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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.

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    Daily Equity Report Wednesday 31 December 2008

    The JSE closed up 0.75% at 21509 with value traded at R 1.34 billion. Advances led declines 150 to 74 with 73 shares unchanged out of 297 active. Mining closed up 2.13% at 24798, while Industrials were down 0.17% at 20418 and financials ended the day up 0.05% at 15779.

    The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 10.9% at 2273, FTSE/JSE RAFI 40 up 8% at 4298 and COAL MINING up 3% at 42859, while the worst were FTSE/JSE All Africa ex SA 30 with US$ values down 33% at 57, SHARIAH TOP40 INDEX down 32% at 2261 and FTSE/JSE All Africa ex SA 30 with S A Rand values down 27.8% at 69.

    There were 1 new lows today, including Alliance topped the list, down 1.3% at 390.

    Of the major stocks Woolies ended up 1.6% at 1271, Mtn was down 0.82% at 10850, Billiton ended up 3.21% at 17762, Anglo moved up 1.83% at 21099, Sasol ended up 0.82% at 28002.

    Biggest gainers of the day where Growpnt-n up 23.33% at 185 , Kap up 16.67% at 175 , some of the losing shares included Ellies off 6.67% at 140 and Granprade down 6.52% at 215

    The Dow was up 1.1% at 8760.30 and the S&P 500 up 1.1% at 900.15 a few moments ago.

    Gold was off 0.2% at $ 868.00/oz

    The rand was last trading at R 9.39 to the dollar, R 13.73 to the pound and R 13.12 to the Euro.

    Permalink2008-12-31, 18:51:37, by admin Email , Leave a comment

    Local trade closes on the up on New Year’s Eve

    Local markets

    Due to a half-day of trade on New Year’s Eve, the JSE All Share closed at 12:00 today, finishing up 0.76% as it took direction from stronger US markets and was buoyed by higher metal prices.

    Gold was trading at $868 an ounce, falling slightly in the midst of thin trade but retaining its status as one of the few commodities to stay a safe haven investment in the global economic crisis.

    Interest by exporters and investors seeking a hedge activity propped up the rand, which was trading at R9.37 to the US dollar at midday.

    International markets

    Yesterday, the Dow Jones closed 2.17% higher as the US government promised a greater bailout for the auto industry. The tech-heavy Nasdaq closed 2.67% higher.

    The Hang Seng finished 1.07% up after a half-session trading, and will re-open on Friday 2nd January. The Nikkei closed 1.28% higher and will remain shut for the rest of the week for the New Year holiday, re-opening on Monday 5th January.

    The FTSE 100 had risen by 0.92% at midday SA time thanks to firmer commodity prices. Britain’s leading index will close at 12:30 GMT after a half day of trading.

    Share price news

    Growthpoint Properties Limited NPL enjoyed a rally of 23.33% when share prices rose to R1.85 as the market closed on a half-day’s trade. Afgri Limited in the farming and fishing sector gained 9.09% as share prices climbed to R6.

    Shares in African Bank Investments Limited in the consumer finance sector fell to R25.70 a share, down 3.46% since trade began this morning. Old Mutual PLC lost 3.18% of the value of their share price as shares fell to R7.60.

    Permalink2008-12-31, 12:59:09, by Natalie Email , Leave a comment

    Daily Equity Report Tuesday 30 December 2008

    The JSE closed up 0.52% at 21348 with value traded at R 3.05 billion. Advances led declines 151 to 122 with 82 shares unchanged out of 355 active. Mining closed off 0.46% at 24280, while Industrials were up 1.16% at 20454 and financials ended the day up 0.75% at 15771.

    The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 9.6% at 2246, FTSE/JSE RAFI 40 up 7.5% at 4279 and Industrial Metals Index up 4.5% at 21469, while the worst were SHARIAH TOP40 INDEX down 32.9% at 2231, FTSE/JSE All Africa ex SA 30 with US$ values down 32.7% at 57 and FTSE/JSE All Africa ex SA 30 with S A Rand values down 27.7% at 70.

    There were 2 new 12 month highs today, including Truwths which closed up 1.4% at 3550, A-v-i up 0.9% at 2104 while there were 7 new lows of which Lib-int topped the list, down 5.1% at 6640, Ips down 1.7% at 345 and Bats down 0.5% at 24225.

    Of the major stocks Mtn ended up 2.42% at 10940, Anglo lost 0.57% at 20719, Billiton ended down 0.14% at 17209, Sasol was up 1.55% at 27775, Stanbank was unchanged at 8300.

    Best performers of the day were Pzgold up 16.67% at 140 , Anooraq up 14.29% at 400 , some of the losing shares included Psg down 10% at 1350 and Pergrin off 5.68% at 830

    The Dow was up 1.5% at 8608.42 and the S&P 500 up 1.5% at 882.41 a few moments ago.

    Gold was off 1.1% at $ 870.30/oz

    The rand was last trading at R 9.36 to the dollar, R 13.50 to the pound and R 13.21 to the Euro.

    Permalink2008-12-30, 20:06:54, by admin Email , Leave a comment

    Violence in the Middle East boosts oil prices, energy stocks

    Local markets

    At midday, the JSE All Share had fallen 0.06%, led downwards by gold mining stocks as the gold price fell to $870.90 an ounce.

    Platinum dipped, trading at $906 an ounce at just after 12:00. Brent crude oil was selling at $37.38 a barrel, continuing its rise as conflict between Israel and Hamas continues into its fourth day.

    A US dollar cost R9.47 at noon, weakening against the rand as investors grew cautious in light of the violence in the middle-east.

    International markets

    US markets closed lower yesterday, with the Dow Jones finishing down 0.4% and the Nasdaq down 1.3%. Weighing on the markets was the failure of a deal between Dow Chemical and Kuwait, which was cancelled as oil prices halted their decline due to the current middle-east conflict.

    The Nikkei rose to 1.3%, its highest close in seven weeks, as exporters gained from a weaker yen and oil and gas companies gained on concern that oil supplies could be disrupted by the conflict.

    The Hang Seng closed 0.7% down on Hong Kong’s last trading day of the year, though energy stocks rallied on heightened Middle Eastern tensions. Generally, the market has been quiet during the holidays with little news.

    Britain’s FTSE 100 took a lead from stronger Asian markets, ignoring losses in US markets to rise 0.86% by midday.

    Share price news

    Tongaat Hulett Limited food processors gained 7.47% this morning, to trade at R64.49 a share by midday. Metorex in the metals and minerals sector enjoyed a 4.48%share price rise, to R2.10.

    Shares in Peregrine holdings Limited, in the investment banks sector, fell to R8.30 a share, a loss of 5.68%. Also on the downward march were shares in Steinhoff International Holdings Limited, in the furnishings and floor coverings sector. Share prices fell to R12, a drop of 3.23% since trade opened this morning.

    Permalink2008-12-30, 12:39:38, by Natalie Email , Leave a comment

    Daily Equity Report 29 December 2008

    The JSE closed up 1.14% at 21238 with value traded at R 2.78 billion. Advances led declines 188 to 126 with 67 shares unchanged out of 381 active. Mining closed up 2.46% at 24393, while Industrials were up 0.39% at 20219 and financials ended the day up 0.21% at 15653.

    The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 9.4% at 2242, FTSE/JSE RAFI 40 up 6.8% at 4251 and Platinum Mining up 6.1% at 52, while the worst were FTSE/JSE All Africa ex SA 30 with US$ values down 34.8% at 56, SHARIAH TOP40 INDEX down 33.1% at 2227 and FTSE/JSE All Africa ex SA 30 with S A Rand values down 29.3% at 68.

    There were 2 new 12 month highs today, including Nuclicks which closed up 7.1% at 1745, Foschini up 0.1% at 4625 while there were 3 new lows of which Elbgroup topped the list, down 11% at 800, Lib-int down 4.8% at 7000 and Metair down 1.5% at 580.

    Of the major stocks Mtn ended up 2.55% at 10681, Anglo ended up 1.75% at 20837, Bats ended down 0.63% at 24353, Naspersn was off 2.71% at 15951, Sasol gained 1.15% at 27350.

    Best performers of the day were Growpnt-n up 29.31% at 150 , Psg up 15.21% at 1500 , while the major losers were Pzgold off 14.29% at 120 and Elbgroup down 11.01% at 800

    The Dow was off 1.2% at 8409.93 and the S&P 500 off 1.4% at 860.93 a few moments ago.

    Gold was up 4% at $ 877.40/oz

    The rand was last trading at R 9.44 to the dollar, R 13.74 to the pound and R 13.39 to the Euro.

    Permalink2008-12-29, 20:07:22, by admin Email , Leave a comment

    Stronger precious metal prices boost resources

    Local markets

    The JSE All Share was up 1.82% just before midday after a two-day holiday last week, as stronger precious metal prices boosted companies in the mining sector.

    The rand was trading at R9.57 to the US dollar, gaining slightly after the greenback weakened against other major currencies during light trade over the festive season.

    The gold price had risen to $886.10 per ounce by 12:00, as bullion buyers bought on fears of supply disruptions resulting from the violence between Israel and Hamas which has already pushed up oil prices.

    International markets

    While SA rested, markets in the US were open on Friday’s Boxing Day. The Dow Jones closed up 0.56% and the Nasdaq finished 0.35% higher before the weekend, overcoming losses earlier in the week as poor housing data, struggling automakers and plunging profits continued to beat down markets.

    In Japan, the Nikkei average closed up by 0.09% as non-life insurers rose on merger news and oil-related shares gained on a surge in crude oil. Losses in major exporters suppressed further gains.

    The Hang Seng finished 1.02% higher, breaking a four-day spate of losses as rising oil prices buoyed commodity stocks.

    The FTSE 100 had risen 2.23% by midday, led upwards by energy and mining stocks lifted by firmer commodity prices.

    Share price news

    Companies in the gold mining sector were the biggest movers up this morning. At midday, DRD Gold Limited was up 10.57% to a share price of R5.65, while Harmony Gold Mining Company Limited gained 8.43% to a share price of R101.50.

    Shares in Mondi PLC in the paper sector were down to R29 a share, a loss of 6.42%.
    Keaton Energy Holdings Limited in the coal sector lost 2.74% to cost investors R10.31 a share at noon.

    Permalink2008-12-29, 12:29:58, by Natalie Email , Leave a comment

    Daily Equity Report 24 December 2008

    The JSE closed down 1.16% at 20998 with value traded at R 1.59 billion. Advances led declines 117 to 116 with 55 shares unchanged out of 288 active. Mining closed off 1.77% at 23806, while Industrials were down 0.7% at 20140 and financials ended the day off 0.61% at 15621.

    The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 7.1% at 2194, FTSE/JSE RAFI 40 up 5.9% at 4213 and Mobile Telecommunications up 3% at 166, while the worst were SHARIAH TOP40 INDEX down 34.6% at 2177, FTSE/JSE All Africa ex SA 30 with US$ values down 34.1% at 56 and FTSE/JSE All Africa 40 Index with US$ values down 28.8% at 55.

    There were 1 new 12 month highs today, including Growpnt-n which closed up -48.9% at 116 while there were 1 new lows of which Bats topped the list, down 2.2% at 24507.

    Of the major stocks Mtn gained 3.12% at 10415, Invltd moved up 0.39% at 4122, Stanbank lost 2.83% at 8211, Steinhoff was off 1.2% at 1235, Sasol was down 2.2% at 27040.

    Biggest gainers of the day where Wesco up 23.76% at 250 , Eastplats up 14.92% at 285 , while the major losers were Growpnt-n down 48.9% at 116 and Granprade off 10.42% at 215

    The Dow was up 0.5% at 8457.96 and the S&P 500 up 0.4% at 866.61 a few moments ago.

    Gold was unchanged 0% at $ 843.10/oz

    The rand was last trading at R 9.74 to the dollar, R 14.29 to the pound and R 13.61 to the Euro.

    Permalink2008-12-24, 18:55:59, by admin Email , Leave a comment

    Bonds slightly stronger in early morning trading

    Local market news

    Following an overnight close of R9.65/$, the rand was steady in early trade ahead of the Christmas trade. With South African markets closed tomorrow and on Friday, trading will only reopen on Monday the 29th. "There is very little going on. We expect the rand to trade in a 9.60 to 9.70 range, but it's so thin it might do something silly," a local trader said. By 11am it was trading at R9.66/$.

    Bonds were slightly stronger in early morning trading – by 8:45 the short-term government bond was bid at 7.370% from its close of 7.390%, the mid-term R157 was at 7.250% (7.280%) and the long-term R186 was at 7.205% (7.210%). By noon the All Share was 1.29% in the red.

    Foreign markets

    With a shortened trading session in London, the FTSE looks set for a quiet day of trading. Cambrian Mining and Western Canadian Coal are in talks for a possible merger for an estimated value of £29 million, while the own of Canary Wharf Group, Songbird, has confirmed work is to start on a new Crossrail station at the Isle of Dogs. At 11am local time the FTSE was 0.97% down.

    Asia stocks stumbled after dismal reports showed a weakening US economy, and a deepening in the recession. In their first day of trading since Monday (when Toyota said it expected its first operating loss in nearly 70 years), shares in the world’s largest car manufacturer dropped by 4 percent. The Hang Seng closed 0.3% in the red, while South Korea’s Kospi lost 1.3%. The Nikkei closed 2.4% lower.

    Company news

    South African food group AVI Limited reported that revenue for the five months ended 20 November was up 17.8%. Its trading update showed demand for the food, beverage and personal care brands remaining stable, while there was a dip in demand for its premium footwear brands. AVI expects to release its interim results on 9 March 2009.

    Despite a prolonged production shutdown at Chrysler, and with its parent struggling to stay afloat, Chrylser SA said that it was ‘business as usual’. A spokesman said that the shutdown is unlikely to affect the supply of cars from the US.

    According to the National Association of Automobile Manufacturers of SA, new vehicle sales dropped last month by 28.3% year on year.

    Permalink2008-12-24, 11:30:30, by Natalie Email , Leave a comment

    Daily Equity Report Tuesday 23 December 2008

    The JSE closed up 0.73% at 21245 with value traded at R 3.51 billion. Advances led declines 146 to 133 with 79 shares unchanged out of 358 active. Mining closed down 0.68% at 24235, while Industrials were up 1.81% at 20282 and financials ended the day up 0.41% at 15717.

    The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 8.4% at 2222, FTSE/JSE RAFI 40 up 7.2% at 4266 and Mobile Telecommunications up 5% at 161, while the worst were FTSE/JSE All Africa ex SA 30 with US$ values down 34.9% at 56, SHARIAH TOP40 INDEX down 33.6% at 2208 and FTSE/JSE All Africa 40 Index with US$ values down 28.6% at 55.

    There were 5 new lows today, including Diamondcp topped the list, down 38.5% at 400, Howden down 5.9% at 745 and Jubilee down 1.4% at 138.

    Of the major stocks Anglo lost 0.05% at 20790, Mtn moved up 5.21% at 10100, Billiton was down 0.96% at 17520, Sasol moved up 3.36% at 27649, Implats was down 3.01% at 12900.

    Biggest gainers of the day where Brc up 100% at 300 , Witsgold up 17.14% at 4100 , some of the losing shares included Diamondcp off 38.46% at 400 and Pergrin off 13.46% at 900

    The Dow was down 0.6% at 8468.16 and the S&P 500 down 0.5% at 866.90 a few moments ago.

    Gold was off 1.7% at $ 834.50/oz

    The rand was last trading at R 9.64 to the dollar, R 14.18 to the pound and R 13.46 to the Euro.

    Permalink2008-12-23, 20:09:42, by admin Email , Leave a comment

    With little news to drive the local currency the rand was slightly firmer against the dollar in noon trading today. Having closed on Monday at R9.74/$ it was trading at R9.65/$.

    Local market news

    With little news to drive the local currency the rand was slightly firmer against the dollar in noon trading today. Having closed on Monday at R9.74/$ it was trading at R9.65/$.

    With stocks opening weaker today due to concerns over the demand for base metals, the JSE All Share found itself 0.15% down by 1pm.

    Foreign markets

    Asian stocks posted losses again on Thursday with oil prices dropping below $40 a barrel. On top of the hard hit resource-related shares, auto-makers also slumped following Toyota’s bleak assessment. The Hang Seng closed 2.75% in the red, although the Nikkei ended 1.57% stronger.

    Following a strong early morning session the FTSE was 0.83% in the black at 1pm local time. However, retailers failed to keep pace. Marks & Spencer has been hit by a downgrade from Seymour Price, with ominous predictions for the Christmas trading period. Tea and coffee chain Whittard of Chelsea has been reported as being on the verge of calling in the administrators.

    Company news

    Absa is holding the competition commission responsible for the leak regarding the banking investigation. However, experts are unsure as to what the commission can do about it. On the 12th of December the commission published a report on its investigation into banking fees, with various sections censored. However, an uncensored version became available on the Wikileaks website.

    GoldFields Limited announced that it was on track to meet its 804,000 ounce output forecast for the second quarter of 2009. With lower cash and notional cash costs expected, the company feels that it is well placed to achieve its target.

    Permalink2008-12-23, 15:36:05, by Natalie Email , Leave a comment

    Local market news

    With little news to drive the local currency the rand was slightly firmer against the dollar in noon trading today. Having closed on Monday at R9.74/$ it was trading at R9.65/$.

    With stocks opening weaker today due to concerns over the demand for base metals, the JSE All Share found itself 0.15% down by 1pm.

    Foreign markets

    Asian stocks posted losses again on Thursday with oil prices dropping below $40 a barrel. On top of the hard hit resource-related shares, auto-makers also slumped following Toyota’s bleak assessment. The Hang Seng closed 2.75% in the red, although the Nikkei ended 1.57% stronger.

    Following a strong early morning session the FTSE was 0.83% in the black at 1pm local time. However, retailers failed to keep pace. Marks & Spencer has been hit by a downgrade from Seymour Price, with ominous predictions for the Christmas trading period. Tea and coffee chain Whittard of Chelsea has been reported as being on the verge of calling in the administrators.

    Company news

    Absa is holding the competition commission responsible for the leak regarding the banking investigation. However, experts are unsure as to what the commission can do about it. On the 12th of December the commission published a report on its investigation into banking fees, with various sections censored. However, an uncensored version became available on the Wikileaks website.

    GoldFields Limited announced that it was on track to meet its 804,000 ounce output forecast for the second quarter of 2009. With lower cash and notional cash costs expected, the company feels that it is well placed to achieve its target.

    SENS

    MIP Merchant released its audited abridged report for the year ended 20 September 2008. Revenue was reported at R7,836,000 before interest while profit for the period was totaled at R8,986,000.

    GoldFields Limited stated that it felt that it was on track to meet its output forecast for the second quarter of 2009 of 804,000 ounces. With an expected drop in cash and notional cash costs, the company was confident of achieving this target.
    Nick Holland, Chief Executive Officer of Gold Fields, said: "We are pleased with the improved production and good cost control as well as the progress we are making in terms of delivering the various projects, which will make a significant difference to the future profile of Gold Fields

    Permalink2008-12-23, 15:08:16, by Natalie Email , 1 comment

    Daily Equity Report Monday 22 December 2008

    The JSE closed off 0.92% at 21091 with value traded at R 5.70 billion. Advances led declines 172 to 152 with 85 shares unchanged out of 409 active. Mining closed off 0.74% at 24400, while Industrials were down 0.53% at 19922 and financials ended the day down 1.36% at 15652.

    The best performing sectors of the day were Personal Goods Index up 0% at 4227, Development Capital up 12.3% at 566 and FTSE/JSE SHARIAH ALL up 7.7% at 2208, while the worst were FTSE/JSE All Africa ex SA 30 with US$ values down 34.7% at 56, SHARIAH TOP40 INDEX down 34.1% at 2194 and FTSE/JSE All Africa 40 Index with US$ values down 29.3% at 55.

    There were 4 new 12 month highs today, including Ambit which closed up 3.8% at 410, Adcock up 0.6% at 3900 and Lewis up 0.2% at 4766 while there were 7 new lows of which Brc topped the list, down 25% at 150, Lonfin down 19.4% at 250 and Twp down 18.4% at 449.

    Of the major stocks Anglo ended down 3.26% at 20800, Mtn was down 3.03% at 9600, Bats moved down 0.8% at 24900, Sasol was down 2.9% at 26750, Angloplat moved up 1.73% at 52900.

    Best performers of the day were Trnpaco up 24.39% at 510 , Pergrin up 22.35% at 1040 , while the major losers were Brc down 25% at 150 and Lonfin off 19.35% at 250

    The Dow was down 0.6% at 8524.55 and the S&P 500 off 1.6% at 873.95 a few moments ago.

    Gold was up 1.7% at $ 849.80/oz

    The rand was last trading at R 9.72 to the dollar, R 14.44 to the pound and R 13.57 to the Euro.

    Permalink2008-12-22, 20:04:27, by admin Email , Leave a comment

    JSE dipped slightly in early morning trade

    Local market news

    The JSE dipped slightly in early trade today, following a mixed session in Asia. By 10 o’clock the JSE had edged down 0.46%, and at noon it was trading at 1.39% in the red.

    Having closed on Friday at R9.74 to the dollar, the rand was trading at R9.63 by midday.Despite these morning gains not much movement is expected in what will be an abbreviated trading week.

    Foreign markets

    With little major news over the weekend a slight dip is expected in FTSE dealings this morning. By noon local time it was 0.65% down on its opening.

    Asian stocks fell as worsening outlooks at large blue chips such as Toyota added to the economic gloom. However, with investors locking in profits from recent gains and with the Japanese government stepping in to bolster the economy, the Nikkei climbed to a 6-week high.

    Company news

    In an effort to enforce its approved flight schedule, the Nigerian government has threatened to ground British Airways flights between London and Lagos within a week.

    Plans have been set to build a new 10-million-tons-a-year export terminal adjacent to the privately owned Richards Bay Coal Terminal in Kwazulu-Natal. The party behind the plans is an as yet unnamed consortium.

    Permalink2008-12-22, 13:35:54, by Natalie Email , Leave a comment

    2008 Daily Equity Report Wrap Up

    As Ian wrote in yesterday’s piece, 2008 will go down as a watershed year. After solid positive returns from the JSE from 2003 to 2007 of 16.1%, 25.4%, 47.3%, 41.2%, and 19.2% respectively, we are now facing a year in which a large negative equity market return will be posted (unless something freakishly happens over the next 6 trading days).

    The market has, year-to-date, returned -24.8%, and will go down in history as one of the worst performing calendar years of all time. The poor year-to-date return came on the back of a -7.4% return in the last two months of 2007. From October peak to current levels this is a drop of over 30% and the drop from May’s new high is now approaching 35% in rand terms. Hard currency (dollar) returns over both periods are obviously far worse. The rand was trading at 6.72 to the US dollar at the October 2007 peak, and 7.66 at the May all time peak!

    While the above paints a gloomy picture, I was heartened to read a translated article by Kokkie Kooyman (fund manager at SIM) this morning entitled “2008’s worldwide financial crisis – a different perspective” the original of which appeared in Die Beeld last week.

    While not glossing over the fact that 2008 has been a dismal year in terms of equity market performance and global economic growth, he does point out that the policies that ultimately caused the collapse in the markets have over the past 2 to 3 decades created significant wealth for a large portion of the worlds population. By allowing markets to operate freely (to a large extent) innovation was allowed to thrive, which aided economic growth. Growth was also pushed along by credit expansion. Likewise wholesale regulation (while having good ideals of protecting the innocent) will result in a decrease in innovation, which will result in slower growth, which will be further exacerbated by a contraction in credit.

    He carries on to explain that human nature will dictate that these cycles will continue into the future, as on a basic level humans are greedy (which shouldn’t only be seen in a negative context as greed is a powerful driving force in human advancement).

    One statistic that I found in an Aurum (international Fund of Hedge Fund manager) newsletter that I thought was interesting was that “from 1950 – August 2008 the S&P 500 index ended the day gaining/losing more than +/- 5% on only 19 separate occasions over that 58 year period. Since 29th September 2008 such gains or losses have occurred 18 times, i.e. almost as much in two months as in the previous 58 years.” I think it is impossible to plausibly contest that we are living in extraordinary times!

    Hopefully we can look forward to a less volatile 2009!

    This is the last Daily Equity Report for 2008. We are taking a break, and will resume again on 5 January. We at Seed would like to take this opportunity to thank our loyal readers, and hope that you find these reports informative, educational, and enjoyable. Enjoy the festive season, and for those who are travelling to holiday destinations, travel safely!

    Take care,

    Mike Browne
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-19, 15:07:13, by Mike Email , Leave a comment

    Global markets hit by plummeting commodity prices

    Local markets

    The JSE All Share had fallen by 3.51% by midday, weighed down by resources hard hit by falling prices and a stronger rand.

    The rand remained strong, trading at R9.74 to the dollar at noon though trade was thin and seemed to be lagging behind movements in world currency markets.

    Gold was trading at $840.10, falling 1.74% as the precious metal ignored the weakening dollar. The oil price slid further, costing buyers $41.20 a barrel at 12:00.

    International markets

    The Dow Jones lost 2.49% yesterday after Standard & Poor threatened to remove General Electric’s “AAA” credit rating, and plummeting oil prices battered energy shares.

    The Nikkei fell 0.91% as investors engaged in a bout of profit-taking on a rally after the Bank of Japan cut interest rates to 0.1% from 0.3%. Toyota stocks fell after a newspaper reported that the company would soon be posting an operating loss.

    The Hang Seng closed 2.39% down after a 4-day rally as HSBC Holdings slid on worries about recapitalisation and credit deterioration. Not quite offsetting the losses were airline stocks, which rose on news of a jet fuel cut by Beijing.

    The FTSE 100 was down 1.09% at midday as the market followed losses in the US and Asia. Leading the British bourse down were energy and mining stocks as they took a beating from falling oil and commodity prices.

    Share price news

    Shares in Simmer and Jack Mines Limited rose 4.44% to R1.88 a share as investors were encouraged by the $50 million payment of Gold Wheaton Barbados as part of the purchase of 25 % of the estimated 2.1 million ounces of life-of-mine gold production from Simmers’ subsidiary First Uranium. Nampak in the containers and packaging sector enjoyed a high volume of trade this morning, which boosted shares by 3.72% to R13.66 a share at midday.

    Harmony Gold Mining Company Limited lost 10.52% of their share price as shares fell to R85 after the gold price plummeted. Anglo American PLC in the metals and minerals sector experienced a share price fall of 7.21%, forcing some sellers to accept R218.06 a share.

    Permalink2008-12-19, 12:46:56, by Natalie Email , Leave a comment

    Regulation is set to increase

    Regulation will increase.

    In many respects this week’s unravelling of the $50 billion pyramid or Ponzi scheme of Bernard Madoff caps a year that itself displayed signs of being a ponzi scheme. Millions of investors around the world have lost billions of dollars, euros or pounds and they will look for someone to blame. This invariably means increased government intervention and more regulation.

    The US SEC (Securities and Exchange Commission) is one of the worlds toughest regulators, but they failed to uncover what was happening at Madoff Securities, where it appears that investors have lost up to $50 billion.

    The SEC itself was created in 1934 after the great crash of 1929, with its main reason to regulate the stock market and prevent corporate abuses. It has 3800 employees.

    Invariably calls for increased legislation and regulation are made after major collapses. The same has started to happen again after a tumultuous 2008.

    After major corporate and accounting scandals from late 1990’s to early 2000’s caused investors to lose billion when the likes of Enron, Worldcom, Tyco etc collapsed, the Sarbanes Oxley Act of 2002 was enacted. This is also known as the Public Company Accounting Reform and Investor Protection Act of 2002.

    It was far reaching legislation for all public companies.

    2008 saw the failure of the world’s largest financial institutions. It saw the failure of credit rating agencies to identify and timeously notify risks in financial institutions and credit markets.

    Failure also extended to the UK, where the FSA (Financial Services Authority) enforcement did not manage to save the collapse of Northern Rock.

    The collapse of the 2 US government sponsored entities, Fannie Mae and Freddie Mac and the subsequent bailout by the Federal Reserve saw a change in their regulator to the Federal Housing Finance Agency.

    The weakening global economy has expedited president elect, Obama’s call for a trillion dollars economic stimulus plan to try and create jobs. He is calling on Congress to act quickly to pass the necessary legislation, which is still being crafted by his transition team.

    Europe and China are also looking to spend in order to stimulate their respective economies.

    The 1980’s and 1990’s saw an environment of less government involvement in global economies. This is now quickly moving back again to increased participation.

    Increased government regulation, increased government participation in the economy and increased government debt levels may not necessary have the desired longer term positive effect on an economy. The increased complexity combined with the speed with which governments are stepping up their participation has the real risk of unintended consequences.

    Looking back 2008 will be a watershed year.

    Kind regards

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-18, 17:12:10, by ian Email , Leave a comment

    Falling commodity prices stifle JSE

    Local markets

    At midday, the JSE All Share had fallen by 0.73% following weak action on US and Asian markets. Losses in the oil and gas sector served to stifle the local bourse as commodity prices fell.

    A weakening dollar was responsible for gains in the rand-US dollar exchange rate, costing currency investors R9.83 at noon today. The dollar lost ground after investors saw little point in keeping the currency after the US dropped interest rates to nearly zero percent this week.

    Oil prices slid 1.85% to $43 a barrel at 12:00, as demand continues to fall despite OPEC’s drastic supply cuts. Investors seem to have already factored lower oil prices into their calculations and are focusing on economic data that signals a protracted recession.

    International markets

    The Dow Jones closed down by 1.12% yesterday, while the Nasdaq also finished lower by 0.67% as investors worried about the enormous amounts of debt and liquidity that have been placed in the economy by the stimulus packages, and which could lead to inflation.

    In Japan, the Nikkei index finished 0.64% up, lifted by banking stocks as investors hoped that the Bank of Japan would follow the recent interest rate cuts in the US. Further gains were prevented by losses in auto stocks and exporters, as the yen continued to strengthen against an ailing dollar.

    Hong Kong’s Hang Seng closed 0.24% up after losses in global bank HSBC were offset by rumours of a new string of stimulus measures, on its way to China.

    The FTSE 100 was up 0.56% at noon after a flat morning’s trade. Losses in British Airways and major energy producers were just overcome by gains in pharmaceuticals and tobacco companies.

    Share price news

    Netcare Limited in the hospital management sector enjoyed a gain in their shares as prices rose to R8.61, up 5%. Shares in construction company Aveng Limited were up 4.47% to R27.82 a share just after 12:00.

    Shares in Sentula Mining Limited in the metals and minerals sector lost an astounding 56.98% as shares plummeted to R3.70 each. Investors rushed to pull out their funds after further details about the recent poor management and misappropriation of funds came to light yesterday.

    Gold Fields Limited experienced a volatile morning’s trade as prices dropped 5.45% to R91.41 a share by midday.

    Permalink2008-12-18, 12:37:44, by Natalie Email , Leave a comment

    2 weeks to the end of 2008

    2008 has less than 2 weeks to run. It’s been an exceptionally volatile year, which many investors would love to forget. Global asset prices received a boost from the decision in the US to lower their Federal Reserve Funds rate to an all-time low. Investors are now looking for signs of a market rally.

    With the US dropping the Fed funds rate to a range between 0% and 0,25%, on Tuesday, they gave every indication that they want to underpin asset prices. They are doing this by making money available at virtually no cost.

    In addition to flooding the banking system, the Federal Reserve will use other measures like buying up issues of securities by Fannie Mae and Freddie Mac, the mortgage issuers, under the control of government. It may even print money to buy longer dated treasuries – which keeps the yield on these bonds low for a time.

    After the unexpected announcement, US equity markets rallied up. However on Wednesday’s opening, the indices are trading down around 1%.

    The Tuesday rally took the S&P500 index rallied above its 50 day moving average. For many investors with a focus on technical aspect to prices, this is a positive sign.

    The weaker dollar has made gold more attractive. Gold is now at $876, up 6% on the day. The price now exceeds that of platinum, which is trading at $869/oz. This may be an indication of the longer term uptrend of gold. Prices of gold shares have moved up from recent lows.

    Money has continued to flood into US Treasuries and the yield on the 10 year bond fell to a low of 2,3%.

    As US interest rates were slashed so the dollar plunged against other currencies, falling to below 88 yen. Low interest rates also reduces the opportunity cost of owning gold, hence its recent gains.

    With oil dropping from highs to around $40, Opec announced a further 2,2m barrels a day cut. But this had little impact on prices given the assumption that these barrels come onto the market via some of the member countries not adhering to cut backs in production.

    Oil actually fell today to $44,68 / barrel, down 4,5% on the day.

    The local JSE rallied up on the back of firmer US and Asian markets. The JSE overall gained 2,77% to 22409. Financials put on 3,4%. Volumes remained high at over R13 billion traded.

    Kind regards

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-17, 19:14:44, by ian Email , Leave a comment

    US rate cut news wears thin as markets consolidate

    Local markets

    The rally on Wall Street yesterday inspired confidence in the JSE this morning, as the All Share rose 0.83% by midday. Leading the way were financials and the stocks of companies in the oil and gas sector, which gained 1.93% and 0.77% respectively.

    Thanks to a weaker dollar on the back of US interest rate cuts, the Rand was trading firmer at R9.97. However, analysts agree that investors are still mulling over the changes in the dollar and have yet to make substantial moves.

    Gold was trading at $854.50 an ounce, as prices for the precious metal reversed their slide after US interest rate cuts initially dampened its appeal as a hedge against inflation.

    International markets

    A drastic interest rate cut coupled with the expectation of further extreme rescue measures by the US Federal Reserve drove the Dow Jones up by 4.2% and the Nasdaq up by 5.21% yesterday. Banks gained the most from the moves to free up the credit market.

    The Nikkei closed 0.52% up as gains in bank shares which occurred as investor confidence spilled over from moves in the US were almost offset by losses in exporters brought about by a stronger Yen.

    Property stocks in Hong Kong climbed after news of the US interest rate cut, further encouraging investors already inspired by talk that Beijing would assist further against the recession, and sending the Hang Seng upwards by 2.18%.

    Pessimism amongst UK investors brought the FTSE 100 down 1.31% by midday today, as some believe that the US Federal Reserve now have no more tricks up their sleeve should yesterday’s rate cut fail to have the desired effect. Banks weighed on the British bourse, though commodity stocks were firm.

    Share price news

    Investors on the JSE took their cue from gains in the US and Asia and bought up shares in financials this morning, such as Standard Bank Group Limited, who enjoyed a gain of 4.92% as shares rose to R85.51 by 12:00. Also on the up were shares in Shoprite Holdings Limited, as prices increased by 5% to cost buyers R51.45 a share.

    London Finance and Investment Group PLC, also known as Lonfin, collapsed to R3.10 a share as the price deflated by 27.91% after investors took note of gloomy UK markets. Aveng Limited in the construction sector suffered a lower but steady decline of 4.25% as share prices slid to R26.81 by noon.

    Permalink2008-12-17, 13:29:43, by Natalie Email , Leave a comment

    US Automotive Crisis

    For a long time the US automotive industry has been a source of national pride. From the time that Henry Ford implemented assembly production of the Ford Model T, making automobiles affordable for the general population, Americans have beamed with pride in their rich motor producing heritage.

    As recently as 2005, the US was still the top motor vehicle producing country in the world. They have since slipped to second on the list, behind Japan. According to Wikipedia the US produced 10.8 million vehicles in 2007, behind Japan’s 11.6 million. This is down 11.01% since 2003, while Japan’s production increased by 12.74% over the same period. Other Asian countries have also upped their production over this period, with China doubling production to 8.9 million cars over this period, and South Korea increasing production from 3.2 million units to 4.1 million from 2003 – 2007.

    Reasons for the declining production in the US can possibly be attributed to several factors. Firstly, the US is an extremely wealthy nation (as measured by per capita GDP) which has historically had a culture of car ownership. According to the US Bureau of Transit Statistics for 2006 there were over 250 million registered vehicles in the US (Wikipedia) which equates to a penetration level of around 83% of the 300 million US population. As penetration levels increase the opportunity to increase sales at a rate faster than the population growth rate becomes more difficult.

    Secondly, the US automotive industry isn’t globally competitive as a result of higher wage costs, and less efficient methods. The higher per unit wage can be partly attributed to the unionised labour force, which is much less competitive than the Asian countries. As a result, importing cars is often more cost effective unless the government heavily subsidizes the industry or imposes import duties on the imported vehicles.

    Finally, the massive increase in the oil price over the last 6 years or so (notwithstanding the massive fall in price since June) has resulted in the affordability of cars decreasing. It will be interesting to ultimately see what the final production figures are for 2008.

    The credit crunch hit an already ailing industry (General Motors’ share price fell by 66.8% from 28 April 2000 – 27 July 2007 – before the sub-prime crisis began) and its share price is now nearly 96% off its 2000 high (Ford has fallen 91.8% since its 1999 high), and 87% lower than it was before the beginning of the sub-prime crisis.

    While the industry is clearly struggling, there is the political will (at least from the Democrats) to prevent the ‘Big Three’ (a moniker that refers to Ford, General Motors, and Chrysler) from going under. Some economists estimate that as many as 3 million jobs will be lost if these companies go under, as it’s not only their employees that will lose their jobs, but their suppliers and other related businesses will go under. While short term pain can be avoided if some form of bailout is passed (it was turned down last week) there are some that are questioning whether protecting the industry will ultimately be the optimal decision for the long term economic health of the nation.

    Ultimately the result of current negotiations will be a balance of political and economic considerations, and will undoubtedly have a large impact, whatever the outcome.

    Enjoy your public holiday!

    Take care,

    Mike Browne
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Source: Wikipedia.org

    Permalink2008-12-15, 16:10:15, by Mike Email , 1 comment

    Renewed hope in US auto bailout boosts markets

    Local markets

    By midday, the JSE All Share had gained 1.64% as stocks rose in line with stronger Asian markets. Leading the local bourse upwards were companies in the oil and gas and basic materials sectors.

    The Rand was trading at R10.19 to the US dollar at noon, as the North American currency weakened against the euro amid stronger equity markets yesterday. Traders expect a quiet, range-bound day due to the public holiday tomorrow.

    Investors expect a severe cut in supply from OPEC members when they meet later this week, and oil has bounced back up to almost $47 a barrel in response.

    International markets

    The Dow Jones closed up 0.75% on Friday, and the Nasdaq up 2.18% after a volatile day’s trade as gains in technology stocks eventually offset losses stemming from investor uncertainty about the auto bailout.

    The Nikkei rallied by 5.2%, recouping some of Friday’s losses after renewed hopes that the US auto industry would indeed receive some assistance lifted car makers’ stocks.

    Hong Kong’s Hang Seng finished 2% up, though lower than intra-day highs, as investors anticipated the imminent granting of 3G licences and bulk shippers shadowed gains in the global freight index.

    Britain’s FTSE 100 was up 0.25%, tracking gains in Asia and boosted by renewed hope of a bailout package for the US auto industry. A rise in the oil price advanced energy stocks, and stronger metal prices lifted mining stocks.

    Share price news

    PGL Pallinghurst Resources (Guernsey) Limited fared well in the equity investment instruments sector, when share prices rose 7.41% to trade at R4.35 at noon today after just 14 deals. ARI African Rainbow Minerals was also among the top movers up, as share prices gained 7.47% to cost R104.78 a share.

    At the other end of the spectrum, SAP shares in Sappi Limited fell 5.25% to trade at R35 a share at 12:00. AEG Aveng Limited suffered a steady decline during the morning’s trade, settling for a loss of 3.56% at midday when a share cost investors around R28.44.

    Permalink2008-12-15, 13:42:46, by Natalie Email , Leave a comment

    A Look at Monetary Policy Across the Globe

    I was fortunate enough to come across some analysis by Stanlib economist Kevin Lings yesterday that showed how the 47 countries that they track had altered (or not) their interest rates over the last two months.

    While the majority have cut rates in order to encourage growth, there was a selection of 19 countries (before South Africa’s rate cut yesterday) that had either kept rates constant or increased rates over this period. The vast majority of countries that haven’t cut rates are developing countries, where inflation remains the primary concern.

    A quick economics 101 lesson on why central and reserve banks use monetary policy is in order: Many reserve banks are mandated to target a certain inflation range, and they are generally given monetary policy autonomy in order to achieve this. The predominant method of attempting to keep inflation in the target range is through increasing and decreasing interest rates. The theory behind this method is that by increasing interest rates it makes it more difficult for the population to borrow more, thus discouraging spending, and it also encourages saving, as the return on your deposit increases. The relevant authority will therefore increase rates when they feel that inflation is at risk of going above the target band. Conversely when they decrease rates it encourages more borrowing, as the payback becomes less demanding, and discourages saving, as the return on your deposit decreases.

    As the monetary policy cycle has an approximate 18 month drag, the reserve banks typically act in a counter-cyclical manner, raising rates when inflation is low, and lowering rates when inflation is high.

    At the start of this year, and through the first six months or so rising inflation was the primary concern for global policy makers in both developing and developed markets as food and fuel prices soared on the back of higher commodity prices. Since the middle of the year we have, however, seen these prices come off dramatically, with Brent Crude dropping over $100 a barrel from its high of around $147. The massive fall in the price of inputs has been further exacerbated by the sharp reduction in demand, as the credit crunch has started to severely affect the man on the street.

    The ECB perceived the inflation threat quite seriously earlier in the year, enough in fact, to increase interest rates as recently as 9 July. Since 8 October they have dropped rates by 1.75% as they seek to stabilise asset prices and spur growth. Preventing their economy from going into recession and/or their region experiencing deflation are now their top priorities. This same focus can be seen across the globe.

    Just yesterday the Swiss National Bank dropped rates to 0.5%, with South Korea and Taiwan down to 3% and 2% respectively. These countries are currently doing everything to try and prop up their economy.

    Only time will tell how much all this policy response will impact economies going forward, hopefully they will have the desired effect.

    Take care,

    Mike Browne
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-12, 16:44:21, by Mike Email , Leave a comment

    Collapse of US auto industry bailout knocks markets

    Local markets

    Just after 12:30, the JSE All Share had fallen by 2.1%, led down by losses in the gold mining and basic materials sectors. The All Share tracked slides in Asia after news that the US had not reached an agreement regarding the auto industry bailout.

    The news caused the Rand-US dollar exchange rate to weaken, with the Rand trading at R10.18 as investors switched to steadier dollars after global markets reacted negatively.

    Gold lifted by 1.57% to trade at $814.60 an ounce, recouping some of its losses after the scrapped auto bailout triggered technical selling and sent oil prices sliding.

    International markets

    The Dow Jones closed down by 2.24% as investors sought refuge from the negative effect of the auto bailout collapse and release of further gloomy economic data.

    Japan’s Nikkei fell 5.56% as the lack of an auto bailout battered the index. To make matters worse for Japanese investors, the dollar dived to a 13-year low below 89.00 yen on the news, slashing profits.

    The Hang Seng dived 5.48%, breaking a 13% rally this week after investors got rid of exporters stocks on hearing news of the US auto bailout collapse.

    The FTSE 100 was down 3.64% after commodity and bank stocks fell on news that the US Senate did not reach an agreement to rescue the flailing auto industry. HBOS, one of Britain’s leading banks, reported a substantial rise in bad debts in October and November.

    Share price news

    Telecommunications company Huge Group Limited enjoyed a 8.33% rise in share price to R1.30. Shares in Datacentrix Holdings Limited in the computer services sector gained by 2.46% as prices rose to R2.50 a share.

    In the same sector but suffering a loss was Dimension Data Holdings Limited, whose share prices tumbled down by 9.81% to R5.70. Old Mutual PLc lost 6.75% this morning as share prices dropped to R8.15 by 12:34.

    Permalink2008-12-12, 14:14:20, by Natalie Email , 1 comment

    Some Reprieve from the MPC

    The MPC (Monetary Policy Committee), headed by Tito Mboweni, sat down for their bi-monthly meeting yesterday and today to discuss how much, if at all, they should change the repo rate by. The repo rate is the rate at which the Reserve Bank lends to the banks.

    To give a brief background, the MPC is mandated to keep CPI-X between 3% and 6%, and using monetary policy (increasing and decreasing interest rates) the attempt to control inflation. While a fairly blunt tool, it has been deemed the most appropriate tool to grow the economy over the long term.

    Monetary policy typically has an 18 month or so lag, and so you will often find the MPC increasing interest rates when inflation is low, and decreasing them when inflation is high. By increasing rates they attempt to manage spending levels, while decreasing rates encourages spending (as consumers and business have to spend less on servicing their debt).

    While inflation was still safely in the target band (4.1%) in June 2006 rates were raised by 0.5% for the first time in this cycle. At the time general consensus was that inflation would increase but that it wouldn’t breach the upper band. Rates were increased by 0.5% at each of the following 3 meetings in August, October, and December, when it was sitting at 9%. CPI-X dipped back to 4.9% in February 2007, after touching 5.3% in January 2007, and this is where the MPC paused on the rate increase. The resumed their 0.5% rate hike in June 2007 and didn’t stop (bar the end of January 2008 meeting) until August this year.

    Over this time CPI-X seriously breached the upper end of the target band, and rose as high as 13.6% in August this year, and with the release of October inflation data has now spent 19 consecutive months outside of its target range. The MPC expects inflation to only re-enter the target range in the third quarter of next year.

    The South African economy has been severely affected by the global economic slow down, to such an extent that GDP growth in the third quarter of this year was a measly 0.2%. While the main mandate is to control inflation Tito Mboweni realises that growth is also a priority, and no/negative growth will encourage deflation which is far harder to control.

    The weakening economy, coupled with an improving inflation outlook, resulted in the MPC deciding to cut interest rates. At the announcement market participants clearly weren’t impressed with the decision, as the ALSI dropped around 2% during the press release of the statement of the MPC. By the end of the day, however, the ALSI had recovered to levels close to where it was trading before the MPC release.

    The 0.5% decrease in interest rates was perhaps a little lower than some were hoping for, but it is at least a step in the right direction to reviving the economy. And just as the MPC were reluctant to increase rates by more than 50bps on the way up, it seems that they want to take the cautious route on the way down.

    A quick calculation shows that investors with a R500 000 bond at prime will save around R185 per month on their interest payments, while those with a R1 000 000 bond at prime will save R370 pm. It should make for a little breather in the Christmas season.

    Here’s to more rate cuts in the New Year to help the economy, and especially those with bonds and cars to pay off.

    Take care,

    Mike Browne
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-11, 17:44:19, by Mike Email , Leave a comment

    Investors tentative before auto bailout and rate cut announcements

    Local markets

    Flat trade was the order of the morning as the JSE All Share trickled down 1.12% by midday. Investors put activity on world markets to the side as they anticipate the monetary policy committee’s announcement on local interest rates this afternoon.

    Currency investors acted similarly as the Rand slid from a stronger opening value of R10.10 to R10.17 to the US dollar by noon.

    Oil was trading below $42 per barrel, resuming its decline despite Saudi Arabia’s announcement that it would cut stocks for January and the further production cuts expected from OPEC in response to falling demand.

    International markets

    Investors’ initial anxiety over the possible bailout plan for auto makers was later overcome by the temporary rebound in prices of oil and commodities, resulting in a 0.81% gain for the Dow Jones and a 1.17% climb for the Nasdaq yesterday.

    In Asia, the Nikkei closed up by 0.7% despite a stronger yen upsetting exporters and uncertainty surrounding the US auto bailout. Investors chose instead to pin hopes on global stimulus packages to steady the world’s slowing economy. The Hang Seng finished up by 0.23%, led by property stocks as investors hold thumbs for US interest rate cuts next week.

    Britain’s leading share index, the FTSE 100 had fallen 0.58% by midday after losses in mining and financial stocks offset gains in energy majors.

    Share price news

    (MUR) Murray and Roberts Holdings Limited was among the top movers up this morning, as share prices rose to around R45.79 after midday as investors continued to gain confidence after the release of a solid order book on Monday. Lonmin PLC, a primary producer of platinum group metals, also enjoyed a higher share price this morning as shares were snapped up at R107.36, a rise in price of 7.38%.

    Aspen Pharmacare Holdings didn’t fare as well, as share prices fell 4.30% to R32.48.
    Standard Bank shares slid to R80.80, down by 3.22%.

    Permalink2008-12-11, 12:24:25, by Natalie Email , Leave a comment

    JSE Play on BESA gets Support

    At the end of October the JSE Ltd made a conditional offer to the shareholders of the Bond Exchange of South Africa Ltd (BESA), the rationale behind the offer (after having an eye on the company for around decade) was to improve the service offering.

    Global financial markets are highly competitive and the JSE clearly wants to remain at the cutting edge of the industry. They felt that acquiring BESA would allow them to improve risk management procedures, reduce the cost of transacting (to market participants) through economies of scale, increase the variety of product offered, and increase the liquidity.

    As we have mentioned before the profit driver for the JSE (and likewise for BESA) is volume traded. To a large extent the systems and hardware set up to handle the transactions are a fixed cost, and so the JSE and BESA encourage trading through various methods (including widening the product range offered on the platform) in order to boost profit. Integrating the systems (where possible) furthers economies of scale, which reduces the unit cost of transacting. At the same time by offering one platform (that has an increased product offering) the idea is that they will be able to further boost liquidity, which is a more desirable trait not only for the JSE, as they increase the level of trading (and hence profitability), but also for investors, as they are able to transact with less friction.

    While there clearly are commonalities and synergies to be achieved through the two companies joining, the BESA board and shareholders felt that the offer at R90 a share, valuing the company at just over R173 million, was too low. The offer also had certain conditions which allowed the JSE to adjust the price downwards under certain scenarios. The conditional offer was rejected.

    Both companies did, in the interim, indicate that they were still in talks in respect of a deal, and made a joint announcement this morning that the JSE had increased their offer to R125 a share, and removed the condition that the price could be adjusted downward in certain circumstances. BESA noted further that the JSE committed to retain their existing fee structure for the next 2 years, and to retain all BESA staff.

    Through the proposed scheme the combined JSE/BESA group will look at ways of improving the fixed income offering through a variety of strategies.

    The JSE have received irrevocable undertakings from shareholders holding around 63% of the voting rights to vote in favour of the scheme. This is a step in the right direction for the JSE, but they still require approval from both JSE and BESA shareholders at a meeting whose date is yet to be set. If approval is gained they will then require the regulators to approve the transaction.

    The JSE Ltd closed down 0.45% after opening up 6.78% on yesterday’s close. This compares unfavourably to the resource led ALSI, which was up 4.67% for the day.

    Ian mentioned yesterday how 3 month US Treasury bills were issued that yielded only 0.005%. I read today that they issued 1 month T bills yesterday at a yield of 0%! As mentioned yesterday investors are currently more concerned about return OF capital than return ON capital.

    Take care,

    Mike Browne
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-10, 17:33:30, by Mike Email , Leave a comment

    Gains in resources boost JSE

    Local markets

    JSE All Share was up 1.96% as the local bourse followed gains in Asia, and lifted by resource stocks which were in turn boosted by stronger commodity prices.

    The Rand was trading at R10.23 to the US dollar. The emerging market currency was steady as investors hold out on big moves until the result of a key interest rate decision is released by the reserve Bank monetary policy committee, mid-afternoon on Thursday.

    Gold was trading at $786, an increase of 2.48% as losses in US equity markets limited their attraction as alternative places to invest.

    International markets

    The Dow Jones fell 2.72% yesterday as financials were down after the Treasury sold $30bn in four-week bills at 0% as investors fled to safety – a move which added to the pressure to sell.

    The Nikkei closed up by 3.15%, its highest level in a month after news of a bailout for the US auto industry which would positively impact Japanese car makers. A weaker yen also served to boost exporters and shippers.

    The Hang Seng shot up by 5.59%, reaching an almost two-month high as investors betted on future gains from the substantial stimulus package they hope will come soon from Beijing.

    The FTSE 100 was down 0.72% at midday, despite gains in Rio Tinto after the company assured investors of spending cuts and retrenchment measures to bolster the share.
    Britain’s main share index was instead led down by losses in banks and energy stocks.

    Share price news

    Thanks to stronger prices for commodities, BHP Billiton PLC gained as share prices rose 5.73% to R179.20 a share at midday today. Impala Platinum Holdings Limited also enjoyed a gain of 4.15% as share prices increased to R122.90.

    Bell Equipment Limited, who manufactures and distributes a wide range of materials handling equipment, lost 4.53% this morning as share prices fell to R14.75. Imperial Holdings Limited in the shipping and ports sector experienced a loss of 2.25% as share prices slid to R60.90.

    Permalink2008-12-10, 13:00:23, by Natalie Email , Leave a comment

    Private equity 101

    Investors have moved from risk seeking to absolute risk avoidance in a very short space of time. Today we contrast the ultra thin yield that buyers of US treasury paper are receiving, versus the demand for private equity funds 18 months back.

    The massive mood swings in investor sentiment affects prices across all asset classes over the shorter term. At times the general mood is euphoric, resulting in more buyers than sellers. It has changed quickly into a buyers market, but there are currently few buyers out there.

    This is evident in how money is currently seeking out return of capital, and not return on capital. Today the FT announced that the US Treasury sold $27 billion worth of three-month bills at nearly 0% on Monday. The actual rate came in at 0,005%

    These bills are sold at a discount to the face value. i.e. investors outlaid $999,987.36 to receive $1m in 3 months time - a return of just $12,64. The 0.005% yield was the lowest ever.

    From a peak of 17,14% in December 1980 it has been coming down and down to its current 0,005%.

    The demand for return of capital is contrasted with the demand for return on capital only a relatively short while back.

    Contrast this with the demand for risky assets as evidenced by the listing of the private equity firm, Blackstone Group in June 2007 on the New York Stock Exchange.

    The extent to which investment banks were providing gearing for mergers and acquisitions, resulted in Blackstone growing to a level that made it attractive for its owners to list the business.

    It was the ultimate paradox. The founders, owners of a private equity business, selling their own shares to a hungry market. In these situations wealth is transferred from the uneducated to the well-informed. The founders of the business listed their business by selling shares at $31 and raising a total of $7,78 billion with a substantial portion going to the founders of the business.

    The price promptly started falling from the date of listing. Reaching a low of just below $5 – now at $6.89.

    The decline in the share price of this substantial private equity business says less about the merits of private equity as it does about valuations and transfer of wealth. The founders perfected the timing of the sale of their equity. The buyers of the equity at $31/share were facing some very smart people on the other side of the transaction.

    In a future article, we will look at private equity as a specific investment class.

    Sincerely

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-09, 18:43:24, by ian Email , Leave a comment

    Promise of US package stimulates global markets

    Local markets

    By 12:00, the JSE All Share had risen by 1.97%, as investors’ confidence increased after more rallies yesterday in US and Asian markets. Companies in the oil and gas and financial indices led the upward movement.

    Gold was trading at $771.80 per ounce, rising by 0.63% at midday as oil prices firmed and investors were optimistic about the US economic plans.

    The Rand was trading at R10.17 to the US dollar.

    International markets

    In US markets, the Dow Jones soared to 3.46%, its highest level in over a month as investors sought companies that would benefit from Obama’s promise to considerably increase infrastructure spending. The Nasdaq gained 4.14%.

    The Japanese Nikkei rose by 0.8%, its highest close in more than a week, though the strengthening yen limited gains. Shares in machinery manufacturers were up as investors hoped for more business from the US stimulus package.

    The Hang Seng fell 1.9% as investors fretted about November’s poor economic data expected from the US and China, overcoming previous gains in oil and metal stocks.

    The FTSE 100 had recovered by 0.37% by midday, recouping earlier losses in miners and oil stocks weakened by lower commodity prices. Retail sales and housing data rattled investors who embarked on a bout of profit-taking after yesterday’s gains.

    Share price news

    Amongst the top movers up was Grindrod Limited in the marine construction sector, whose share price rose to R12.40 by noon, up 7.83%. Shares in Sappi Limited in the paper industry cost prospective buyers R36.80, up 6.67% since trade opened this morning.

    Pretoria Port Cement in the building and construction materials sector lost 4.72% in share price, as shares fell to R30.50. In the pharmaceuticals sector, Aspen Pharmacare Holdings fell to R36.38 a share, as prices dropped by 3.14%.

    Permalink2008-12-09, 13:02:19, by Natalie Email , Leave a comment

    US proposed spending lifts markets

    Monday got off to a good start after the weekend announcement from US president elect that the US government would be spending billions in infrastructure spend. Obama pledged to spend record amounts of money on infrastructure including schools, sewer systems, electrical grids, dams, power etc.

    Monetary easing will eventually work, but given the fact that the financial system is not, for various reasons, delivering the cheaper cost of debt to the end users, the US government is looking for alternative methods of stimulating the economy.

    November job numbers indicated a loss of over 0,5 million, which escalates the past 12 months to nearly 2 million in jobs lost. This probably still under estimates the actual position.

    Clearly the incoming US administration is concerned about the economy heading deeper into recession and has announced the biggest ever public works construction program as one mechanism that will alleviate job losses and help revive the economy.

    There is a lot of anecdotal evidence supporting the view that the US needs to spend on its infrastructure. The only question is how will this be paid for? The US does not have accumulated savings to now spend on capital infrastructure. On the contrary, it has high debt, and the financing of increased government spend will have to be added to the ballooning debt levels.

    The US Federal budget deficit is heading for $1 trillion. There have been reports of this number coming in a lot higher. It does appear that the US government is digging a deeper and deeper hole in terms of its debt levels.

    Public works spending as a means to pull an economy out of a hole, is hugely controversial. Bigger government crowds out the private sector. Its also uneconomic investment.

    The announcement was partly instrumental in sparking a rally in share prices around the world on Monday. Asia’s Hang Seng index gained 8,66%. Germany, France and UK were up strongly.

    The local JSE bounced up 7% or 1363 points to 20 643.

    Gold shares gained 10,6% as the price of gold put on $21 to $770/oz.

    Billiton raced up 13,8% to 16790c

    Goldfields put on 14,5% to R85, as Gold gained around 3% to $771/oz.

    Advances on the JSE outnumbered decliners by 244 to 104.

    The US S&P500 is up at 908, a gain of 3,75%. The question is whether markets will be able to hold onto their gains for the start of a bear market rally.

    Kind regards

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-08, 18:21:40, by ian Email , Leave a comment

    Festive season cheer comes to global markets

    Local markets

    The JSE got off to a good start this morning, rising 4.62% after gains in resources and mining stocks tracked growth in global markets.

    The Rand strengthened against the US dollar, trading at R10.22 at midday as gains on Wall Street and in Asian markets propped up emerging market currencies. Investors wait for news of rate cuts as the South African Reserve Bank's Monetary Policy Committee meets later this week.

    Gold was trading at $772.60, rising 3.15% following a rebound in the oil price after last week’s near-record lows. Trade is expected to remain range-bound as fears of a deepening recession influence investors.

    International markets

    The Dow Jones closed up 3.09% on Friday as low oil prices at were seen to be helping consumers. Investors seem to ignore a starkly negative report on US employment that evidenced that the slowdown has reached almost all economic sectors.

    Japan’s Nikkei was up 5.2%, the average’s highest close in a week after investors engaged in widespread buying after sensing that rockbottom has been hit. Machinery shares were boosted by hopes for economic rescue packages.

    The Hang Seng in Hong Kong flew up by 8.7% after rumours that China would take further action to support banks and markets, and thus consumption.

    Britain’s FTSE 100 had risen by 4.30% at midday, lifted by miners, oil and banking stocks. Investors rallied after news of a US economic stimulus package strengthened growth hopes.

    Share price news

    Shares in Anglo American PLC AGL in the metals and minerals sector were boosted by 9.19% to R205 a share at noon today. Competitor BHP Billiton PLC (BIL) was also up 9.03% to R160.70 a share after a choppy morning’s trade.

    Coronation Fund Managers Limited (CML) in the asset managers sector fell 5.75% to R4.10 a share by 12:00. Also among the top movers down, Woolworths Holdings Limited (WHL) suffered a 6.02% loss in share price to R11.60 a share at the same time.

    Permalink2008-12-08, 12:45:16, by Natalie Email , Leave a comment

    Tobin's Q ratio

    Another longer range valuation tool is the Tobin Q ratio, developed by the late James Tobin in 1969. It measures the value of listed shares with the value of company’s equity book value or the replacement value of the net assets. It’s similar to the price to book ratio, but instead looks at the replacement value of assets.

    The ratio is calculated by dividing the market value of a company by the replacement value of the book value.

    The logic behind the ratio is that where the Q ratio is above 1, then the market is valuing a company at more than it costs to reproduce it and stock prices should decline.

    Conversely where the Q ratio is below 1, it is indicating that shares are undervalued because new businesses can’t be created at as cheap a price as they can be bought in the open market.

    As with many indicators, in the shorter run they tend to be volatile and not very useful. But looking back over longer periods of time, it’s apparent that such a ratio must be mean reverting around 1. As Pimco’s Bill Gross noted, “As long as capitalism is a going concern, Q should mean revert to 1.”


    This ratio indicates that equity relative to replacement cost was cheap in the late 1970’s to mid 1980’s.

    Then in the mid to late 1990’s equity relative to replacement cost started getting expensive. This normalised from around 2000, but with equity prices now tumbling sharply, the value of equity relative to the replacement cost is once again cheap.

    The 1990’s were the time for private business owners to list their equity at premiums.

    Existing private equity owners will now not find it attractive to list equity, while the market itself won’t be receptive to new listings.

    Rather we are entering into a time, when larger entities, private equity players and management will find bargains in listed equity and look to buy them in management buy outs.

    Have a wonderful weekend

    Sincerely

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-05, 16:30:00, by ian Email , Leave a comment

    Markets consolidate after volatile week’s trade

    Local markets

    The JSE All Share fell 1.33% by noon, as the local bourse felt the effects of a loss on Wall Street yesterday. Weaker precious metal prices put resources stocks under pressure to lead the slide downwards.

    Gold was trading at $769.70 an ounce, losing 0.43% and offsetting the metal’s earlier gains which came as the European Central Bank's bigger-than-expected interest rate outweighed selling pressures triggered by a stronger U.S. dollar and weaker oil.

    A US dollar cost traders R10.22 at midday.

    International markets

    The Dow Jones was sharply lower yesterday, heading down 2.5% led by commodity stocks. Investors held their collective breath in expectation of poor employment data as companies try to cut costs to offset downturn damage to profits.

    In Asia, the Nikkei slid down by 0.1% as banks weakened on fears that major US car manufacturers will file for bankruptcy. Hong Kong’s Hang Seng index rose by 2.3%, led by property and financial stocks which rallied after news that interest rates and reserve requirements might be further reduced to spur China’s economy.

    Weakening oil stocks drove down the FTSE 100 this morning, which lost 0.93% by midday. Oil was trading below $44 a barrel. Similar to their counterparts in other markets, UK investors engaged in cautious trade as they wait for US employment data to be announced.

    Share price news

    Advtech Limited, provider of education, training and placements, gained 5.92% in share price this morning, to trade at R3.76 a share at around lunchtime. Northam Platinum Limited rose 4.11% to a share price of R19 as investors were inspired by rising platinum prices.

    Shares in Anglo American PLC in the metals and minerals sector lost 6.72% this morning to trade at R186.01 a share. Murray and Roberts Holdings Limited also suffered a loss in share price of 5.63%, costing buyers R38.69 a share.

    Permalink2008-12-05, 12:55:04, by Natalie Email , Leave a comment

    Using 3rd Party Investment Managers

    Over the past week or so Ian has been writing on various investment options. Most cases involve a certain extent of delegation of investment responsibility to a manager/consultant. I write today on some crucial aspects to take into account when delegating investment responsibility.

    Using a third party to manage your investments has both strengths and weaknesses. Some of the positives include allowing non professional investors access to professional fund managers who will invest on their behalf, and pooling trading costs and fees across a large investment base generally reduces trading costs. As is the case with all professionals, fund managers take a fee for their efforts, and this is where each investor needs to decide whether they believe that the fee is justified, which can partially be answered by asking whether they would be able to perform better than the manager (comparing both after trading costs and the manager after management fees).

    With the assortment of investment products and strategies out there it is crucial for the investor (or their consultant) to have a firm grip on what the underlying funds’ mandates and strategies are. Not understanding the mandate and strategy is usually the first area of grievance as the investor’s expectations aren’t matched by the fund manager’s performance.

    A simple example is where an investor invests into a hedge fund with an aggressive mandate, and then doesn’t understand why the fund doesn’t move up consistently month after month like more conservative hedge funds do. Another example is where an investor invests in a commercial property venture, and then wonders why it doesn’t perform as well as a residential property portfolio in a booming residential property market.

    Not understanding the dynamics of the fund that you are invested into is the surest way of underperforming. Investing into equity based unit trusts requires a long term time horizon, but those investors who saw these funds going up month after month during the bull market could have been deceived into thinking that one only required a short term horizon and that parking cash in one of these funds for a few months before switching out was the easiest way to grow their investment. When the bull market finally ended it was these investors who were forced sellers, as many required the capital for other projects.

    By not aligning the investor’s objectives (parking capital for a few months) with the objectives of the fund (long term capital growth, with likely short term volatility) the investor was disappointed and possibly angry that their manager had lost them money.

    On the other hand an educated investor who correctly matched their long term horizon with the equity unit trust might be (relatively) happy with a return of -15%, when the ALSI is down 35%, and the average equity fund manager returned -25% (hypothetical numbers). The investor will no doubt not be happy to have lost this capital, but will realise that their manager has displayed some skill in outperforming both the ALSI and the average manager.

    It is where there is a lack of understanding that investors switch/withdraw their investments at exactly the wrong time.

    The bottom line is to find out as much as possible about the constraints (generally found in the investment mandate) that are imposed on the manager in the management of your investment. Managers don’t have super natural powers, and if you constrain your manager to invest in money market instruments, then they will give you money market (not equity) returns. If possible, find out how your manager intends on managing your portfolio through various scenarios to get a better understanding of what you can expect.

    Education can mitigate the risk that errors are made based on poor judgement. No-one can always make the correct call, but education can help prevent ill informed decisions.

    Have a good weekend.

    Take care,

    Mike Browne
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-04, 15:51:57, by Mike Email , Leave a comment

    Markets await UK, European rate cut decisions

    Local markets

    At 12:00, the JSE All Share had rallied by 3.35% thanks to rebound gains in stocks in the oil and gas and basic materials sectors. Bargain hunters temporarily ignored losses in Asia and allowed themselves optimism after positive results in US markets.

    Consumers will be excited to know that oil prices fell further to $43.47 a barrel by noon. More losses are expected by the end of the year due to bleak economic news from the US.

    Although OPEC plans to continue to reduce quotas at a meeting on 17th December, analysts are skeptical that such a move can reverse the price plunge.

    A US dollar cost R10.22 at midday under steady trade as investors wait for the announcement of interest rate decisions from Europe and the UK.

    International markets

    The Dow Jones rose 2.05% and while the Nasdaq was 2.94% up after a volatile day’s trading yesterday. Surrounded by poor economic data and company results, investors sought sanctuary in companies that cope in a recession, such as Coke.

    In Japan, the Nikkei closed down 1% as investors were concerned about gloomy corporate outlooks for exporters, who were also hurt by a stronger yen.

    The Hang Seng fell 0.58% after investors were scared away from local developers by higher mortgage rates from lenders. A further dampner came when Credit Suisse announced a net loss of $2.5 billion at the end of November, and a retrenchment of 5300 people.

    In the UK, the FTSE 100 had risen 1.51% by midday, as investors moved cautiously ahead of bold rate cuts expected from the Bank of England the European Central Bank today.

    Share news

    Anglo American PLC (AGL) enjoyed a high volume of trade this morning after releasing the proposed dates for the release of a final dividend. Shares gained 8.07% and cost investors R195.60 at midday. Also among the major movers up was the MTN Group Limited (MTN), whose share prices rebounded by 4.63% to R94.19 a share, recovering from a loss earlier today.

    South African Coal Mining Holdings (SAH) flatlined until about 10.15 when share prices dived by 4.17% to R1.15 a share. Shares in Metorex Limited (MTX) in the metals and minerals sector also experienced a loss as share prices fell 5% to R1.90 a share at noon.

    Permalink2008-12-04, 12:26:59, by Natalie Email , Leave a comment

    Investing in your own business

    Investing in your own business is said to be one of the best investments available. Our view is that this is often the case because the investor is really maximizing what we all know to be the best investment, i.e. an equity ownership.

    Without going into any detail on the ins and outs of your own company, I am rather going to discuss what we believe are the most important attributes making ones own business a good investment.

    If we look at the basics, the equity ownership of a business is really a claim on the long term future net cash flows generated by that business. After the creditors have been settled for all cost of sales and overheads, and the bank repaid its interest on any debt, the owner enjoys full access to the available free cash flow.

    The owner will decide what proportion is paid out and what is reinvested into the business for growth.

    In this way the equity ownership is a perpetual claim on all future cash flows generated by a business.

    These investments have no maturity date, but there are no guarantees as to the sustainability and growth of the future cash flows.

    In essence then there is no difference between investing into a business that is listed or investing into your own business.

    However factors that can make an investment into ones own business more successful include:

    o Owners understand that it’s a long term investment and accordingly understands that capital and intellectual input in earlier years will drive long term cash flows in the future.

    o An owner typically buys an existing business at a decent price. This can be as low as a cash payback of say 3 - 5 years, or for asset rich businesses, possibly a price not much in excess of the replacement cost of assets.

    o Alternatively an owner starts his own business. Here capital buys assets at cost price and the owner adds intellectual capital to the mix. Use of bank gearing further reduces the initial equity required.

    o An owner reinvests excess cash generated into building capacity that will generate greater cash flows in future.

    Highlighting the similarity of private ownership to ownership of a listed company, the graph below is the analysis of the present value of a business (in this case all the companies in the S&P500). The chart reflects the proportion of value contributed in the first 3 years, the next 5 years and then long term.

    What Societe Generale strategist, James Montier is conveying is that the first 3 years of earnings contribute just 10% of total value, the next 5 years slightly more at 15% and the longer term earnings stream by far and away the greatest contribution to the net present value of a business.

    With private equity the proportions will be similar, but again depending on the entry price paid for the equity, skewed more in favour of the earlier years.

    Private owners often receive a bonus by selling out cheaply acquired equity at higher valuations.

    By simply taking a longer term view on the expected cash flows and by not overpaying on the original right to those cash flows, a private owner often enjoys a far higher return than that of owners of listed equity.

    For high net worth clients who would like to discuss a total strategic plan of their investments, please don't hesitate to contact Vincent Heys on vincent@seedinvestments.co.za

    Sincerely

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-03, 16:58:16, by ian Email , Leave a comment

    Positive US markets benefit Asia, SA

    Local markets

    By noon, the JSE All Share was 0.26% up, as resources and banks recovered some of the ground lost recently. The local bourse was carried by gains in Asia and the US.

    Gold was trading at $774.50 an ounce, down 0.71% despite a rise in oil prices, after the US dollar weakened against the euro and investors shifted some of their investment back into equities.

    The rand was bid at R10.38 to the US dollar at midday. Movement was limited as investors held out to hear key US data which is to be released later today.

    International markets

    In the US, the Dow Jones rose 3% yesterday after the Federal Reserve implemented emergency solutions to steady banks rocked by the credit crisis. General Electric also helped to raise optimism amongst investors after deciding to let its dividend remain.

    Japan’s Nikkei closed up 1.8% as domestic demand stocks gained despite economic slowdown. Car manufacturers were not as lucky, after falling sales in the US and expansion cuts at Honda deterred investors.

    Financial and telecom shares lifted the Hang Seng, which gained 1.37%. Financial stocks rose after Central Huijin, an offshoot of China's sovereign wealth fund, said it had raised its holdings of A shares in China Construction Bank. Telecoms enjoyed gains after rumours that the long-awaited 3G licences may be released soon.

    The FTSE 100 fell 0.99% by midday, led down by oil stocks. Investors are still tentative about banks as they wait for tomorrow's decisions about UK and European interest rates.

    Company news

    MTN Group Limited experienced steady upward growth of 5.44% as share prices rose to R96.90. Investors selling shares in Aveng Limited in the construction sector profited this morning as shares rose to R26.25, up 5.04% by 12:00.

    Sappi Limited NPL slide a massive 39.79% as shares fell to R6.25. Old Mutual PLC was down 4.18%, resulting in a share price of R7.57.

    Permalink2008-12-03, 12:37:34, by Natalie Email , Leave a comment

    Internal rate of return

    When evaluating various investments, a useful tool to use is the internal rate of return. For some investments, like a bank call account the internal rate of return is easy to identify because the bank tells you what it is. For example, a 9% call account has an internal rate of return of 9%.

    For most other investments, you have to do some work to calculate the internal rate of return. This is especially the case when assessing an investment such as a new business that will absorb capital in the first say five years, before generating a cash return.

    This kind of investment generally does not pay a return in a consistent manner like a bank account does. Nevertheless, you can calculate an internal rate of return for these investments, and use it to decide which investments meet certain minimum hurdles.

    To evaluate investments and calculate an internal rate of return an investor must first assess the likely income stream. Any investment can be expressed as an income stream. An income stream lists months or years and the expected quantum of money that flow in or out. Naturally some investments have more predictable income streams than others.

    Lets consider 2 different investments as an example:

    o Invest R1m in a bank account to generate a 5% p.a. interest rate.

    o Invest R1m into a machine for a factory (new project) that will generate a profit of R200 000 per annum for 6 years, but which will have no value after the 6 years due to wear and tear.

    The best way to assess which investment is the better option, before adjusting for risk, is to use the internal rate of return.

    First look at the income streams.

    Option 1

    The net cash flow is R0,3m

    Option 2

    The net cash flow is R0,2m

    On a purely cash basis the bank account appears more attractive. But the key concept here is present value. While the net cash flow from the bank is higher than for the new project, most of the cash flow is in the form of a large lump sum at the end of year 6.

    The new project pays less in total, but it pays more money per year in the years that come sooner.

    One way to compare investments is to calculate the internal rate of return for each. This effectively calculates the investment’s discount rate, which makes the present value of the cash flows equal to zero.

    A higher internal rate of return, implies a higher discount rate. Where the IRR exceeds a required rate of return, the investment may be attractive.

    In the example above, the first investment has an internal rate of return of 5%, while the new project has an internal rate of return of 5,47%, making it slightly more attractive before any adjustment for risk.

    The IRR is an important measurement tool when comparing one investment against another.

    Sincerely

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-02, 19:22:07, by ian Email , Leave a comment

    Extended downturn weighs on global markets

    Local markets

    The JSE All Share followed US and Asian markets on their downward slope, falling 2.57% by midday. Losses stemmed from resource stocks which suffered under falling commodity prices, and financials. RMB analysts say that if the downturn continues past June 2009, it will be the longest since the Depression.

    The Rand lost more ground this morning, trading at R10.39 to the US dollar as investors continued to sell emerging market currencies before European rate decisions are released on Thursday.

    Gold was trading at $767 an ounce, dragged down 1.41% by falling oil prices and equity markets.

    International markets

    The Dow Jones finished 4.92% lower yesterday after Ben Bernanke, Federal Reserve Chairman remarked that the US economy remained under significant stress, and that further cuts in the interest rate were unlikely for the time being.

    The Nikkei plunged 6.35%, led down by trading companies and steel producers amid fears of a contracting global economy. A stronger Yen didn’t help matters, battering exporters and high-tech producers.

    The Hang Seng dropped by 4.98% after gloomy manufacturing results from the Chinese mainland fed fears of a deepening recession. Financial and property stocks were hardest hit.

    The FTSE 100 fell 1.78% by 12:00, as commodities suffered from lower raw material prices and banks dipped as investors see a lengthy recession as increasingly probable.

    Company news

    Growthpoint Properties Limited was among the top movers up this morning, as shares rose to R15.20, a gain of 1.33%. Anglogold Ashanti Limited rose to R215.25 a share, up 2.02%.

    First Rand Limited lost 8.79% to cost R15.05 a share after the company released a trading statement confirming that corporate lending is growing at materially lower levels than in corresponding periods. Shares in Sasol Limited were down 6.38% to R256 at midday after oil prices tumbled.

    Permalink2008-12-02, 12:44:13, by Natalie Email , Leave a comment

    Debenture Investments

    A debenture is a certificate of agreement of loan which is given under the company’s stamp and which carries an undertaking that the debenture holder will receive an agreed rate of return and the principle upon maturity. The return is often, but not necessarily, fixed as an interest rate.

    In essence a debenture is a debt instrument issued by a company, but there are multiple variations on the structure and the terms, pricing and valuation of these instruments can become quite complex.

    Debentures are not secured by a physical asset or collateral, but by the general creditworthiness and reputation of the issuer.

    A convertible debenture is a bond that can be converted at a pre agreed date, or trigger event, into the equity of the issuing company at some pre announced ratio. To this end it is a hybrid security, with both debt and equity features.

    They can work as follows:

    An investor wishes to take a stake in a company, but instead of buying equity, the company issues a convertible debenture paying a coupon of say 9% per annum, convertible into equity after 5 years at a pre-determined rate. The right to convert is typically at the option of the debenture owners.

    In this way the investor acquires a longer term equity ownership in the company, but at the same time secures an interim return on capital in the form of fixed obligatory coupon payments.

    The debenture structure can include the right to redeem at the option of the issuer.

    Some years back, private equity company Venfin acquired a stake in Didata with Didata issuing a $100m convertible debenture to Venfin

    Listed debentures

    Two listed debentures that come to mind are those issued NewGold Issuer Limited, a public company, which uses the proceeds to acquire 400oz London Good Delivery Bars of gold, held in custody.

    Instead of paying out a fixed coupon, the value of the debenture tracks the rand price of gold with each debenture initially valued at 1/100 of one fine troy ounce of gold.

    Another is Foord Compass debentures. This was originally a property loan stock company, but when the Foord consortium acquired control in 2001, the ordinary shares were delisted, leaving the listed debentures. These are unsecured debentures, which pay out at least 90% of the company’s distributable income.

    Private debentures

    As mentioned debentures are flexible as to the initial and agreed terms between lender and issuer. For this reason, they are often used as the method that investors access an underlying investment.

    Many local hedge funds have structured investor stakes via debentures. The debenture trust deed allows for a variable rate of return per annum, dependent on the performance of the underlying portfolio.

    When investing into a debenture, it’s important to ascertain the identity of the holder of the ordinary shares, security provided if any for the debenture holders, specific terms of the debenture deed especially as regards any interest terms, maturity and conversion terms.

    Investors then need to assess the difference in valuation and risk between acquiring a stake in the ordinary issues shares or the debentures of the same issuer.

    From time to time unlisted debenture offerings come available that may be attractive. Please mail us your details if you would like to be included on selected offerings.

    Kind regards

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2008-12-01, 17:23:22, by ian Email , Leave a comment

    Markets consolidate after recent rallies

    Local markets

    Profit-taking weighed down the JSE All Share this morning, which lost 1.99% after shares in the oil and gas and basic materials sectors fell by 4.75% and 3.01% respectively. Analysts expected the move downwards as markets consolidated after recent rallies.

    The Rand had weakened by midday, trading at R10.27 to the US dollar. Traders expect a volatile week ahead in light of the flood of economic data that is to be released from around the world.

    Gold was trading at $804.60, falling by 1.15% after oil prices fell as OPEC delays third supply cut. Investors wait for US economic data that would affect dollar value.

    International markets

    The Dow Jones closed up 1.2% on Friday as financial stocks rallied to overcome losses in retailers after worries that festive season sales will be affected by a weaker economy. Investors were largely positive as they waited for further decisions from the government and central bank.

    The Nikkei finished 1.4% lower after a bout of profit-taking as investors expect further job cuts in the US to affect company revenue. The strengthening Yen added to exporters’ woes.

    The Hang Seng rose 1.6%, led upwards by gains in property after news of a rate cut, and metals gained after news of government support.

    Britain’s FTSE 100 was 2.01% down at midday, overburdened by losses in commodity stocks as prices fell, as well as losses in banks which are suffering under weaker property demand.

    Company news

    Shares in Sanlam Limited rose 3.64% to cost buyers R17.10 a share at noon.
    Imperial Holdings Limited in the shipping and ports sector enjoyed gains of 2.19% pushing the share price to around R51.40.

    Metorex Limited in the metals and minerals sector experienced a loss of 8.51% by midday, when shares cost R2.15. Steinhoff Investment Holdings (preference shares) fell to R9.80 a share, losing 7.98% in price.

    Permalink2008-12-01, 12:48:19, by Natalie Email , Leave a comment

    New rates for 2009

    Due to an increase in royalty charges from the JSE and other cost increases, Sharenet wishes to announce that with effect from 1 Jan 2009 all our rates will be increasing by 12%.

    The rates that we have now were last changed in January 2007, when we were able to give private investors some decreased rates due reductions in JSE royalties for private users.

    We continue to enhance our product offerings, adding more data and features. We welcome any suggetions which can be sent to support@sharenet.co.za

    Permalink2008-12-01, 11:25:55, by admin Email , Leave a comment