter term price movements, because often when prices are fair value they can go on to become even cheaper and vice versa, when expensive can continue to become even more expensive. It’s the sentiment that drives prices in the shorter term and we all know that this is more fickle than the Cape Town weather.

    Valuation is a far better barometer of the likely medium to longer term possible returns. And so while earnings growth is likely to slow, it is not likely to go into negative territory. A 12% to 15% growth rate on a 13,8 PE ratio can drop the PE to around 12 times, which is not expensive.

    There is a possibility that prices may trade sideways as earnings plays some catch-up and sentiment remains negative, but overall prices don’t appear too expensive. The critical area that will make a difference is if earnings come under pressure and companies can’t sustain them from the much higher base established.

    As always it’s the detail that counts. While some pessimism sets in and investors are not enamoured with share prices that have traded sideways for 6 months or more, value slowly starts to reassert itself. There are many share prices that have been hit hard and investors and professional fund managers alike are starting to get very excited about the prospects.

    Check the allocation that you have to local equities. With the firm rand and the high degree of ownership by foreigners of local equities, local investors should also be taking advantage and assessing their exposure to offshore.

    Formulate a total strategic plan, which includes a diversified portfolio of growth assets. Feel free to contact me to have a chat about your specific investments and how they can be structured.

    Sincerely

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-14, 18:49:10, by ian Email , Leave a comment

    JSE Lower On World Markets

    LOCAL MARKETS

    The JSE is trading weaker at noon today despite opening higher on the back of record gold and platinum prices. Gold reached 907,25/oz, while the platinum price reached 1,573/oz. Local markets are reacting to the Dow's sharp close on Friday amid fears that the credit crisis will continue for a while yet.

    The rand is firmer thanks to the strong gold price and a weaker dollar. Traders are expecting the rand to reach R6.70 and perhaps slightly stronger levels this week. The dollar is on the back foot as investors are awaiting fourth-quarter bank earnings later this week that could point to more bad news in the subprime mortgage sector.

    OVERSEAS MARKETS

    Wall Street is set to make a slight recovery after posting losses on Friday. Investors are hopeful that the Fed will step in and lower interest rates despite remaining nervous over the pending bank earning reports.

    The FTSE is trading firmer today on the back of potential takeover news.

    Most Asian markets ended lower today after the sell-off on Wall Street on Friday. The negative outlook for the US economy was tempered by bargain-hunting in certain sectors. The KOSPI fell by 0.9% but Taiwan's benchmark ended up by 1.8% after the result of parliamentary elections over the weekend. Japanese markets were closed for a public holiday.

    COMPANY NEWS

    Shares in road construction group Raubex have fallen by nearly 9% after Investec downgraded their recommendation for the company from 'hold' to 'sell'.

    PSG have decided not to list on the London Stock Exchange despite contemplating a secondary listing a while ago. They will "revert to the market should they decide to proceed with the listing."

    David Hodnett has been appointed the group risk director of Absa with effect from January 5.

    Permalink2008-01-14, 14:32:48, by Marika Email , Leave a comment

    The price of gold hovers at new highs

    The gold price has been hovering close to the USD 900 /oz level. Round numbers always appear more important than they really are in financial markets. Market participants understand that the psychology of the numbers plays a part and they will try and take advantage of this. In the medium term however, these round numbers are not important.

    Gold has been a natural recipient of the weak US dollar. One year ago the price was USD 612/oz, now nearly USD 900/oz, the gain in USD dollars was a credible 46%.

    As concerns about US recession have increased and the prospect of lower US interest rates increases, so investors have become more and more comfortable about holding a portion of their wealth in gold.

    South Africans can access the listed equivalent of a 100/ of ounce of gold by buying Newgold. This is an exchange traded fund (ETF) issued by Absa and is in the form of debentures. These listed and traded debentures are backed by physical gold in the form of 400oz London Good Delivery Bars and retained in the Rand Refinery.

    In late afternoon the price was trading at R60,55. At the spot Rand dollar this equates to USD889.33. The spot price of gold was at USD890. So the listed debenture trades very close to the spot.

    These debentures were initially listed on the JSE in November 2004. Newgold Issuer limited, the special purpose vehicle, takes a fee calculated at 0,4% of the

    As new money is allocated to the fund, it in turn issues and lists more debentures and then acquires more gold bullion. Today the fund issued an additional 800 000 debentures in respect of 7898 troy ounces. This lifts the market cap of this ETF to R4,8 billion.

    This compares to the Satrix 40, which also has a market cap of R4,8 billion.

    So even in Rand terms, gold as measured by the performance of Newgold, has done well. A year ago the price was trading at R45, now at R60 a gain of 33%.

    Bullion has outperformed the gold companies:

    Goldfields has declined from R130 to R120.

    Anglogold slightly up from R330 to R347.

    Harmony down from R110 to R87.

    Today the local equity market fell sharply, with Industrials off over 3% and the JSE All Share index down 1,4%. Gold shares went against this trend gaining 2,5% on the day.

    Have a great weekend.

    Regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-11, 17:24:48, by ian Email , Leave a comment

    Where will your focus be in 2008

    The start of a new year is a great time to make those important resolutions- as long as you have the tenacity and perseverance to stick to them. Resolutions are typically health related, losing weight and perhaps even making more money, but few have as a one of their priorities getting their investments into shape.

    Weekly finance magazines, market commentators and even some advisors will start to bombard the public with “hot tips for 2008” or “top 10 shares for 2008”. I.e. what shares to buy for the year.

    It’s an interesting exercise, but not necessarily that constructive for investors. The reason being that each investor has different circumstances, different time horizons, and definitely different expectations.

    A one year outlook on any particular share is far too short a time horizon for any investor.

    Instead of looking for hot tips, investors should be focus on the more important issues rather than doing the things that sound good in the short term.

    I.e. The first step is to make a complete assessment of your finances and investments and formulae a longer term strategic plan. This is especially important for those wishing to retire completely or indeed at some point retire actively.

    For many people, some basic steps are important for longer term success:
    • Pay yourself first;
    • Live within your means;
    • Have adequate cash reserves (2-6 months);
    • Have complete insurance coverage (risk management);
    • Pay off your debts;
    • Give generously;
    • Make regular contributions to your investments;
    • Consult an investment advisor.

    It’s an interesting point that longer term investors or savers should not be too concerned about shorter term price movements of assets. It’s not what a share or an asset class achieves in one month or six months – rather it’s the performance over a far longer period that will be the ultimate test for any investor.

    Certain actions such as stock guessing may appear expedient, but in the longer term without the backing of a plan of action, even where it may be largely correct, it will not have the desired end result.

    Regards

    Ian de Lange
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-10, 17:29:50, by ian Email , Leave a comment

    Real Estate Investment Trusts (Reits)

    Someone recently asked me about the performance of offshore REITS. REITS are the equivalent of our local Property Unit Trusts (PUT) and Property Loan Stocks (PLS) listed on the JSE. The proportion of properties listed on the JSE is very small in comparison to the total value of properties that could be listed on the JSE. In the US, Canadian and Australian markets a lot more properties are listed.

    Only about 5% of the total JSE by market capitalisation is attributed to listed property. Again this 5% is a relatively small portion of our total property market.

    One of the reasons why it is so small is because of the legal structures of our local PUT and PLS. PUT and PLS are not known as “REITS” in the offshore market and as a result fewer offshore fund managers invest in our local listed property market. They generally don’t want to invest in structures that they are unfamiliar with (even though the differences are slight).

    The local property market returned 39% per annum, compounded, for the last 4 years. It is unlikely that this will continue going forward. The income yields are at about 5.5% and this looks expensive. Because of the rising interest rates it is expected that capital growth will slow down significantly.

    The risk with local property is that if trustees of large pension funds decide to reduce the property exposure then this could have a significant negative effect on the prices - especially if the listed market is so small.

    The offshore listed property market had a very different 2007. One can look at the DJ Wilshire Reit ETF. It tracks the Dow Jones Wilshire REIT Index. This ETF lost 33% (net of dividends) during 2007. However, from the beginning of the bull market in 2003 to 2006 the ETF increased by 150% from $38 to $100. If you include the income of about 6% per annum then you are looking at well over 30% per annum compound for the 4 years leading up to the beginning of 2007.

    The picture looks very different now. During the last two weeks we have seen an offshore listed property fund that changed its redemption periods. You can’t redeem your units straightaway anymore, but have to wait six months. This is mostly a consequence of higher inflation and the sub prime crises. Investors offshore are finding safer assets like gold.

    Therefore, with some of the offshore Reits coming down significantly there may be areas of value but for now the trend is still downwards.

    Regards

    Vincent Heys
    vincent@seedinvestments.co.za

    Permalink2008-01-09, 18:24:16, by vince Email , Leave a comment

    Gold Reaches Record High

    LOCAL MARKETS

    The JSE is flat in morning trade, taking its lead from global markets who are all reacting negatively to a possible recession in the US. Strong gold and platinum stocks are supporting the local market, with the gold price rallying to a record $891,50/oz this morning.

    The rand is showing some resistance to a weaker close on Wall Street, supported by the firmer gold price. The local unit is trading around R6.85/$. Analysts do predict a weaker rand in weeks to come as it follows the Dow in a possible downward slump.

    OVERSEAS MARKETS

    Wall Street is set to open lower today following a correction in the previous session. Investors are keeping an eye on fourth-quarter earnings reports which could spark another sell off.

    The FTSE is trading weaker today after a negative retail report by Marks & Spencer detailed poor sales figures and predicted that these conditions would prevail in 2008.

    Asian markets ended up, recovering from a weaker opening. Taiwanese shares rose by 1.53% on the back of strong electronic shares while the Nikkei ended up by 0.5%.

    COMPANY NEWS

    Kompania Piwowarska SA, SABMiller's Polish subsidiary, has completed the acquisition of 99.96% of Browar Belgia from Palm Breweries NV. This follows the Polish Office of Competition and Consumer Protection's recent approval.

    Swiss power technology company ABB has won a contract worth $90 million from Eskom to upgrade control systems and instrumentation at the Matla power station in Mpumalanga.

    The CEO of Bear Stearns, James Cayne, has notified board members that he plans to step down as CEO of the company. They have also been affected by the subprime mortgage crisis and credit crunch and this move is largely as a result of shareholder pressure.

    Permalink2008-01-09, 12:33:14, by Marika Email , Leave a comment

    Stock Picks for 2008!

    A new year signals a new beginning! Last year's market conditions can best be described as tumultuous but investors were still able to make a reasonable return. What does 2008 hold for us? Most analysts predict a tougher year ahead but if you make smart choices based on the quality of the company you're investing in, you can't go wrong!

    Here are my stock picks for 2008 (some already form a part of my online portfolio which I will continue discussing next week):

    1. African Bank Investments Limited - ABIL
    2. Stefanutti & Bressan - S&B
    3. Famous Brands - Fambrands
    4. Vox Telecom - VOX
    5. SABMiller - SAB

    Let me know what you think of my choices and submit your own top 5 stock picks for 2008. We'll publish them on this blog and at the end of the year we'll review our readers' choices and see who performed the best in 2008!

    Email your stock picks to editor@marketviews.co.za.

    Permalink2008-01-09, 11:39:24, by Marika Email , 22 comments

    Stefanutti & Bressan

    Company Profile: Stefanutti & Bressan

    BACKGROUND

    Stefanutti & Bressan have been operating in the civil engineering and building construction sector for 36 years.

    Their spectrum of work ranges from "construction of industrial and petrochemical plants, cooling towers for power stations, mine infrastructure, dams, roads, bridges, water and effluent treatment plants, township infrastructure and industrial and commercial works to piling and geotechnical services."

    As you can see, the company has a broad range of interests and this is primarily what attracted me to the company in the first place.

    They listed on the JSE on 3 August 2007 and after opening at R15.20, the groups' shares are now trading around R21.45 (at time of press)- an increase of about 40%.

    PROSPECTS

    The demand for roads and railways, ports and reliable energy and telecommunication services is on the up and up. Stefanutti & Bressan have seen a niche in this sector and continue to thrive from their involvement in it.

    The company's order book stands at around R2.3 billion for the 2008 financial year.

    As mentioned in the groups' prospectus, the listing on the JSE "facilitates Stefanutti & Bressan's continued participation in this growth. It raises the profile of the group, assists in retaining and attracting key staff and provides access to capital with which to fund both organic and acquisitive growth."

    ACQUISITIONS

    To date, the company has purchased 80.3% of Skelton & Plummer from the company's executive directors, management and shared black empowerment partner Mowana Investments.

    They have also purchased 51% of Civil & Coastal. The acquisition agreement provides for the group to increase their shareholding to 100% within three to five years of the effective date.

    MANAGEMENT

    Chairman: Biagino Stefanutti
    CEO: Willem Meyburgh
    Financial Director: Dermot Gregory Quinn

    Management holds 42.3% in shares, highly indicative of the faith they have in their own company.

    FINANCIAL INFORMATION

    The company expects excellent results in 2008, with earnings per share looking to increase from the 34.2 reported in Feb 2007 to 83.2 in Feb 2008.

    In November this year, the company reported headline earnings per share of 42.3 cents, up from 2006's 30.9 cents/share.

    Regarding dividends, the company only plans to start paying a final dividend in the financial year ending February 2009. Thereafter the company will pay dividends bi-annually (an interim and final dividend).

    To read more about the company click ">HERE.

    RESEARCH

    A report by Imara Sp Reid had the following to say about the company's prospects: "With an order book of R2.3bn for the 2008 financial year the company is projecting an increase in heps of 35% to 83.2c (2007: 61.7c excluding BEE costs). This would put the company on a 6 month FPE of 26x which is at the upper end of its larger peers' ratings."

    The company's CEO, Willie Meyburgh, had the following to say in an article in Engineering News: "The construction industry offers many lucrative opportunities over the next few years, especially in harbour development, commodities, and the energy sector." He also mentions that further acquisitions are on the table for the company in the coming years.

    They also plan to establish a training school for their workers by the end of the year (2007). "To start with, the school will take on between 20 and 30 workers who will receive job-specific training for the industry, this includes plastering, bricklaying and form work skills. The training programmes would include basic training, on-site practical training, and refresher courses." (Engineering News, 3 August)

    It is refreshing to see a company being pro-active when it comes to their employees and improving their individual skills contributes to the company's growth and good skills.

    CONCLUSION

    I see a good future for this company and with strong fundamentals backing it up, it's definitely a company I want to invest in.

    Permalink2008-01-09, 10:20:35, by Marika Email , Leave a comment

    The Local Market is Waking Up

    Well it looks like South Africa is slowing crawling back to life. Many people are starting to head back to work, schools are beginning to open again for the new year, and relatives have gone back home. Much of the rush hour traffic that was experienced on the N3 to Durban before Christmas will be replaced with the regular rush hour, and despite car sales slowing, I can unfortunately guarantee you that this year the roads will be busier than the last!

    For many people this will be the first week back at work as companies start opening their doors after closing over the festive season. We even find that there are industries that completely shut down over Christmas time. One of these industries that closes shop over Christmas is the construction industry, which yesterday came back from their traditional end of year break-up (I hear that this has been practice for “over a hundred years”!)

    While some companies go into hibernation, with customers finding it impossible to get hold of anyone, others are going at full tilt to keep their customers happy. It seems that for many South Africans walking through crowded shopping malls until late at night is standard practise in December, with many shopping centres open (and packed) until at 9pm in the run up to Christmas. Despite the frenzy during this time, one can see that it wasn’t the bumper that the shop owners were hoping for, with shops slashing prices in the new year, as they try and get rid of unwanted stock.

    This year I found it rather ironic that it is the construction sector that closes down, while retailers are at their busiest. With 2010 looming ever closer there is a dire need for our stadiums to be built in short time, and it was therefore frustrating to drive past a couple of the sites and to see no activity. On the other side, inflation carries on increasing with economists continually having to upwardly revise their expectations and with inflation figures continually coming out above consensus, the consumer is slowing down on expenditure, and struggling to repay debt.

    With the Construction and Materials sector up some 77.3% last year, and General Retailers down 8.5% in 2007, one can safely conclude who investors backed in 2007. While looking back at last years performance gives you an indication as to what the thinking was last year, performance figures alone don’t help that much in trying to formulate an educated opinion going forward.

    Will Retailers continue to go down in 2008, or will they start to recover? Many investment professionals said at the beginning of 2007 (and some even earlier) that Construction shares were over-valued, and logic dictates that, as they are on average 77% higher than a year ago, they are even more over-valued now. Is it time to get rid of these high fliers in favour of the Retailers? These are the kinds of questions you need to ask yourself. There will still be some Construction shares that do well, and their may be some Retailers that continue to perform poorly, but this year will in all likelihood see divergence in share performance.

    While it is great to be able to tell you friends and colleagues that you held a share that did over 100% last year that fact should not be the reason why you continue to hold that share. While you should be consistently evaluating your investments (be they in shares or unit trusts), the beginning of the year offers a good chance to sit down, and make sure that you are correctly invested for the year ahead. Have you chosen the correct asset class, have you chosen the correct manager, have you chosen the correct shares?

    I hope that your start to the year hasn’t been too hectic, and that you are able to slowly get back into the swing of things.

    Kind regards,

    Mike Browne
    mike@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-08, 18:40:28, by Mike Email , Leave a comment

    JSE Recovers After Yesterday's Losses

    LOCAL MARKETS

    The JSE opened flat but is looking to recover today follwing a positive opening on European markets. The local market was hit by fears of a US recession yesterday.

    The rand is firmer but range bound in trade today. Traders expect the local unit to remain between R6.85-R6.93/$ for the rest of the day.

    Markets are looking ahead at US home sales to be released later today and the European Central Bank and Bank of England interest rate decisions later this week.

    OVERSEAS MARKETS

    Wall Street is set to open slightly higher today but investors are still jittery over a possible recession. A rise in oil prices could dampen any earlier gains.

    London shares rose higher at the open today on the back of bid activity. European markets in general are trading higher thanks to gains in the pharmaceutical and telecoms sectors.

    Asian markets ended mixed today in choppy trade. The Nikkei ended up by 0.2% despite dipping to an 18 month low earlier in the day. The Hang Seng index closed lower by 0.3% while the Shanghai Composite closed down by 0.1%.

    COMPANY NEWS

    Sentula Mining (previously Scharring Mining) has raised R374 million through the issue of 17 million shares to selected financial institutions. The shares were placed at R22 - a 5% discount on the average price of R23.21.

    ArcelorMittal plans to jointly develop iron ore mining in Mauritania by taking an initial 30% stake in a new project together with state-owned Societe Nationale Industrielle et Miniere.

    Pick 'n Pay have reported pleasing season sales growth although they have seen the effect of higher interest rates and fuel prices on consumer spending.

    Permalink2008-01-08, 13:16:12, by Marika Email , Leave a comment

    Can emerging markets keep shock at arms length?

    Recently a lot has been written about the decoupling of the emerging market (but more specifically China and India) from the developed market. The question was asked a few months ago “Will the emerging markets also go down if the US market fumbles?” The word goes that if the US sneezes the world does not catch a cold any more but rather offer a hand. Part of the reason is the difference in the economies. The US spends while China manufactures; the US runs a large deficit while China has enormous foreign reserves.

    The above statement has been challenged lately. Especially if one looks at what happened during November. The S&P 500 ended -4.4% (from a low of -9.2%) while the Hang Seng lost 8.6% (from a low of -17.1% after the first 3 weeks in November). The Indian market also ended negative at -2.3%.

    It is interesting to note the emerging market risks stated in a UBS Research Paper. Four different risks that could affect emerging markets are identified.

    The first risk is the possibility that a general dislike against risk or even just more conservative behaviour could cause the much-publicised carry trades to unwind more significantly. This is generally moving away from more “perceived” riskier assets to safer assets in the developed market.

    The second risk is the possible existence of as yet unreported or unknown exposure to sub-prime mortgage products or other structured finance products. We know at least that in South Africa our effect to this crisis is limited. Investec has had some exposure to the sub-prime market offshore, but even that was very small and a 50% drop in its share price was maybe too excessive.

    The third is the risk of adverse housing market developments in emerging markets themselves, though in most cases mortgage finance and housing markets are nowhere near as important as they are in advanced economies.

    The fourth risk, which may be the most significant of all and, in a way slightly darker, is the possible impact of slowing global growth on key commodity prices, revenues from which have been a significant factor bolstering the financial strength in several emerging markets.

    Even though some of these factors may not be necessarily relevant to the JSE, the fact is that our market is very closely correlated to the emerging market. The reason why our market did so well over the last few years is mostly because it was a resource and emerging market story and not necessarily because of our acumen.

    This proofs to be a very interesting year ahead of us.

    Regards

    Vincent Heys
    Vincent@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-07, 23:20:12, by vince Email , Leave a comment

    JSE Recovers After Weak Opening

    LOCAL MARKETS

    The JSE is trading slightly firmer in noon trade after opening more than 1.5% in the red this morning. Weaker-than-expected job data released in the US led to negativity in most world markets overnight.

    The rand is trading weaker on the back of a stronger dollar as most investors return from holiday today. The local unit is trading at around R6.90/$.

    OVERSEAS MARKETS

    Wall Street is set to open higher today as stocks rebound from heavy sell-offs last week. A lower oil price is also boosting sentiment. Investors are hoping that the Fed cuts rates when they meet later this month.

    European markets opened flat today but are trading steadily after last weeks losses.

    Asian markets closd sharply weaker today. The Nikkei closed down by 1.3% on the back of losses on Wall Street on Friday. The KOSPI index closed weaker by 1.8%. The Shanghai Composite Index closed higher by 0.59% thanks to gains in the property and infrastructure sectors.

    COMPANY NEWS

    David Neale Murray has been appointed a non-executive director of Gold Fields. The position comes into effect on the 1st of January.

    Anglo American have postponed their plan to sell their £3 billion Tarmac road-covering business until the difficulties in capital markets have been resolved.

    Alberg Mining and Exploration have been selected by Zambia to re-open their Kabwe zinc and lead mine.

    Permalink2008-01-07, 13:38:37, by Marika Email , Leave a comment

    2007 returns

    Yesterday we discussed the performance of the local market during 2007. Let’s briefly look at what the offshore market did.

    The FTSE World Index did 8.8% for the year while the MSCI Emerging Markets did an exceptional 33.1%. The US markets produced single digit returns while the Japanese market would have lost you capital.

    Returns in local currency
    FTSE World Index (USD) 8.8%
    MSCI Emerging Markets (USD) 33.1%
    SP 500 TR (USD) 5.4%
    Nasdaq (USD) 9.8%
    Dow Jones (USD) 6.4%
    Japan Nikkei 225 (YEN) -11.1%
    UK FTSE 100 TR (STERLING) 7.3%
    DJ Euro Stoxx (Euro) 7.2%
    Canada Toronto Composite (CAD) 7.1%

    In terms off the other asset classes the returns for 2007 were (in US dollar terms):

    US 10 Year Treasury Bill 4.9%
    CRB commodity Index 16.7%
    Dow Jones Reits Index -19.2%
    HFRI Hedge Fund Index # 5.0%

    Notably commodities have done extremely well and as a result we can justify the exceptional returns in the emerging economies and also in South Africa. Property was significantly down with -19.2% for the year while the US 10 year government bond produced a modest 4.9% for the year.

    According to the HFRI Hedge Fund Index the returns to date between the different strategies vary between 4% and 6% for the year. This is in line with the credit and equity markets. Obviously certain commodity strategies would have done better.

    If one looks at the currencies relative to the Rand then both the USD and the Sterling depreciated slightly against the Rand while the Euro, Canadian Dollar and the Japanese Yen strengthened against the Rand during 2007. At the current levels the Rand remains vulnerable for further weakness.

    US Dollar (USD) -3.1%
    Sterling (GBP) -1.4%
    Euro (EUR) 7.5%
    Canadian Dollar (CAD) 14.3%
    Japanese Yen 3.4%

    In terms of commodities, oil was up 52% and gold 31% during 2007. Agricultural commodities were up 41% (all in US dollar terms). The oil and agricultural commodity increases are the primary reasons why global inflation have been ticking up … and the same is true in South Africa.

    Because of fears for higher inflation and political instability (e.g. Pakistan) there was a flight away from riskier asset classes like equities to more stable assets like gold. As a result we have seen gold reaching its 28 year high yesterday. It is still a long way away from its inflation adjusted price.

    Looking ahead into 2008, the story is not at all rosy. The US employment data came out today. This is generally a proxy for how healthy the US economy is. In short, unemployment is increasing which indicates that the US economy is slowing down. This in turn rises the probability for further US Fed rate cuts later this month to ward off a potential recession. The Fed may even want to cut rates by 0.5% instead of the normal 0.25%. As a result our market came down and ended 136 points lower at 28 989.

    I trust you have an excellent first weekend of the new year.

    Regards

    Vincent Heys
    Vincent@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-04, 23:41:55, by vince Email , Leave a comment

    The year that was ... 2007

    I am sure all agree that 2007 was a very interesting economic year.

    We saw local inflation climbing higher and higher (with some expectation of slowing down later the year) and the accompanied higher interest rates; oil prices going beyond $90 a barrel and touching $100; gold going above $840 an ounce and of course the US sub-prime problems.

    Let’s have a look at what our local market did during 2007.

    Cash:
    The STEFI index which is a proxy for cash returned 9.4%, the highest since 2003 when it was 12.3%.

    Bonds:
    If you invested in the composite bond index i.e. in a number of different government and corporate bond issues then you would have received a very low return of 4.3% during 2007. This is of course before tax.

    Listed property:
    Listed property performed well, irrespective of its volatility during the year. It gave us 26.5%, beating all other listed asset classes. Needless to say, it is looking on the expensive side now.

    Hedge funds:
    Hedge funds also performed well during 2007. According to the SA Hedge Fund Index, listed on the Bond Exchange, it did 12.6% during 2007 up to November 2007. Because of the equity market losses during December and because most of these hedge funds are long biased funds we can expect the performance to come down slightly. So let’s put that at a modest 11% for the year - still a good return.

    Listed equities:
    In general the All Share Index performed well if one considers the whole year. It did 19.2% for 2007. This includes a compound loss of 7.4% for November and December. The first six months of the year produced 15.1% while the balance of the year only 4.1%.

    So, which companies have done better based on market capitalization?

    The top 40 companies returned 17.5% while the medium sized companies produced 17.6% i.e. Mid Cap Index. The FTSE/JSE Small Cap Index performed extremely well and produced 34% while the FTSE/JSE Fledgling Index did 28.6%.

    In terms of the major sectors … ?

    The Resource 20 Index have been the best performer at 29.1% (i.e. the top 20 resource companies) while the Financial 15 Index has been the dog. It just about preserved your capital at 0.5% for the year. This has also been accompanied by massive volatility. October returned 11% while November and December returned -6% and -5% respectively. Therefore … there are some value here going forward. The Industrial 25 Index came in at an index average of 17.5%.

    As opposed to 2006 when everything went up significantly, 2007 was characterized but the importance of excellent macro views and exceptional stock picking skills

    These two elements will become even more important during 2008. There remains risk on the table and we are definitely not entering a smooth 2008.

    In conclusion … a very good year for the local investor taking into account the levels of volatility we have seen during the latter part. Property has done well and so have hedge funds and most equity counters. Cash did well and so is the expectation for 2008. Bonds performed poorly and we are not seeing value there for still some time to come.

    2008 will proof a testing time with lots of political and economic uncertainties. As a result of these uncertainties gold has now gone above $850 (a 28 year high).

    Regards

    Vincent Heys
    vincent@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-01-03, 22:54:43, by vince Email , Leave a comment