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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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    Periods of underperformance for value managers

    Benjamin Graham is considered the father of value investing. Warren Buffett and other very successful investors studied under him. In a speech given by Buffett in 1984 at Columbia Business School, which marked the 50th anniversary of Graham’s and David Dodd’s seminal work “Security Analysis”, he expounded on the merits of value investing by looking into the performance records of a group of investors he termed super investors.

    By demonstrating that a group of investment managers, who all studied under Benjamin Graham, achieved above average performance, he rules out chance. His hypothesis is that by following a proven methodology of value investing, investors have a higher probability of superior performance.

    He notes that Graham’s understudies “… have gone to different places, and bought and sold different stocks and companies, yet they have a combined record that simply can’t be explained by random chance”

    Graham set forth the intellectual theory for making investment decisions and each applied the theory in a different manner.

    He goes on to say this: “The common intellectual theme of the investors from Graham-and-Doddsville is this: they search for discrepancies between the value of a business and the price of small pieces of that business in the market. Essentially they exploit those discrepancies without the efficient market theorists concern as to whether the stocks are bought on a Monday or Thursday, or whether it is January or July etc”

    He runs through a handful of managers that he knew from his time studying under Benjamin Graham and goes on to include their detailed audited performance records versus the market. Before investing and concentrating into Berkshire Hathaway, Buffett ran a partnership – very similar to a hedge fund partnership. When he closed this in 1969 he recommended to his clients that did not follow him into Berkshire to invest with Bill Ruane who ran the Sequoia Fund. Bill naturally studied with him under Graham.

    He included the Sequoia funds performance from July 15th 1970 to end of 1984. Over this period the S&P500 produced an annual return of 10%. The fund after fees returned 17,2%.

    Period of underperformance

    But for the period 1970 to 1973, the fund underperformed in each year compared to the market. In 1973 alone the S&P 500 fell 14,8%, but his fund shed 24%. Despite this period of underperformance, the manager produced an exceptional out performance over a 14 year period – the period measured by Buffett for purposes of his discussion.

    Interestingly enough, after being closed for 25 years, the Sequoia fund opened for new investors in May 2008. The long run performance from mid July to Sept 2008 is 14,87% compared to 10,81% for the S&P500.

    Another US value manager, deep value manager Brandes, recently wrote a piece, titled, “Death, Taxes and Short term underperformance: global Equity mutual funds.” They performed an in depth study which indicated that even long periods of underperformance of up to 3 years relative to peers and benchmarks, had very little impact on some of the better funds ability to generate long term success.

    They found that over a 1 year period, the top 7 funds underperformed the index by margins ranging from 4,1% to 18,3%. Distilling global funds down to a sample of 76, they ended with 7 funds with the highest 10 year return to June 2008. The graph below indicates that not all top funds outperformed on a quarterly basis and indeed 6 of the top 7 were underperforming the index at the beginning of the measurement period.

    Source : Morningstar, Brandes Institute

    So like death and taxes, short run underperformance is to be expected from a value manager. The more important aspect to long run out performance is that the manager stays with his value approach and does not deviate at a low point.

    In conclusion to his speech on the secret of value investing being out, Buffett says “I can only tell you that the secret has been out for 50 years, ever since Ben Graham and Dave Dodd wrote Security Analysis, yet I have seen no trend toward value investing in the 35 years I’ve practised it. … there will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham and Dodd will continue to prosper.”


    Have a wonderful weekend

    Regards

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

    Permalink2009-01-30, 17:00:10, by ian Email , Leave a comment

    JSE flat-lines on the back of global market downturns while commodities offer firm support

    Local Markets

    The mood was generally bleak early this morning as sharply weaker US and Asian markets caused an initial slump, however the JSE recovered quickly as resource stocks offered much needed support.

    By midday, the JSE All Share was pretty flat, showing a 0.27% increase. Commodity prices moved to the upside with gold and platinum recovering firmly. The weakening rand has also contributed to this sector’s resurgence. Investors remain fixed on movements in the volatile US market though.

    This morning’s trade has seen the rand weaken against the dollar. Once again it has breached the R10 per dollar mark and was trading at midday for R10.10 per dollar (a 0.86% decrease). This movement is attributed to a resurgence of risk aversion following the release of bleak US housing, unemployment and financial sector data. Poor risk appetite generally works to the benefit of the dollar and the yen, which are considered safe-haven assets. Consequently, the rand suffers amidst this general risk-averse mood.

    Global oil prices rose in Asian markets overnight after OPEC considers more production cuts to bolster a market faced with falling energy demand during this global economic slump. Brent Crude was trading at $44.74 per barrel at noon. Talks of a labour union strike at major US oil refineries also contributed to the price push.

    International Markets

    US stocks plummeted overnight as news of poor earnings from major players, coupled with gloomy labour market and housing data hit the market. The Dow closed 2.7% under whilst the Nasdaq fell 3.24%. All this a day after the financial sector saw the indices achieve their longest winning streak in three months. The major concern has come from insurance giant Allstate, which posted a $1.1 billlion quarterly loss and heightened fears about more losses on insurers’ books.

    The Nikkei average slid heavily overnight following the earnings releases from some of its major contributors. Toshiba Corp, Toyota Motor Corp and Nintendo Co have all suppressed sales targets whilst issuing dismal profit forecasts.

    The average closed 3.12% lower this morning. This marks January (9.8% under) as its worst performing month since October when it fell 24%.
    Hong Kong equities actually gained 0.94% on overnight as Chinese investors remain hopeful that Beijing will soon announce its newest round of economic stimulus plans, including an interest rate cut. The Hang Seng closed this morning 0.94% up.

    The FTSE 100 was trading 0.46% up by midday following the immense pressure being applied to mining equities. The growing expectation of a competitive round of capital production in the resource sector has pushed mining companies into the bottom thee places on the market. However, the real estate sector, which looked oversold after its recent good run, managed to keep the index stable.

    Share Price News

    The Gold Mining sector experienced a resurgence this morning as investors retreated back towards commodities and the rand weakened against the dollar. Of the major winners, Gold Basin Gold Ltd was 10.13% up by midday, trading at R12.50 per share. Also reaping the benefits of this market turnaround is Aflease Gold Ltd whose shares traded for R1.65 each (a 10% increase).

    Comair Ltd from the Airlines and Airports sector fell heavily this morning. Its shares traded for R1.76 each by midday, showing a 7.85%. This comes after concerns over the industry’s operating margins and a slump in demand. ABSA Group Ltd continues to experience woes from the Banking sector, falling this morning by 4.56% to trade for R94.96 each at noon.

    Permalink2009-01-30, 12:57:47, by Grant Leyland Email , Leave a comment

    Gold Fields Quarter 2 Result Summary

    Gold bullion and gold shares, much like most other investments, have their own dedicated followers. They are generally called gold bulls, and will continually be looking for reasons for why the price of gold or the price of gold shares should be higher than they currently are. As with most analysts (as discussed in previous Daily Equity Reports) there will be periods when their calls are right and others when they are wrong. Gold bulls today would’ve have been eagerly awaiting Gold Fields’ Quarter 2 results (Final Year End 30 June 2009).

    Gold production was up 5% over the previous quarter (at 839 000 ounces), with cash costs flat (in ZAR) at R 153 893/kg. In hard currency the costs decreased due to a weakening rand. Notional Cash Expenditure (NCE), which is defined as operating costs and capex, came in at R 244 210, up 8% over the previous quarter.

    As mentioned before gold companies are essentially price takers, and in this respect it is important for them to control costs and have production running at as close to full capacity as possible. Gold Fields managed to contain costs to a large degree, and are on their way to full production.

    Another aspect of mining in South Africa that is increasingly coming under the spotlight is that of safety. In their 2008 financial year, Gold Fields reported 47 fatalities. This number has dropped significantly to 8 for the half year ending December 2008. While this is clearly 8 to many as far as they are concerned… “Our objective is to achieve a significant decline in serious injuries and to eliminate all fatal injuries on our mines.” – Nick Holland, CEO of Gold Fields… they have been making strides in this respect.

    The production projection for the first quarter of 2009 is 975 000 ounces, as their mines around the world operate at design capacity. Problems with electricity, which were a major problem especially for South African miners, have decreased, and they now have a more stable supply stream. Priorities going forward are to “…further improve our safety performance and to increase production by optimising our existing mines.” – Nick Holland

    The result of this performance is headline earnings for the quarter of R 484m, and a dividend of 30c being declared. The revenue received per kg of gold came in at R 250 058. Gold is currently trading just shy of R 290 000/kg, which will help to boost profits even further for the next quarter (provided costs can be managed, output can be maintained, and the price stays at current levels or moves higher).

    The market was clearly pleased with these results, with the share price up 9.64% for the day. This helped the gold mining index up 5.09% for the day when compared to the ALSI which trended down 2.12%. Newgold, the ETF that tracks the rand gold price, ended the day down 0.37%.

    Take care,

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

    The full report can be obtained at:
    http://www.goldfields.co.za/reports/f_2009/q2_f2009/pdf/full.pdf

    Permalink2009-01-29, 18:42:03, by Mike Email , Leave a comment

    Global sentiment improves as all eyes turn to Washington for outcome of the $825 billion bank-bailout plan

    Local Markets

    At midday, the JSE All Share was slightly in the red by 1.67%. Financial and banking shares have risen well, following global optimism that the US bank-bailout plan being approved by Congress will revive stability and promote growth in this troubled sector. Gold stocks continue to lose as profit taking persists after the recent big run.

    The rand continues to trade favourably, selling early this morning below the R10 per dollar mark. Risk aversion seems to have abated as overseas sentiment improves with the US bank-bailout plan being employed, keeping the rand buoyant. At midday, the rand sold for R9.97 per dollar (a 0.93% increase).

    Gold stocks have extended losses further to trade below $900 a troy ounce. By noon, it decreased by 1.15% to $879.40 per an ounce. This follows the recent recovery of stock markets globally and the US central bank keeping interest rates down to calm inflation.

    Monday’s rampant improvement to surpass the $900 mark also prompted selling in the physical market as dealers in Southeast Asia and India (the biggest gold importers) reporting increases in supply of scrap.

    International Markets

    Equities in the US fared well overnight as investor confidence grew with the progress being made on the Obama Administration’s plan to buy banks’ toxic assets. The Dow Jones finished 2.46% higher whilst the Nasdaq closed 3.55% in the green.

    The financial sector benefitted the most with JP Morgan Chase, Bank of America and Citigroup all climbing more than 10%. This marks the longest sustained streak of gains since November.

    The Nikkei average increased 1.8% overnight as banking equities surged on hopes of a US banking rescue plan. The yen improved on the dollar, however, to cap gains made. Major Japanese firms such as Toshiba Corp, Nippon Steel Corp and Sony Corp have all reported earnings reductions and operating losses for the quarter but most investors remained focused on overseas economic stimulus plans.

    The Hang Seng index closed with a sharp growth of 4.78% today as financial equities again sustained the momentum. Investors are optimistic about the outcome of the $825 billion bank-bailout package being passed by US Congress. HSBC, Europe’s biggest lender, led the way with a 7.8% gain.

    Equities in London have endured a subdued start to Thursday as the resources sector was knocked with the news that the biggest oil company in Europe, Royal Dutch Shell, has reported an operating loss for the fourth quarter of 2008. By midday the FTSE 100 was trading 2.02% under, following much profit taking after the recent gains in the banking and financial sectors and losses in the resource sector.

    Share Price News

    Gold Fields Ltd in the Gold Mining sector has fared well this morning following the news release of positive earnings growth and full production achievement at various capital expenditure projects. By midday it had improved by 6.32%, trading at R101.80 per share. Compagnie Fin Richemont, from the Clothing and Footware sector, has experienced a volatile morning’s trade but seems to be making a steady rise as the day progresses. At noon, its shares sold for R15.25 each (a 2.07% increase).

    Wesizwe Platinum Ltd in the Platinum sector has lost steadily this morning. With a 8.33% decline, its shares sold for R1.10 each at midday. The platinum price has dropped this morning prompting many to retreat. Similarly, Anglo American Platinum Corporation Ltd of the same sector find themselves 5.54% down at R426.01 per share.

    Permalink2009-01-29, 13:01:44, by Grant Leyland Email , Leave a comment

    JSE gains from international upturns, but investors await CPIX data later today

    Local markets

    The JSE All Share performed well this morning as resources led the upturn. By midday, it had risen 2.08% as investors responded liberally to the upsurge in Asian and US markets overnight. Further volatility is expected later today as the heavily anticipated Consumer Price Index data is released locally.

    The rand managed to sustain levels below the R10 to the dollar mark this morning. Investor sentiment has improved moderately in US and Asian markets overnight and the rand has benefited. It traded at R9.95 to the dollar at noon (a 0.18% improvement) and is expected to fluctuate later today with local investors awaiting consumer inflation data due to be released today.

    Gold stabilised today, reaching near its highest in more than three months. At midday, it was selling at $885.60 per troy ounce as investors backed away from a troubled financial sector.

    International markets

    American markets received another boost yesterday with a rare release of promising news on the earnings front from a number of prominent players. The Dow finished 0.72% up whilst the Nasdaq closed 1.04% higher. American Express and Texas Instruments were two companies that reported higher than expected quarterly earnings.

    The Nikkei closed up by 0.56% today after positive responses from investors to a US stimulus plan. Tokyo Electron and other chip-related stocks also performed well after a major competitor filed for insolvency. Banks also continued to gain in response to the government’s announcement to use public funds to aid non-financial firms, reducing the risk of bad debt.

    The equity and currency markets in Hong Kong are closed from Monday 26 January – Wednesday 28 January. The Hang Seng closed 0.6% down last Friday.

    The continued recovery of the banking stocks was key to driving London equities upward. The FTSE 100 was up 1.49% by midday after Lloyds Banking Group contributed a further rejuvenation to the banking sector.

    Citigroup increased its appraisal of the company’s share from “hold” to “buy” and investors responded affirmatively. The rest of the banking sector has also continued to gain from the last few days’ momentum.

    Share price news

    The banking sector had a relatively good morning’s trade as numerous local banks were up by midday. Rmb Holdings Limited, from this sector, as well as ABSA Group Ltd were among the winners. At noon they were trading at R23.50 per share (a 6.82% increase) and R100.77 per share (a 4.42% increase) respectively.

    Super Group Ltd from the Shipping and Ports sector lost this morning with a decline of 2.86%. Its shares were trading at midday at R1.70 each whilst Aflease Gold Ltd, from the gold mining sector, continued to weaken as profit taking took its toll. At noon its shares were selling for R1.23 each (a 3.15% decrease).

    Permalink2009-01-28, 16:39:43, by Grant Leyland Email , Leave a comment

    US analyst forecasts of company earnings

    The quantum and percentage increase (or decease) in company earnings is naturally an important factor in its valuation. The other component is the rating or multiple applied to those earnings, but today we will just look at earnings. More specifically in percentage terms how many US companies are starting to report earnings at levels lower than market forecasts, known as negative earnings surprises.

    It’s a company analyst’s role to understand the main drivers of a company’s earnings and costs, in order to closely forecast the level of earnings per share it will report 6 months, 12 months and 2 years out.

    They do this, by getting close to management, modelling the main variables, and making certain assumptions. Over time these models are refined, and most often the consensus numbers are fairly accurate, especially 12 months out.

    Armed with a forecast of reported earnings 12 months out, the analysts can make an assessment of a realistic valuation. That the theory and that’s the ongoing process.

    But when economic drivers all start working favourably to drive up corporate earnings, analysts’ numbers at first lag the actual result. A company will then report a positive surprise – i.e. the consensus forecast for Sasol is say R40/share. Prices adjust to this, but if it comes out with R48/share, this is clearly a positive surprise, which boosts the share price.

    The cycle starts to turn when analysts get too optimistic, and actual numbers start to come down quicker than they can adjust their forecasts down. Then negative earnings surprises keep on pulling market prices down.

    In South Africa companies report bi annually. In the US they report quarterly.

    A Merrill Lynch (now part of Bank of America) report said this, “Negative earnings surprises are now at a 10-year high. The proportion of negative EPS surprises in the 3rd quarter was the highest in over a decade. This surge in earnings misses has led to a new wave of downward estimate revisions over the last few months. The speed and the magnitude of these downward revisions have been much greater than that of the last two recessions.”

    They also talk about the fact that one of the big surprises for 2009 may be earnings downgrades in “early cycle” sectors such as financials, autos, housing and retailing, starting to move to mid and late cycle sectors such as energy, materials and technology.

    They put on a graph of the percentage of companies reporting EPS surprises, up and down. With reversion to the mean operating as a strong force, more and more companies in the S&P500 index are coming through with lower earnings than forecast.

    Naturally this is negative for share prices.

    Lower numbers result in analysts downgrading their forecasts. The Merrill Lynch report says that until a few months back, there was very little downward revision, but this has now stepped up at a significant pace.

    This period of downward revision tends to last for many months, but the fact that it has begun in earnest is positive for US equity markets. The quicker lower numbers are factored into prices the better.

    It remains one of the fundamental issues – prices are attractive, but are earnings near the bottom? Analyst’s will be behind the curve for w while, but will continue to downgrade furiously and tend to become too pessimistic.

    Again this is setting the base for solid real returns from these cheaper prices.


    Kind regards

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

    Permalink2009-01-28, 15:55:24, by ian Email , Leave a comment

    Daily Equity Report Tuesday 27th January 2009

    The JSE closed up 2.41% at 20643 with value traded at R 9.94 billion. Advances led declines 231 to 119 with 83 shares unchanged out of 433 active. Mining closed up 1.34% at 24147, while Industrials were up 2.44% at 19416 and financials ended the day up 4% at 14835.

    The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 6.7% at 2188, Industrial Metals Index up 6.1% at 19299 and Banks Index up 5.9% at 27636, while the worst were FTSE/JSE All Africa ex SA 30 with US$ values down 47.4% at 45, FTSE/JSE All Africa 40 Index with US$ values down 39.5% at 47 and FTSE/JSE All Africa ex SA 30 with S A Rand values down 39.5% at 58.

    There were 1 new 12 month highs today, including Bowcalf which closed up 8.3% at 498 while there were 8 new lows of which Arb topped the list, down 28.6% at 120, Lonafric down 4% at 120 and Raubex down 2.8% at 1798.

    Of the major stocks Anglo moved up 2.3% at 19000, Anggold was down 2.01% at 28500, Sasol gained 3.77% at 27800, Mtn moved up 4.76% at 10005, Billiton moved up 1.52% at 17400.

    Biggest gainers of the day where Brc up 36.36% at 120 , Village up 28.7% at 139 , while the major losers were Arb off 28.57% at 120 and Oando off 22.22% at 700

    The Dow was up 1.1% at 8207.47 and the S&P 500 up 1.5% at 849.19 a few moments ago.

    Gold was down 0.2% at $ 901.40/oz

    The rand was last trading at R 9.96 to the dollar, R 14.16 to the pound and R 13.16 to the Euro.

    Permalink2009-01-27, 20:06:54, by admin Email , Leave a comment

    Analysts forecasts of company earnings

    The quantum and percentage increase (or decease) in company earnings is naturally an important factor in its valuation. The other component is the rating or multiple applied to those earnings, but today we will just look at earnings. More specifically in percentage terms how many US companies are starting to report earnings at levels lower than market forecasts, known as negative earnings surprises.

    It’s a company analyst’s role to understand the main drivers of a company’s earnings and costs, in order to closely forecast the level of earnings per share it will report 6 months, 12 months and 2 years out.

    They do this, by getting close to management, modelling the main variables, and making certain assumptions. Over time these models are refined, and most often the consensus numbers are fairly accurate, especially 12 months out.

    Armed with a forecast of reported earnings 12 months out, the analysts can make an assessment of a realistic valuation. That the theory and that’s the ongoing process.

    But when economic drivers all start working favourably to drive up corporate earnings, analysts’ numbers at first lag the actual result. A company will then report a positive surprise – i.e. the consensus forecast for Sasol is say R40/share. Prices adjust to this, but if it comes out with R48/share, this is clearly a positive surprise, which boosts the share price.

    The cycle starts to turn when analysts get too optimistic, and actual numbers start to come down quicker than they can adjust their forecasts down. Then negative earnings surprises keep on pulling market prices down.

    In South Africa companies report bi annually. In the US they report quarterly.

    A Merrill Lynch (now part of Bank of America) report said this, “Negative earnings surprises are now at a 10-year high. The proportion of negative EPS surprises in the 3rd quarter was the highest in over a decade. This surge in earnings misses has led to a new wave of downward estimate revisions over the last few months. The speed and the magnitude of these downward revisions have been much greater than that of the last two recessions.”

    They also talk about the fact that one of the big surprises for 2009 may be earnings downgrades in “early cycle” sectors such as financials, autos, housing and retailing, starting to move to mid and late cycle sectors such as energy, materials and technology.

    They put on a graph of the percentage of companies reporting EPS surprises, up and down. With reversion to the mean operating as a strong force, more and more companies in the S&P500 index are coming through with lower earnings than forecast.

    Naturally this is negative for share prices.

    Lower numbers result in analysts downgrading their forecasts. The Merrill Lynch report says that until a few months back, there was very little downward revision, but this has now stepped up at a significant pace.

    This period of downward revision tends to last for many months, but the fact that it has begun in earnest is positive for US equity markets. The quicker lower numbers are factored into prices the better.

    It remains one of the fundamental issues – prices are attractive, but are earnings near the bottom? Analyst’s will be behind the curve for w while, but will continue to downgrade furiously and tend to become too pessimistic.

    Again this is setting the base for solid real returns from these cheaper prices.


    Kind regards

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

    Permalink2009-01-27, 18:08:33, by ian Email , Leave a comment

    Rand strengthens as investors return to gold counters

    Local Markets

    Local markets are experiencing a relatively good performance today as investors’ penchant for riskier assets returns. The JSE All Share was up by 1.40% at midday following the trend set by gold counters and yesterday’s positive Wall Street activity.

    The rand drew back to the R10.00 per dollar mark early this morning as risk aversion subsided with more reassuring global news overnight. At lunchtime it was at R10.07 to the dollar, a 0.05% increase from yesterday close. Experts attribute the gain to the Barclays announcement of no further capital requirements, higher US home sales and a rampantly improving gold price.

    By midday, gold was trading at $893.68 per ounce which showed a slight decrease of 1.03%. Analysts from JP Morgan Chase and RBC Capital markets still advise that investors plough more funds into gold stocks than platinum as research reports indicate better fundamentals for the next 12 months.

    International Markets

    U.S. equities gained slightly after jerky trade on Monday, uplifted by signs of recovery with a $68 billion takeover in the drug industry. The Dow Jones closed with a 0,48% increase whilst the Nasdaq gained 0.82%. This, after Pfizer Inc, the world's largest drug producer, laid plans to buy rival Wyeth for roughly $68 billion, suggesting that some companies are attractively valued after a dreadful 2008.

    Japan’s Nikkei average grew 4.93% today following a small gain in U.S. markets and exporters’ gains as the yen weakened against other major currencies. Experts warned that investor confidence remains shaky, with continued layoffs locally and internationally and mixed reactions over the government’s announcements for a proposed bailout.

    Hong Kong's equity markets are closed for the period Monday 26 January – Wednesday 28 January. They will reopen on Thursday after the Lunar New Year holidays. The last reported figures for the weekend close on Friday 23 January indicated that the Hang Seng finished 0.6% down.

    The FTSE opened today with the banking sector leading the way again. Barclays, for the second day, remain the top performer after their announcement yesterday that the bailout offer was to be rejected in light of profit and cash flow forecasts. This renewed confidence helped other banks to make gains as well but couldn’t subdue the retreat from residential market equities. The FTSE 100 was 0.36% down at midday.

    Share Price News

    MTN Group Ltd was trading favourably at R98.69 per share at midday, a 3.34% jump. The wireless telecom services sector has seen a slight resurgence of investor confidence as talks of an imminent merger between MTN and Verizon, another telecommunications top-performer. Computer services giant Dimension Data Holdings Plc performed well this morning, trading midday with a 3.73% increase at R5.29 per share.

    The gold sector saw some volatile movements this morning and one of the losers was Aflease Gold Ltd with its shares being offered at R1.24 each by noon, a 4.62% decrease. Similarly, Anglogold Ashanti Ltd showed a 1.84% decrease as its shares sold for R285.50 each by midday.

    Permalink2009-01-27, 13:08:27, by Grant Leyland Email , Leave a comment

    Gold and gold shares have a solid day

    Amidst the general gloom of global economies, one asset class stood out. The price of gold moved up again the through the $900/oz level to the $910 level. The rand firmed but remained above the R10/dollar level, which allowed the rand price to get close to the R300 000/kg level.

    Importantly gold is now at an all time high when denominated in currencies like the euro or the Swiss franc.

    This past year has seen dollar strong against most global currencies, yet in dollar terms the price is up, which is positive.

    In US dollar terms gold has fluctuated sharply over the years, and in fact since peaking in the early 1980’s has only recently surpassed those highs in nominal terms.

    At the same time however the rand has generally deprecated against the US dollar, and so in rand terms the price has been steadily up to new highs. See chart below of the gold price in rand terms.

    South African mines derive their revenue in rand terms based on production. In this respect they are price takers of the rand and the gold price, and naturally struggled when the rand firmed post the December 2001 crash.

    At the same time many mines have struggled with low production and high wage and other input costs. The result has been generally poor performance over an extended time frame, despite the firmer rand price.

    Looking back at the data, the annual compound rand return of gold from the late 1985 price of R786/oz ($321/oz) has been in the order of 11% per annum. To a large degree this is the depreciation of the rand versus the US dollar.

    Now with global interest rates moving close to 0%, and central banks intent on printing, the price of bullion as measured in various currencies is not only holding up, but moving to new highs. There is a high probability that it continues firming throughout 2009.

    Local shares responded well to the price gains today. With their high cost structures and generally breaking even at levels around $850/oz, many gold mines are highly geared to the price of gold moving up.

    Are you based in Cape Town and wanting to discuss your specific investments? On the 4th and 5th February, Vincent from Seed will have one on one meetings with prospective clients to discuss your current position and answer any questions you may have. Mail Helena on helena@seedinvestments.co.za to book a time.


    Sincerely

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

    Permalink2009-01-26, 18:05:56, by ian Email , Leave a comment

    Gains in gold miners boosts JSE

    Local markets

    The JSE All Share opened on a positive note, up by 1.39% at midday and boosted by gains in the gold mining sector. Investors were looking around for bargains, believing shares to be oversold in general.

    The rand was trading at R10.22 to the US dollar at 12:00, as investors remain cautious before the release of several batches of data this week, including US company earnings and fourth quarter GDP figures, and the South African CPI.

    Gold rose 0.42% to $901.75 an ounce, continuing to make ground as a safe haven investment during the dire current economic climate.

    International markets

    The Nasdaq finished 0.81% higher on Friday, while the Dow Jones closed 0.56% down after a volatile day’s trading particularly in financial stocks. Further losses were stifled by gains in commodities, as well as bargain hunting as investors picked up low-priced banking and technology shares.

    Earlier this morning, the Nikkei fell 0.81% to its lowest close in almost three months, after Komatsu Corp released a profit warning and the yen strengthened against the dollar to hurt Japanese exporters.

    The Hang Seng was closed today and will re-open on Thursday, 29th January after the Lunar New Year holidays.

    By noon, Britain’s FTSE 100 had risen by 0.88%, lifted by banks and energy stocks which gained after steadiness in the oil price.

    Share price news

    Up 10.7% at midday was Gold Fields Limited, trading at R101.35 a share. Harmony Gold Mining Limited gained 10.9% to trade at R117 a share at 12:02.

    Liberty International PLC in the real estate investment trusts sector experienced a 4.42% loss as dramatic moves ended on the downside, sending the share tumbling to R54.48 a share at midday. Food processor Tiger Brands fell 3.54% to R135 a share as investors were spooked by news of talks between Tiger Brands and AVI Limited regarding a potential offer.

    Permalink2009-01-26, 14:02:37, by Natalie Email , Leave a comment

    Strategic and tactical asset allocation

    The standard theory myth is that by taking on higher risk, an investor will receive a higher rate of return. Clearly this is invariably the case over the long run, but definitely does not always hold true over a short or perhaps even medium time frame.

    The theory does not hold true because at varying times, asset valuations move far away from their long run equilibrium valuations. Quite simply assets move from cheap to expensive levels over time.

    Remember prices and value normally have an inverse correlation. I.e. Price declines that we saw in 2008 improve value, and hence the future return outlook.

    Given this fact, one method which many global asset managers, including ourselves, adopt is a strategic and tactical asset allocation of assets.

    The strategic allocation is based on the long run evidence that higher risk assets have produced higher rates of real return. The chart below gives one firm’s assessment of these long run equilibrium real rates across various asset classes. There is not too much argument about these figures.

    Where the return per asset class is plotted against the volatility of that asset class, again it’s clear that the reward for subjecting ones investments to higher volatility is higher returns. All assets can be plotted on one chart to achieve a risk return trade off graph.

    Where a particular asset is cheap, giving the possibility that its future return is higher than the long run return, then on a tactical allocation, it should be overweighed and vice versa.

    Chart 1 : Long run equilibrium real returns


    Source : GMO

    Seven years ago, GMO, a global investment firm, forecast a return from various asset classes that ranked emerging markets as no 1 with a compound 9,4% real return. The rank was spot on and the actual number came in at 9,9% per annum real return.

    At the same time they ranked the return from the US S&P 500 last with a negative 1,1% for 7 years. At the time they were very contrarian, but this proved to be optimistic, because the actual number came in at a negative 3,9% p.a. for 7 years.

    They had a reputation as being permanently bearish because of these dismal forecasts for their home base, the US.

    Now with the collapse of equity prices, the value has improved. Their forecast real return over the next 7 years is as per chart 2 below. I.e. 13% for high quality US equities and 13,6% for emerging market equities.

    Chart 2 : GMO forecasts

    Source GMO. These are not guarantees.

    These forecasts will not be realised in a linear fashion. I.e. the first 12 months or perhaps even 2 years could be negative, before reverting back again, but this is what the numbers are telling them at the moment.

    Tactically investors should be looking to increase weightings to real assets and reduce exposure to fixed income assets – in the red.

    Not necessarily tomorrow, but highly likely in 2009

    On that note have a wonderful weekend.

    If you are a high net worth investor needing to construct a robust asset allocation plan, please don’t hesitate to contact us for an initial meeting.

    Kind regards

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

    Permalink2009-01-23, 17:08:38, by ian Email , Leave a comment

    UK officially in recession, global markets weaker

    Local markets

    The JSE All Share had fallen 2.25% by midday, as further losses in resource stocks due to declining metal prices exerted downward pressure on the local index. This movement shadowed weaker closes in US and Asian markets.

    Currency traders were keeping their eyes on overseas news and continuing to be risk averse, once again leaving the rand range bound in early trade. The legal tender was selling at R10.33 to the US dollar at noon.

    Precious metal gold was trading at $872.85 an ounce at 12:08, rising 1.88% as investors sought safe havens away from the troubles in the financial sector.

    International markets

    Thursday saw US markets finish lower, with the Dow Jones closing 1.28% down and the Nasdaq 2.76 % down. Investors were spooked by technology giant Microsoft’s poor earnings results and proposed employment cutbacks, while US economic data served to underline their fears by showing further losses in labour and housing markets.

    Japan’s Nikkei closed 3.81% down this morning, its lowest level in eight weeks, after Sony warned investors to expect a massive loss and reminded the market of the ever-deepening recession.

    Hong Kong’s Hang Seng slid 0.04% after a thin day’s trade amidst corporate profit warnings, as investors sought refuge in the upcoming Lunar New Year holiday. Shortcovering in HSBC shares helped the price to crawl up by 0.9%, and limiting some of the Hang Seng’s losses.

    Britain’s FTSE 100 had fallen 1.12% by midday, after economic data confirmed that the UK is officially in recession for the first time since 1991. GDP in the last quarter was 1.5% lower, worse than the expected 1.2% drop. Weaker commodities and Barclay’s stocks were slightly offset by gains in pharmaceuticals.

    Share price news

    It was a rocky morning’s trade for DRD Gold Limited, whose shares were selling for R6.30, up 2.11% by noon. Shares in Dawn (Distribution and Warehousing Network Limited) in the building and construction materials sector, were up 1.47% at R6.90 a share.

    Still making news as losses continue, Old Mutual PLC was trading at R7.40 a share, down a further 7.27%. Also in the life assurance sector, Sanlam Limited was down to R15.45 a share at midday, a drop of 5.74%.

    Permalink2009-01-23, 12:19:28, by Natalie Email , Leave a comment

    Lower interest rates for savers

    In a world that is intent on pushing interest rates as close as possible to 0%, corporates and individuals with geared positions will be cheering, but investors that continue to rely on their interest income to either sustain or complement their pension income will find 2009 and beyond incredibly difficult.

    Let’s look at the situation in the UK.

    At the beginning of the year the Bank of England reduced their base interest rate to 1,5%.

    Fund manager, Sarasin estimates that some 7 million people in the UK have savings accounts that are now paying 1% or less. Many banks appear to be offering higher teaser rates, but then drop these rates when accounts are open.

    Chart 1 below clearly indicates the extent of the decline from the central bank. In forcing interest rates down to artificially low levels, governments are essentially penalising savers of capital and rewarding those with debt obligations. The base rate is at a 315 year low. With government a forced buyer of the ownership of banks, they will want to also ensure that their lower rate is passed to the end borrower.

    In the long run, we believe saving into cash is invariably unsatisfactory where interest rates tend to be held lower than where market forces would normally take them. The sudden drop down paints an even worse scenario than history.


    As interest rates are forced down, those investors relying on interest income will go out hunting for additional yields.

    These investors, mostly pensioners, who in the past would have been satisfied to keep their capital at banks or money market funds, will search out higher yields. This type of environment often brings out riskier investment offerings, which investors need to be aware of.

    Remember Saambou which attracted many savers with higher yields.

    Invariably these ultra low interest rates will debase the purchasing power of cash. Not only will savers receive an inadequate income stream, but the purchasing power of their capital will decline over time at a quicker pace than in the past as central banks continue to devalue their currencies.

    In this environment, which may persist for a while all savers will need to assess their allocation of capital.

    Kind regards

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

    Permalink2009-01-22, 18:11:26, by ian Email , Leave a comment

    Turnaround in US markets boost Asia, UK, and JSE

    Local markets

    The JSE All Share recovered 1.94% by noon after its losses yesterday, following improvements in US and Asian markets and boosted by stronger resources stocks. Analysts suggest that if the dollar weakens further and there is increased buying of commodities, the market could rise even more.

    The rand was trading at R10 to the US dollar, strengthening after US markets closed higher yesterday. Investors will be looking at US housing and employment statistics later today, but analysts agree that the rand will continue to trade around the R10 mark.

    Oil cost $44.94 a barrel at midday, gaining 7% as investors consider the impact of OPEC’s cutting back in supply on rising US crude stocks which indicate slowing demand.

    International markets

    There were positive results on US markets yesterday, with the Dow Jones closing up 3.51% and the Nasdaq up 4.6% after the previous day’s plunges. The indices were pulled up by rallies in financial and technology stocks – in particular IBM, who released a better-than-expected forecast for this year.

    The Nikkei average finished 1.9% higher, lifted by gains in property stocks which came after Japan’s central bank agreed to accept REIT bonds as collateral. Further gains were prevented by a stronger yen which bullied exporters.

    The Hang Seng closed 0.59% up this morning after a recovery in HSBC shares and other financial stocks as investors sought bargains in the flailing sector, their buying triggered by gains on Wall Street. Investors continue to be fairly cautious before the Lunar New Year next week.

    At midday, the FTSE 100 had gained 1.52%, as banks such as Royal Bank of Scotland and Lloyds enjoyed a rally inspired by positive closes in the US and Asia. More gains will have to be made for the sector to undo its recent losses.

    Share price news

    Anglo American PLC in the metals and minerals sector experienced a 4.53% rise in share prices to R190.25 a share, on the back of stronger metal prices. Old Mutual PLC had a volatile morning’s trade, though gaining 4.09% in share price to trade at R8.14 a share at noon.

    Pharmaceutical company Adcock Ingram Holdings Limited took a knock of 4.14% as share prices fell to R4.25 a share. Group Five Limited in the construction sector suffered a plunge in share value earlier this morning, after which share prices have moved sideways to settle at a loss of 2.05%, costing investors R33.50 a share at 12:00.

    Permalink2009-01-22, 12:16:50, by Natalie Email , Leave a comment

    How Much Will the US Change?

    In life they say that the only two things that are certain are death and taxes. Many people contend, and I agree with this group, that change should be added to this list. Now, more than ever, the evidence that change is constant is irrefutable.

    Barack Obama ran and won the US election on the back of promising change. His inauguration was last night (South African time), and he then went on to 10 Inaugural Balls. Obama’s first day may have been spent with formalities and glamorous events, but he realises that he’s stepping into a veritable cauldron, and will need to hit the ground running in order to try and restore USA’s pride.

    He made liberal reference, in his inaugural address, of the need for everyone to be part of the change, and that one man alone cannot achieve change for an entire nation. Below is an extract of his address:

    “In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of short-cuts or settling for less. It has not been the path for the faint-hearted - for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things - some celebrated but more often men and women obscure in their labour, who have carried us up the long, rugged path towards prosperity and freedom.”

    One of Obama’s great strengths is his ability to inspire, and he knows that he’ll need to inspire a nation that is currently battling in the depths of recession.

    One of the issues that Obama will have to deal with was summed up in a research note penned at the end of last week by Goldman Sachs Chief US Economist Jan Hatzius. In it he stated that despite US interest rates dropping to between 0.25% and 0% they are still too high, and proposed that in order to stimulate the economy interest rates would need to be dropped to -6% by the end of 2010. It is, however, impossible to have negative interest rates.

    The rationale behind this assessment is that one of the ways to stimulate an economy is to have negative real rates, i.e. interest rates below inflation rate, which encourages borrowing, and that in turn helps to stimulate the economy. The problem occurs where inflation approaches 0% there is no scope to decrease interest rates further to re-inflate the economy. This is an area where Obama is powerless.

    Fiscal stimulus is an area that Obama can influence, and he has indicated that government will be playing a larger role in the future. Increasing government expenditure will assist in reviving the economy.

    As discussed in previous reports re-inflating the economy, i.e. encouraging spending and inflation, is vital for the health of the US economy, and will also assist in inflating their increasing debt away. And while the US might not be as powerful as it once was, it is still the largest economy in the world. A healthy US economy will greatly assist in the world economy being healthy.

    It is in this light that we hope that under Barack Obama the United States will go “Yes we can!”

    Enjoy the rest of your week.

    Kind regards,

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

    Permalink2009-01-21, 16:35:02, by Mike Email , Leave a comment

    World financial system in dire straits, global markets dive

    Local markets

    The JSE All Share had lost 2.35% by noon, after gains in gold mining shares could not overcome the losses in resources and financial stocks. The downward trend was inspired by losses in US markets, and analysts fear that the slide will continue in the next few weeks as concerns over the state of the global banking sector remain.

    A US dollar cost investors R10.26 at midday, as the local currency regained some of its strength after a poor performance overnight. Investors will be looking at local retail sales as well as any US corporate news.

    Gold was selling at $863.32 an ounce, recovering 1.21% after a bout of profit-taking as investors took advantage of the precious metal’s highest prices in almost two weeks. Investors’ interest in gold continues as the financial crisis deepens.

    International markets

    The Dow Jones tumbled 4.01% on Obama’s inauguration day yesterday, indicating that investors weren’t overly confident about the new administration’s economic rescue plans – or lack of details thereof.

    Financials continued to be beaten down, in particular after stalwart State Street Corp lowered its outlook, sending its shares plummeting by 59%.

    In Japan, the Nikkei slid 2.04% to reach its lowest level in seven weeks as a worsening outlook for the global financial system took its toll on bank shares. A strong yen failed to help matters, forcing exporter shares down.

    In Hong Kong, the Hang Seng closed 2.9% down to its lowest level in almost eight weeks, as corporates revised their profit expectations and caused investors greater anxiety that the financial crisis will continue for some time.

    In the UK, the London FTSE 100 had fallen 1.43% by midday local time, with banking stocks once again taking a battering as fears for the global financial system escalate around the world.

    Share price news

    In the ALTX sector, William Tell Holdings gained 92.31% by midday to trade at R1.25 a share, as investors reacted positively to news of a change in the board of directors and the startup of a second particleboard plant in Krugersdorp.

    Also amongst the biggest movers up, Gold Fields Limited was trading at R86.70 a share, up 3.96%.

    Shares in Old Mutual PLC were selling at R7.65 just after 12:00, plunging 7.83% as investors lost confidence in the financial sector. Also on the way down was Anglo American PLC, who slid 4.79% to trade at R180.90 a share.

    Permalink2009-01-21, 12:49:16, by Natalie Email , Leave a comment

    The currency allocation decision

    While adopting and sticking with a specific investment strategy is difficult enough, making an overlay selection of currency is exceptionally difficult, if not impossible to get right on a systematic basis.

    For example the bailout and support of US banks, did not appear to impact the US dollar – to the contrary, while support for UK banks, has had an immediate knock to sterling.

    A currency allocation decision is made more difficult because unlike a share price which has a long term reversion to a mean around a theoretical value, there is no real theoretical value for a currency.

    This is because after the move away from the gold standard decades ago, most currencies float against each other. Some are fixed in tighter bands.

    Yes there is the purchasing power parity model, but this is invariably a weak predictor of where a currency should be trading.

    Other factors such as interest rate and monetary policy, country inflation, political dynamics and risk as well trade and current account differentials all play a role in the movement of one currency versus another.

    But because of the fact that a currency is defined relative to another currency, which itself is a moving target, making an accurate independent assessment is virtually impossible. This is especially the case on a consistent basis.

    For many South African investors, one of the “preferred” currencies of choice has been the pound. At the same time for many years now, there has been widespread anti US dollar consensus. But this last year saw the pound plummet from a high of $2,05 to its current $1,39. It may continue falling to $1,35 as the US dollar is seen as the safe haven.

    The recent trigger was the UK bank bailout, which saw capital flee sterling. Not only was sterling weak against the US dollar, but it traded at its weakest level in 38 years against the Japanese yen.

    The dollar has also been strong against the euro. It was last at $1,29/euro and may test its recent highs in October 2008 of around $1,25

    But relative to the Japanese Yen, the dollar and by definition most other currencies have declined. Mid 2007 the dollar traded at 125 yen. The yen has appreciated to around 90 to the dollar. This at the same time as the official Japanese consumer sentiment hits record lows.

    In many respects when investing into a global diversified portfolio, the currency decision is taken care of. This is because cashflows from a multi national company operate across the various currencies – thereby mitigating concentration risk.

    Rand exchange rates

    On the back of the stronger US dollar, the rand traded at R10,26. But against the weaker pound, the rand was last at R14,30.

    Kind regards

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

    Permalink2009-01-20, 18:40:32, by ian Email , Leave a comment

    Weaker resources suppress JSE All Share

    Local markets

    Falling resources led the JSE All Share on a downward slide this morning, as the local bourse lost 0.73% by 12:00. Investors took a lead from weaker Asian markets, and worried about poor performance in financial stocks highlighted by continued government bailouts.

    The rand was trading at R10.23 to the US dollar at midday, weakening as investors showed their aversion to risk and pressured by a weaker euro.

    Oil was trading at $41.62 a barrel, losing 3.21% after a lack of US storage space forced traders to sell the remains of a Nymex contract.

    International markets

    US markets were closed yesterday for a public holiday.

    The Nikkei closed 2.31% down early this morning after losses in global financials damaged banking shares, and a strengthening yen encouraged selling of exporter shares.

    In Hong Kong, the Hang Seng finished 2.85% lower after financials such as HSBC continued to lose ground. Investors engaged in technical buying of non-financial shares, which helped to limit losses.

    Britain’s FTSE 100 gained 1.71% after a rally in battered banks offset losses in commodity stocks. Royal Bank of Scotland came back by 20% after plunging almost 67% yesterday despite news of a government bailout.

    Share price news

    Gold miner Aflease Gold Limited gained 6.93% to sell at R1.08 a share at noon after just three deals. International retailer Woolworths Holdings Limited traded at R12.86 a share, up 2.88%.

    Wesizwe Platinum Limited lost 8.05% by midday, when shares traded at R1.60 each. Investec PLC had an up-and-down morning’s trade, not quite recouping earlier losses as the share traded at R35.80, down 3.14%.

    Permalink2009-01-20, 12:46:03, by Natalie Email , Leave a comment

    Dividend yields versus interest rates

    When the long run average valuations metric of shares listed on the JSE indicate a PE multiple of around 12 to 14 times and a dividend yield of around 2%- 3%, value investors start to get very excited when these long run averages start to converge and in some instances possibly even invert.

    What do I mean by this?

    Well the historical PE multiple has fallen to around 9 times, while the dividend yield is up at around 4,6%. Remember that these are historical ratios and subject to change as companies report earnings and pay out dividends.

    However certain value managers are able to construct a portfolio with an average historical PE ratio is closer to say 6,5 times. Naturally a portfolio holding more value shares and eliminating growth shares tends to have a higher dividend yield and again such a portfolio can be constructed with an average historical dividend yield approaching the 6,5%.

    Long run performance attribution indicates that the biggest element of the total return is from the starting dividend yield and the constant reinvesting for compounded growth. i.e. the price paid initially for any investment is the biggest indicator of the future total return.

    So without even looking at the possible re-rating of capital values, not over the next 6 months, but the next 5 years, let’s look at a possible scenario say 5 years out on the income received from an investment.

    With higher starting dividend yields on equity and with lower and lower expected interest rates, especially for the next 18 month period, the after tax income stream from an investment into equities starts to appear very attractive, given the price declines of 2008.

    Scenario 1. Invest R100 into money market, earning 11% now, falling to 8%, picking up to say 9% in year 5 and 10% in year 6. Assuming the full 40% tax rate, then the total after tax yield is R32,40.

    Scenario 2. Invest the R100 into equities at a starting dividend of 5%, which is expected to drop by 10% in the first year and then pick up say an average of 12% over the next 5 years from the lower base. The total after tax dividend income is R33,50.

    So in terms of yield generated, while cash returns have been high, the cumulative dividend yield, even taking into account a 10% drop from current levels, is similar across cash and equities.

    Two further considerations. In some money market funds investors can receive higher after tax rates and this improves the picture somewhat.

    We are also assuming some normalisation of company profits and this is subject to greater volatility than money in the bank.

    What we have not taking into account and which I will expand upon is the fact that over a longer period of time like 5 – 6 years, capital invested into equities tends to at least hold its purchasing power, unlike cash in the bank which depreciates. More than that an investor subjecting his capital to risk is looking for a premium above inflation.

    For sure there will be price volatility along the way – this is a given. Today local equities picked up in the morning, but then started coming off. The JSE All Share index ended down 1,9%. Financials were hard hit down 3%.

    Investors remain nervous of the outlook for short run earnings and this may still continue to put pressure on share prices.

    The US markets are closed for a holiday and tomorrow sees the inauguration of Obama as US president.

    If you would like to discuss any aspect to your overall investment planning, please don’t hesitate to contact us.

    Kind regards

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

    Permalink2009-01-19, 18:04:46, by ian Email , Leave a comment

    Rescue plans for global banks halt market losses – for now

    Local markets

    By midday, the JSE All Share had gained 0.40% as the local markets took a lead from stronger closes in US and Asian markets, and were boosted by stronger resources. Analysts expect buyers to enter the market at current price levels.

    The rand was trading above the R10 per dollar mark at R10.06 to the US greenback, keeping an eye on global currency markets as the UK government announced the second bailout of British banks in three months. Investors also await Obama’s inauguration speech.

    Gold was trading at $839.40 an ounce, almost at its highest level in a week after equity markets bounced back slightly and the dollar weakened against the euro.

    International markets

    The Dow Jones closed 0.84% up on Friday, as energy stocks and corporate bellwethers gained. Investors kept watch on the banking sector as the US Federal Reserve’s bailout of Bank of America reminded them of its dire situation.

    In Japan, the Nikkei finished 0.32% higher this morning, as investors hoped for further economic remedies from the new Obama administration, to be inaugurated this week. Further gains were limited as investors were unwilling to take strong positions without knowing exactly how much profits are expected to drop by.

    The Hang Seng rose to 0.64%, making a slight comeback after trading in the red on the back of falling HSBC shares.

    The FTSE 100 had gained 1.99% by noon on Monday, recovering from earlier losses due in part to the spectacular fall in Royal Bank of Scotland shares, after news that the bank’s loss was the biggest in corporate history. Announcement of the UK government’s bank bailout plan managed to restore some confidence in investors.

    Share price news

    Lonmin PLC in the platinum sector flew up 10.17% to trade at R138 a share at midday. BHP Billiton PLC cruised up 3.16% to cost R180.80 a share at the same time.

    Not as fortunate was Compagnie Fin Richemont in the clothing and footware sector, whose shares fell to R15.16 each, a loss of 5.84% after the company announced a drop in sales revenue as demand for luxury goods takes a hit. Provider of aluminium products and services, Mazor Group Limited experienced a MZR 7.38% loss in share price, as shares fell to R1.38 each at noon.

    Permalink2009-01-19, 13:09:24, by Natalie Email , Leave a comment

    Rescue plans for global banks halt market losses – for now

    Local markets

    By midday, the JSE All Share had gained 0.40% as the local markets took a lead from stronger closes in US and Asian markets, and were boosted by stronger resources. Analysts expect buyers to enter the market at current price levels.

    The rand was trading below the R10 per dollar mark at R10.06 to the US greenback, keeping an eye on global currency markets as the UK government announced the second bailout of British banks in three months. Investors also await Obama’s inauguration speech.

    Gold was trading at $839.40 an ounce, almost at its highest level in a week after equity markets bounced back slightly and the dollar weakened against the euro.

    International markets

    The Dow Jones closed 0.84% up on Friday, as energy stocks and corporate bellwethers gained. Investors kept watch on the banking sector as the US Federal Reserve’s bailout of Bank of America reminded them of its dire situation.

    In Japan, the Nikkei finished 0.32% higher this morning, as investors hoped for further economic remedies from the new Obama administration, to be inaugurated this week.

    Further gains were limited as investors were unwilling to take strong positions without knowing exactly how much profits are expected to drop by.

    The Hang Seng rose to 0.64%, making a slight comeback after trading in the red on the back of falling HSBC shares.

    The FTSE 100 had gained 1.99% by noon on Monday, recovering from earlier losses due in part to the spectacular fall in Royal Bank of Scotland shares, after news that the bank’s loss was the biggest in corporate history.

    Announcement of the UK government’s bank bailout plan managed to restore some confidence in investors.

    Share price news

    Lonmin PLC in the platinum sector flew up 10.17% to trade at R138 a share at midday. BHP Billiton PLC cruised up 3.16% to cost R180.80 a share at the same time.

    Not as fortunate was Compagnie Fin Richemont in the clothing and footware sector, whose shares fell to R15.16 each, a loss of 5.84% after the company announced a drop in sales revenue as demand for luxury goods takes a hit.

    Provider of aluminium products and services, Mazor Group Limited experienced a MZR 7.38% loss in share price, as shares fell to R1.38 each at noon.

    Permalink2009-01-19, 12:32:17, by Natalie Email , Leave a comment

    Global banks remain under pressure

    Banks as purveyors of capital for private and corporates are under immense pressure at the start of 2009. These are huge cogs in the global economy, but despite the administration of plenty of oil, they are still seizing up. This week saw more problems and despite ongoing government backing, are still reluctant to lend.

    Citigroup, an amalgamation of various banks and financial institutions, but which largely comprised the merger of Citicorp and Travelers in 1998 to create the world’s largest financial institution. It was forced to accept government funding, but today it still reported an $8,29 billion loss for the 4th quarter of 2008.

    Citigroup will give up control of once prized brokerage Smith Barney to Morgan Stanley.

    Bank of America is the US biggest bank by assets. Last year it acquired troubled Merrill Lynch. It also needed emergency funding from the US government of around $140 billion through capital injections and guarantees. It reported a 4th quarter loss of $1,79 billion – its first loss since 1991. With hindsight Bank of America was too quick jumping in and acquiring ailing Merrill Lynch and mortgage lender Countrywide.

    The shares fell to an 18 year low

    Once again US government, Federal Reserve and their advisors are in panic mode. Normal banking ability is frozen as banks need to deal with illiquid balance sheets, bad debts. Bloomberg reports a bank analyst saying that as much as $1,2 trillion more is required.

    Problem is - where will this come from? There are no reserves, and government itself is running a $1 trillion plus deficit. The money can really only be printed, which starts to put call into question its value.

    Across the water in the UK government is apparently also looking to a fresh round of finance for sailing banks. A figure of $150 in new guarantees was mentioned.

    Europe’s largest bank, HSBC, reportedly needs to raise at least $30 billion.

    Biggest Japanese bank, Mitsubishi UFJ Financial Corp announced its plans to write down securities on its balance sheet by $3,2 billion for the 4th quarter 2008 results due out at beginning of February.

    Governments are looking at various options to support banks including:

    o Direct cash injections.
    o Guarantees of assets to support their value and ability to trade
    o Establishing a bad debt bank to buy problem assets from banks
    o Full nationalisation in some cases. Ireland announced the nationalisation of Anglo Irish Bank, their third largest lender..


    All are merely different shades of the same thing.

    Private Banks make relatively small margins on lending out money. They enhance this small margin by gearing up and so $1 of deposit can be lent out multiple times 5, 10, 20 and sometimes even more times.

    In this way a very acceptable return can be generated on a sliver of bank equity. But when the asset side of their balance sheet is not as sound as it once was and they are forced to write down values, that sliver of equity quickly vanishes. That’s when they make that call to their friends at the printing press.

    With a rapidly contracting balance sheet, having to be propped up by governments, banks are now extremely reluctant to make fresh advances. Given their importance in economies, governments will continue to put pressure on them in their quest to make capital available at cheaper cost.

    Have a wonderful weekend

    Regards

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

    Permalink2009-01-16, 17:42:49, by ian Email , Leave a comment

    US bails out Bank of America, investors hunt for bargains

    Local markets

    The JSE All Share was up by 2.31% at 12:00, led by gains in resources after the dollar weakened to lend support to flagging metal prices. The All Share gains came on the back of a positive close on Wall Street yesterday, coupled with news that the Bank of America corporation will receive a bailout of $20 billion and a $100 billion guarantee against potential losses on toxic assets from the US government.

    The rand was trading at R9.93 to the US dollar at midday, regaining its position below R10 per dollar as the US currency weakened overnight.

    Gold was trading at $821.50 an ounce, gaining 0.66%. South Africa is now only the third biggest gold producer in the world after being the first for a hundred years, as mines are becoming deeper and more expensive and dangerous to excavate, slowing output.

    International markets

    Yesterday, the US government agreed to fund losses of the Bank of America, which is battling with a bad balance sheet after purchasing Merrill Lynch. Investors grew in confidence as a result, leading the Dow Jones to close up by 0.15% and the Nasdaq by 1.49%.

    In Japan, the Nikkei average rose 2.58% as investors revived some optimism after the US governments rescue plan for Bank of America. A falling yen also helped exporters stocks to gain.

    Dominating the news for Hong Kong’s Hang Seng was the third day of losses for HSBC after a second broker downgrade. The index still managed to recover fractionally after reaching its lowest level in seven weeks, closing up 0.09%.

    Britain’s leading index, the FTSE 100 had climbed 1.78% by noon, boosted by gains in banks after the US government gave the Bank of America bailout the green light.

    Share price news

    Anglo American PLC in the metals and minerals sector had risen 5.87% by midday to R199.60 a share, buoyed by higher metals prices. Steinhoff International Holdings Limited in the furnishings and floor coverings sector had climbed 5.72% to cost R12.38 a share.

    Slipping down was Sentula Mining Limited, whose shares fell to R5.61, dropping 4.1%. Retailer JD Group Limited experienced a 3.74% loss in their share price, as shares traded at R36 around midday.

    Permalink2009-01-16, 12:21:43, by Natalie Email , Leave a comment

    Investing is a Social Science

    Yesterday’s report was about how investing is not an exact science. This statement is true purely as a result of emotional humans being part of the feedback loop, i.e. we are part of the system, and therefore our actions directly affect the system. This is what George Soros has termed ‘reflexivity’.

    In an emotionless and ideal world there would be no opportunities to make excess returns over sustainable periods. This would be because all market information would be immediately disseminated to all stakeholders, thereby preventing insider trading, and all stakeholders would react in the exact same way to the information received, thereby eliminating different fair value calculations. In this ‘robot’ world the ruling price would exactly encapsulate the true value of the share, and all participants would agree on one true value.

    The mere existence of emotions and other market inefficiencies allows for the possibility that astute investors can beat the market, at the same time it will result in many investors underperforming the market. It is typically those investors that are best able to identify and control their ‘investing’ emotions that are the ones that outperform.

    However, merely being able to identify and control your emotions does not guarantee success. As mentioned often before, getting the probabilities in your favour is the first step to superior performance. This is achieved through thorough and diligent research, and following proven investment best practice. Following your strategy is the key part of this point. All too often an investor will say that he is following a value strategy, only for you to find shares with growth characteristics in his portfolio. Chopping and changing your investment style, unless you are a truly exceptional investor, is the surest way to produce a disappointing return.

    Knowing, and sticking to, your limitations is an important part of the investment process (much as it is in many walks of life). All too often we attribute positive results to our own actions, while dismissing any failures as aberrations, or the fault of others. This cycle of self commendation can be highly detrimental in any sphere of life, and investing is no different.

    Some people still try to dismiss the human factor (although this group is rapidly shrinking), and a large portion of the time it is because it is nearly impossible to quantify emotions (although volatility indices attempt to measure fear) as accurately as one is able to quantify and analyse more concrete data.

    Awareness of what is happening in the investment world and how it affects you is the first step towards achieving investment success.

    We provide a service to high net worth individuals trying as much as possible to take emotion out of the investment decision making process and guiding them in their optimal direction. If you require this assistance, please don’t hesitate to contact us in the office.

    Take care,

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

    Permalink2009-01-15, 17:37:03, by Mike Email , Leave a comment

    Global banks down, second wave of credit crisis haunts investors

    Local markets

    Losses in resources and in gold mining stocks pressured the JSE All Share downwards 0.79% by midday. The local bourse shadowed movements in weaker US and Asian markets.
    The rand was trading at R10.17 to the US dollar, as the American currency strengthened on increasing risk aversion from investors after poor sales results and new fears over global banks’ balance sheets.

    Oil rose to $44.85 a barrel, breaking its downward slide which began after more gloomy economic data came to light in addition to a second wave of the banking crisis, which will impact on world energy demand.

    International markets

    In US markets, the Dow Jones closed 2.94% lower as investors fretted about larger-than-expected losses for global banks and were knocked by grim retail sales data. The Nasdaq finished 3.67% lower, once again suffering more than the Dow.

    The Nikkei plummeted by 4.92% to its lowest level in a month, after a record fall in machinery orders struck at investors’ confidence and renewed fears of a deepening global recession.

    The Hang Seng did not fare much better than its Japanese counterpart, falling 3.37% after investors were reminded that the credit crisis is still present and having a devastating effect on banks such as HSBC, whose shares plunged for a second day to reach their lowest level in a decade.

    The FTSE 100 had slid 0.75% by midday, continuing to lose points due to weaker commodities and grim bank results.

    Share price news

    Buildmax Limited in the building and construction materials sector gained 7.29% after 3 deals which sent the share price soaring to R1.03 at noon. Compagnie Fin Richemont in the clothing and footwear sector recovered after a serious dive just before 11:00 to climb 1.22%, trading at R16.55 a share an hour later.

    Barloworld Limited in the diversified industrials arena suffered a 5.13% loss as share prices fell to R37. Gold Fields Limited eroded its early morning gains to trade at R81.00 a share, down 4.93%.

    Permalink2009-01-15, 12:37:21, by Natalie Email , Leave a comment

    Investing is not an exact science

    Investing is not an exact science. 100% accurate predictions are impossible. But at the same time it’s not necessary for successful long term investing. In many respects successful long term investing is about understanding probabilities. Peter Bernstein, economist and investment author, said that “Probability has always carried this double meaning, one looking into the future, the other interpreting the past. One concerned with our opinions, the other concerned with what we actually know.”

    I briefly mentioned yesterday how many investors prefer to wait for a clear horizon before making an investment decision. Unfortunately this is just not possible and all investors make decisions under varying degrees of uncertainty.

    Most often, just at the point where it feels comfortable to take on risk – it’s proven to be the worst time.

    Noted author of extreme events, Nassim Taleb, author of the Black Swan and Fooled by Randomness, scoffs at any form of long term predictions, saying "What is surprising is not the magnitude of our forecast errors, but our absence of awareness of it."

    This is because return distributions in financial markets don’t follow a normal bell curve. This is unlike for example the height of a random group of 100 people, where the bulk will be clustered around the middle, and a few outliers on either side a few standard deviations from the mean.

    The volatility of financial markets in 2008 went far beyond what many typical models predicted. But with financial markets extraordinary volatility should be expected as the norm, not the exceptional.

    Taleb says that most financial models overestimate the value of past data and underestimate the prevalence of unexplainable randomness in data. He calls these unexpected, but high impact random events, black swan events.

    Given the difficulties, how then does this translate into portfolio construction?

    In our view investors need to consider the following:

    o A clear understanding of past history in order to provide input into a probability model.

    o But also an understanding that an unlikely outside event can be damaging to the overall portfolio.

    o In situations of uncertainty, an analysis of the consequences of outcomes, even highly improbable outside events. E.g. what will happen to my total retirement planning should the single company that I am invested into fold for whatever reason?

    o Therefore ongoing diversification is critical to portfolio construction.

    o Combined with ongoing adjustment for valuations of various asset classes.

    As mentioned above 100% accurate prediction of each single decision is impossible, but not required for successful long term success. Investors and advisors such as us always need to make decisions with various levels of uncertainty. From an emotional perspective, just when it “feels” the most comfortable, invariably it’s the riskiest time.

    Give us a call if you would like to discuss modeling your current investment portfolio into retirement. If you have recently retired or about to, then this becomes very important.

    Kind regards

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

    Permalink2009-01-14, 17:30:08, by ian Email , Leave a comment

    Oil up, banks down – mixed results for world markets

    Local markets

    By midday, the JSE All Share had fallen 1.5%, losing the ground gained earlier this morning after positive results in Asia and slightly higher commodity prices sent investors bargain-hunting. Overall weaker resources once again weighed on the local bourse.

    A US dollar cost local investors R9.97, joining other emerging market currencies in staging a comeback after the dollar weakened against the euro.

    Oil was trading at $45.61 a barrel, rising 3.66% after Ben Bernanke, chairperson of the US Federal Reserve remarked that the economy could be rejuvenated by a stimulus package.

    International markets

    There were mixed results yesterday in US markets; the Dow Jones slipped 0.3% despite a rise in financials as investors continued to worry about poor corporate earnings, while the Nasdaq closed 0.5% higher after rising oil prices boosted energy shares.

    The Nikkei rose 0.29% this morning, as exporters gained on a weaker yen and recouped some of yesterday’s losses. However, further gains were halted by worries over earnings and gloomy profit forecasts.

    The Hang Seng closed 0.27% up, losing early gains after HSBC Holdings target price and earnings calculations were substantially lowered, sending share prices plummeting to more than a seven- year low.

    At 12:00, the FTSE 100 was down 1.3% after losses in HSBC came after investors were concerned about capital increases and reduced dividends. Losses in the FTSE 100 were restricted by gains in energy shares due to higher oil prices.

    Share price news

    Platinum producer Anooraq Resources Corporation gained 14.16% to trade at R5 a share just after noon after platinum prices gained 2.34%. African Dawn Capital Limited enjoyed a second day of gains, rising 4.65% after a staggered morning’s trading to reach R3.15 a share.

    Mvelaphanda Resources Limited plummeted 10.69% to trade at R22.55 a share just after midday. No surprise amongst the biggest movers down was Northam Platinum Limited, whose shares lost 7.65% to sell at R23.55 after a trading update announced that earnings per share were expected to decline.

    Permalink2009-01-14, 12:27:40, by Natalie Email , Leave a comment

    Deflation concerns

    Global markets remain volatile. In the US Bernanke is saying that fiscal stimulus is unlikely to be enough and wants government to buy tainted assets. Obama is looking to change direction for spending the TARP – Troubled Asset Relief Program – funds. He is also pressing Congress for around $775 billion in tax cuts and increased government spending.

    Central banks around the world are cutting interest rates to historical lows. This week the European Central Banks will decide on their key rate.

    What governments want to do is replace private banking system expansion, which has collapsed dramatically, with direct intervention.

    This is no easy task because typically banks, until recently, are exceptionally good at gearing up deposits received and producing a multiplier effect. Stats now indicate a sharp slowdown in the ability of fresh Fed reserves to be expanded into money supply.

    Governments can provide fresh money and they can buy back so called toxic assets at net asset value, or a discount to net asset value, but their ability to gear up this new money creation, without a fully functioning banking system willing to lend, together with customers willing to borrow is restricted.

    For this reason, many analysts are saying that despite massive doses of government printing and intervention, prices of goods and assets may become cheaper and cheaper over time – i.e. a real risk of deflation.

    In a deflationary environment consumers delay spending, which in turn becomes self fulfilling as demand remains subdued.

    Over the last 8 years, the major economic concern has moved from deflationary to inflationary and back again. Longer term its not in government’s interest to have deflation and so while consumer inflation is set down sharply in 2009, its not likely to last. With massive and growing debt levels it’s in government’s interest to inflate and so repay debt – if possible – with less valuable paper.

    Global markets were down today, but there were some positive signs at the opening of the US markets.

    The local stock market fell 2,79%.

    The rand appreciated strongly after weakening to over R10/dollar. Its now trading at R9,95/dollar, R14,51/pound and R13,16/euro.

    Shoprite issued a very positive trading update saying that growth in turnover on a like for like basis was up 22% with supermarket operation in SA increasing sales by 20%. The non RSA business is up ahead of budget. Still the share slipped back 0,4% to R55. It’s not cheap on an historical PE of 17,7 times and a div yield of 2,8%. This is a definite premium to the JSE.

    Having followed local and global markets for many years now, the outlook never becomes too clear. So many times, investors look to opt out the volatile times with the excuse that “when things become clearer, they will jump back in again.”. I will discuss this in more detail tomorrow.

    Kind regards

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

    Permalink2009-01-13, 18:21:00, by ian Email , Leave a comment

    Lower metal prices pressure markets

    Local markets

    A fall in metal prices as a result of a stronger US dollar pressured gold mining and resources stocks downwards this morning, causing the JSE All Share to lose 2.97% by midday.

    Gold was selling lower at $819.90 an ounce, while platinum dropped to $938 an ounce, as investors renewed their concern about a fall in global demand.

    The rand was trading at R10.18 to the dollar at 12:00, weakening against the North American currency on the back of declining world markets. Local political news that Jacob Zuma could still face charges added to the rand’s slide.

    International markets

    The Dow Jones lost 1.46% yesterday, led down by banking stocks after Citigroup’s massive credit losses spooked investors and sent share prices tumbling. The Nasdaq was harder hit, giving up 2.09% as investors worried over probably poor fourth-quarter earnings.

    After Japan’s public holiday on Monday, the Nikkei fell to its lowest close in a month, plunging 4.79% early this morning. Fears about low corporate earnings results coupled with a stronger yen that damaged exporters, assisted in the index’s slide.

    The Hang Seng lost 2.17% as investors continued to see signs of a deepening recession, though further losses were prevented by cautious investors waiting for key economic data from mainland China before taking a position.

    Britain’s FTSE 100 had fallen 1.22% by noon, however, better-than-expected sales results for some major retailers helped to slow the slide.

    Share price news

    London Finance and Investment Group PLC (a.k.a. Lonfin) gained 4% after only two deals that pushed the share price up to R2.60. Shares in African Dawn Capital rose 3% to cost investors R3.09 a share at midday.

    Growthpoint Properties Limited once again makes news as one of the major movers down, after the share price fell to R1.30, losing 7.14% by 12:00. Also losing points was Impala Platinum Holdings (a.k.a. Implats), down 8.53% to R134 a share at the same time.

    Permalink2009-01-13, 12:46:56, by Natalie Email , Leave a comment

    10 year bond returns versus equity returns

    Against the backdrop of a negative 23,2% for the JSE All Share index, the local bond market produced a stellar 16,97% return for calendar 2008. Of this almost 7% was in December alone as investors continued to buy bonds as safe haven investments. When looking back over 10 years, the pre tax return from bonds to the end of December slightly outperformed that of local equities.

    In many respects the excellent return from bonds in 2008 was not a function of their starting value at the beginning of 2008 but rather a function of risk aversion as investors sold out of equity portfolios and moved into money market and other shorter term safe investments.

    Naturally bonds are not tax efficient and so over time this is a large deterrent to investing into bonds for discretionary money –i.e. funds that are outside of pension funds, retirement annuities etc.

    However for tax free portfolios such as pension funds, many asset managers have continued to hold a fairly large strategic allocation to bonds.

    A R100 invested into the JSE All Share index at the beginning of 1999 would be worth R517 at the end of 2008.

    That same R100 invested into the Bond exchange each year from the beginning of 1999 would be worth R524 on a pre tax basis. This equates to an annualised 18% per annum.

    Naturally the volatility of the equity market was far higher, where returns would have fluctuated from a positive 60% in 1999 to last years negative 23% last year.

    With bonds this volatility was far lower with returns varying from 32,8% in 1999 to negative 0,9% in 2007.

    The question then is if bonds have proved to be such a good investment over the last 10 years compared to equities, why should investors not load up on this lower risk investment option and produce returns close to if not better than equity type returns.

    Well lets look at some factors that will play a part over the next 5 to 10 years:

    o As with any asset, the starting yield is important. Local bond yields spiked in August 1998 to 20,09% before declining. This largely drove the ensuing 18% annual return as yields declined.

    o Now that the yield on the local government bond has declined to 7,6%, this is closer to the expected long term return pre tax and pre inflation.

    o There is a risk that inflation starts to pick up into the foreseeable future, making current yields very unattractive.

    Globally as monetary authorities release large doses of new money into global markets, the debate now is whether bonds are in a bubble or if they represent ongoing value in a possible deflationary environment.

    Many investors are prepared to lend to the SA government at 7,5% yield and to the US government at around 2,35% for 10 years and 3% for 30 years. Some investors such as Jim Rogers have been very vocal about how expensive these yields are saying that "I can't imagine anybody is going to give the U.S. government money for 30 years at 2.5 percent or even 4 percent or 4.5 percent. It's mind boggling to me.".

    He is predicting that many creditor nations will start to shun US assets and in particular US Treasury bonds. This is negative for holders of bonds.

    Locally bond yields look expensive. But then we said that in 2008 and preferred shorter dated money market instruments. Now with yields at 7,5%, stripping off inflation at say 5% and tax at say 30% lenders of capital do not appear to be adequately compensated.

    On an ongoing basis it is important to assess your actual asset allocation against a defined longer term strategic asset allocation and adjust as valuations of asset classes change.

    Kind regards

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

    Permalink2009-01-12, 18:10:32, by ian Email , Leave a comment

    Weaker rand cushions JSE’s fall

    Local markets

    The oil and gas index gained 1.89% this morning, boosting the JSE All Share which had risen by 0.18% by midday, after weaker US and Asian markets gave the local bourse a rocky start. Traders expect volumes to increase now that most people are back at the office.

    The rand was trading at R9.94 to the US dollar at noon, weakening as the dollar looked more promising to risk-averse investors after poor employment figures were released in the US on Friday.

    Oil was trading at $43.36 a barrel as investors await US corporate results which will give an indication of demand. Energy analysts expect poor results coupled with last week’s poor employment data to push oil prices further down.

    International markets

    On Friday, the Dow Jones fell 1.64% after news that the rate of unemployment had risen to its worst level in almost 16 years. Investors were edgy as the unemployment is likely to suppress spending and profits, a reminder of the deepening recession.

    The Nasdaq fell 2.81% as technology shares were hard hit.
    The Nikkei was closed due to a public holiday in Japan.

    In Hong Kong, the Hang Seng tumbled 2.83% down to a 5-week low. Investors fear that the poor employment figures in the US will constrain demand for Chinese exports for some time.

    In the UK, the FTSE 100 had gained 0.16% by midday, thanks to a recovery in the banking sector led by the acquisition by Lloyds TSB of HBOS.

    Share price news

    Still on the up-and-up from last week, Old Mutual PLC soared 8.77% in share price as shares sold for R9.80 at 12:00. Marine transporter Grindrod Limited gained 6.21% to trade at R15.40 a share.

    Growthpoint Properties Limited NPL toppled 10% to cost R1.35 a share at lunchtime, recovering slightly from a dive earlier in the day. Shares in Barloworld Limited fell by 3.96% to trade at R43.22.

    Permalink2009-01-12, 12:31:21, by Natalie Email , Leave a comment

    Advantages and disadvantages of unit trusts

    Continuing with the theme of various investments and vehicles, we have highlighted some points on unit trusts. A common question posed by investors is, “Should I invest directly into equities, bonds, preference shares or property unit trusts etc, or should I use a pooled vehicle such as a unit trust?” There is a fairly common concern that investing on a pooled basis is not as efficient as investing on a segregated basis, i.e. having ones own investment account.

    At the end of September 2008, despite the decline in the prices of global and local equities, the value of all assets held by local unit trusts was at R647 billion. This was down slightly from the beginning of last year, despite net inflows, but still represents a large and growing component of the wealth and savings industry in South Africa.

    The total number of local funds, including fund of funds and asset swap funds was 872 at the end of September 2008. Based on anecdotal evidence, the growth rate in new funds slowed down in the last quarter of 2008 and this is likely to be the case for some time, given the more recent proliferation of funds.

    Many investors baulk at investing into a pooled fund, such as a unit trust, preferring to maintain their own or managed segregated portfolios.

    Very often investors have an incorrect perception of pooled funds. Often this flawed perception, believes pooling to automatically produce lower returns, for no other reason that the investors segregated portfolio will be aggregated with other investors.

    Quite simply this is not the case.

    Instead of merely outright dismissing the pooling option, investors need to take into account all the facts before making a decision. Perhaps that decision may be to use a pooled vehicle for a portion of one’s wealth.

    Not only has there been growth in the quantum of funds and investment capital, but also in the type of funds available. Many investors equate a unit trust with a portfolio of equity shares, but there are many forms of funds, including:

    o Equity only funds
    o Specialist equity such as value funds
    o Sector specific funds such as gold funds or small cap funds
    o Various forms of fixed income funds
    o Prudential funds, which are balanced funds akin to pension funds
    o Flexible funds, which invest across various asset classes, while also varying their exposures.

    Advantages of investing assets via a unit trust

    o Many fund managers spend more time on their more public unit trust funds as opposed to their segregated funds.
    o A big consideration is that lack of tax on all trading within a pooled unit trust. This frees up the manager to act when necessary, without any hindrance of tax concerns. Tax considerations are a large hindrance for segregated portfolios, where each transaction triggers a possible capital gains tax event.
    o The larger pooled funds are able to negotiate their fees down with stockbrokers. Where a private client may pay 0,5% brokerage, pooled funds pay 0,1% and lower.
    o It’s far easier and quicker to liquidate a portfolio or a portion of a portfolio held via a fund than directly in the market.
    o Investors can quickly achieve diversification benefits.

    Disadvantages of investing assets via a unit trust

    o Costs. Annual management fees and other costs need to be assessed relative to the value obtained.
    o Dilution possibilities. In the event of a large cash inflow or outflow, all investors’ percentages of the underlying assets will change.
    o Another possible hindrance to future performance is the size of a pooled fund. Larger funds have a smaller universe of available opportunities.

    Pooled vehicles are not only for small investors. Many very wealthy investors have recognised the benefits of a tax efficient vehicle such as a unit trust, with excellent custodian benefits and have elected to use this instead of direct ownership of assets.

    We find that many investors are invested into various funds via different entry levels, such as retirement annuities, but don’t aggregate exposures across asset classes on a regular basis. i.e. total up exactly how much of their funds is allocated to local equities, foreign equities, property bonds etc.

    Seed Investments produces a snapshot or total asset allocation for their clients on a monthly basis. Please don’t hesitate to contact Vincent Heys on details below if you would like to get more insight into the service we provide high net worth clients.


    Have a great weekend.

    Kind regards

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

    Permalink2009-01-09, 17:09:09, by ian Email , Leave a comment

    Markets on hold ahead of US payroll report


    Local markets

    The JSE All Share shadowed recovering US markets and gained a marginal 0.09% by noon, with a 1.76% advance in financial stocks overtaking resources to boost the index. Traders expect volumes to be low as investors hold out for US employment data due to be released this afternoon.

    According to Reuters.com, the US non-farm payrolls report for December “is expected to show that 2008 produced the biggest job losses since demobilization following World War Two. For December alone, job cuts are expected to amount to 550,000, the most for a single month in 34 years, taking the unemployment rate to 7 percent.”

    The rand was trading at R9.72 to the US dollar, after subdued action last night and this morning. Once again, investors await US employment data before committing themselves to a position.

    Oil was trading at $45.19 a barrel at midday, up by 5.09% as further attacks are expected to come from Israel in Gaza, which might interfere with crude supply.

    International markets

    On the whole, US markets closed stronger yesterday, though the Dow Jones fell by 0.31% as losses in Wal-Mart weighed the average down. Low December sales figures for the retailer showed a cut-back in consumer spending, which fanned fears of an extended recession.

    In Japan, the Nikkei closed down by 0.45%, its first decline in a month, as investors displayed caution ahead of key US jobs data and the rally for exporters finally ran dry.

    The Hang Seng lost 0.27% as investors suspect severe job losses in the US and sold off their shares in Chinese Banks on worries that strategic investors would engage in equity selldowns.

    Britain’s FTSE 100 had trickled down by 0.43% by midday, as investors made only tentative moves ahead of the release of the US employment data.

    Share price news

    Amongst the top movers up, Old Mutual PLC soared to R8.78 a share, up 5.53%, while Kumba Iron Ore Limited gained 4.11% to trade at R167.10 a share at 12:00.

    Also in the metals and minerals sector, but on the way down, Anglo American PLC lost 4.45% as the share price fell to R227. Reunet Limited in the electrical equipment sector fell 4.28% to trade at R51.39 a share just after midday, after they announced a preference dividend of 5.5% per annum for the second half of 2008.

    Permalink2009-01-09, 12:47:25, by Natalie Email , Leave a comment

    Markets 'on hold' ahead of US payroll report


    Local markets

    The JSE All Share shadowed recovering US markets and gained a marginal 0.09% by noon, with a 1.76% advance in financial stocks overtaking resources to boost the index. Traders expect volumes to be low as investors hold out for US employment data due to be released this afternoon.

    According to Reuters.com, the US non-farm payrolls report for December “is expected to show that 2008 produced the biggest job losses since demobilization following World War Two. For December alone, job cuts are expected to amount to 550,000, the most for a single month in 34 years, taking the unemployment rate to 7 percent.”

    The rand was trading at R9.72 to the US dollar, after subdued action last night and this morning. Once again, investors await US employment data before committing themselves to a position.

    Oil was trading at $45.19 a barrel at midday, up by 5.09% as further attacks are expected to come from Israel in Gaza, which might interfere with crude supply.

    International markets

    On the whole, US markets closed stronger yesterday, though the Dow Jones fell by 0.31% as losses in Wal-Mart weighed the average down. Low December sales figures for the retailer showed a cut-back in consumer spending, which fanned fears of an extended recession.

    In Japan, the Nikkei closed down by 0.45%, its first decline in a month, as investors displayed caution ahead of key US jobs data and the rally for exporters finally ran dry.

    The Hang Seng lost 0.27% as investors suspect severe job losses in the US and sold off their shares in Chinese Banks on worries that strategic investors would engage in equity selldowns.

    Britain’s FTSE 100 had trickled down by 0.43% by midday, as investors made only tentative moves ahead of the release of the US employment data.

    Share price news

    Amongst the top movers up, Old Mutual PLC soared to R8.78 a share, up 5.53%, while Kumba Iron Ore Limited gained 4.11% to trade at R167.10 a share at 12:00.

    Also in the metals and minerals sector, but on the way down, Anglo American PLC lost 4.45% as the share price fell to R227. Reunet Limited in the electrical equipment sector fell 4.28% to trade at R51.39 a share just after midday, after they announced a preference dividend of 5.5% per annum for the second half of 2008.

    Permalink2009-01-09, 12:46:55, by Natalie Email , Leave a comment

    Markets ‘on hold’ ahead of US payroll report


    Local markets

    The JSE All Share shadowed recovering US markets and gained a marginal 0.09% by noon, with a 1.76% advance in financial stocks overtaking resources to boost the index. Traders expect volumes to be low as investors hold out for US employment data due to be released this afternoon.

    According to Reuters.com, the US non-farm payrolls report for December “is expected to show that 2008 produced the biggest job losses since demobilization following World War Two. For December alone, job cuts are expected to amount to 550,000, the most for a single month in 34 years, taking the unemployment rate to 7 percent.”

    The rand was trading at R9.72 to the US dollar, after subdued action last night and this morning. Once again, investors await US employment data before committing themselves to a position.

    Oil was trading at $45.19 a barrel at midday, up by 5.09% as further attacks are expected to come from Israel in Gaza, which might interfere with crude supply.

    International markets

    On the whole, US markets closed stronger yesterday, though the Dow Jones fell by 0.31% as losses in Wal-Mart weighed the average down. Low December sales figures for the retailer showed a cut-back in consumer spending, which fanned fears of an extended recession.

    In Japan, the Nikkei closed down by 0.45%, its first decline in a month, as investors displayed caution ahead of key US jobs data and the rally for exporters finally ran dry.

    The Hang Seng lost 0.27% as investors suspect severe job losses in the US and sold off their shares in Chinese Banks on worries that strategic investors would engage in equity selldowns.

    Britain’s FTSE 100 had trickled down by 0.43% by midday, as investors made only tentative moves ahead of the release of the US employment data.

    Share price news

    Amongst the top movers up, Old Mutual PLC soared to R8.78 a share, up 5.53%, while Kumba Iron Ore Limited gained 4.11% to trade at R167.10 a share at 12:00.

    Also in the metals and minerals sector, but on the way down, Anglo American PLC lost 4.45% as the share price fell to R227. Reunet Limited in the electrical equipment sector fell 4.28% to trade at R51.39 a share just after midday, after they announced a preference dividend of 5.5% per annum for the second half of 2008.

    Permalink2009-01-09, 12:45:39, by Natalie Email , Leave a comment

    lower interest rates should underpin asset prices

    Despite escalating violence in the Middle East and especially in Israel, a volatile oil price, and plenty of global economic woes, global equity markets have a greater sense of stability and an element of upward momentum to them. The bigger trend remains in question for now, but the shorter term trend, despite today’s setback appears to be positive.

    A positive fact that cannot be underestimated is the global monetary authorities acting in concert into the latter part of 2008.

    There is a saying, “Don’t fight the Fed.” i.e. where the central bank shows a willingness to reduce the cost of money, this is ultimately positive for real assets as the buying power of money is reduced.

    And central banks, led by the US Federal Reserve have been very aggressive last year.

    This headline by investment strategist, Anetole Kaletsky at the end of December.

    "By cutting interest rates from 1 per cent to zero, the Fed opened the door to a completely new world of possibilities where many traditional rules vanish or go into reverse - a sort of economic wonderland in which money can be distributed free to citizens and where governments can spend and borrow at will, without any increase in borrowing costs. Now that the Fed has blazed the trail, other central banks are likely to follow. The sooner they do this... the greater the chances of averting a depression."

    According to fund manager Sarasin, the average central bank interest rate across the G7 countries is now down to just 1,25%. This includes the US Federal Reserve decline to an unprecedented 0,25% - 0%.

    In addition to reducing interest rates to an effective 0%, they will also be printing money to buy intervene directly in the financial markets and buy commercial paper, mortgage backed securities and money market funds. Sarasin reported that the Bank of England and the ECB are also looking at similar options.

    The idea is to make their interest rate reduction actions as effective as possible and increase the availability of liquidity across the global economy given the fact that there are still blockages at the banking level.

    Europe had up to the last quarter of 2008 always been exceptionally firm on holding interest rates high – a hangover from the German Bundesbank days. But from October 2008 they cut rates by 1,75% to 2,5% and there is a good probability that they will cut by a further 0,25% next week to 2,25%.

    The Bank of England announced an expected 0,5% drop in their key lending rate today, from 2% to 1,5%. At this level, its now the lowest since the founding of the central bank in 1964 according to Bloomberg.

    The actions by central banks has seen a scramble for bonds with yields dropping – i.e. returns up.

    Even locally in 2008, bonds performed well, gaining 16,97% for the year as the yield on longer dated bonds declined. But this is unlikely to persist and as yields stabilise and rise, investors lose capital.

    In addition to a stimulatory monetary policy, the US is looking to a more aggressive fiscal policy.

    They can’t afford this because the deficit is likely to be at least $1 trillion, with no sign of reducing in the near future. At the same time Obama is looking to make around $500 billion plus tax cuts. The plan is to also seriously beef up spending on US infrastructure.

    Ultimately the US is monetising the debt. In reality the deficit will be made up by issuing more paper as the government takes over more and more of the private economy.

    The Financial Times reports that the US government is expected to borrow a further $2 trillion this year, or 14% of GDP, while some $350bn in European government bonds are expected to come to market in the first quarter.

    Global markets have responded positively thus far. The shorter term trend appears positive. The JSE All Share index has gained some 27% from its low at the end of November 2008.

    The question now is will the actions by central bankers be enough, or have they started to run out of ammunition? In the shorter time frame there is a risk that asset prices keep falling, but medium to longer term, exceptionally loose monetary policy will devalue paper against assets.

    The chart of the JSE All Share index below reflects the sharp decline and the more recent bounce up through important key levels.

    We are scheduling meetings for those investors who would like to discuss their investment planning, asset allocation and general retirement planning. If you would like to set up a meeting, please mail us on details below.

    Kind regards

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

    Permalink2009-01-08, 17:10:21, by ian Email , Leave a comment

    Gloomy US employment report weighs on global markets

    Local markets

    Losses in gold mining and resource stocks weighed on the JSE All Share, pushing the local bourse down by 2.38% by midday. The All Share mirrored market action on US and Asian stocks. Traders say the weaker rand is helping to cushion the fall.

    A US dollar cost investors R9.63 at 12:00. Local banks bought up rands in large amounts yesterday, though on the whole the market continues to be illiquid.

    Oil was trading steadily at $45.76 a barrel despite a plunge in the price after US inventories showed a higher-than-expected increase yesterday, which reminded the market that demand is still weak.

    International markets

    In US markets, a gloomy report on private sector employment in addition to a revenue warning from Intel corp depressed investor sentiment. Also, the large inventory of crude oil in the US caused energy shares to slide. The Dow Jones closed lower by 2.72%, while the Nasdaq plunged 3.23%.

    In Japan, the Nikkei fell 3.93% as investors fretted over grim employment news in the US and the Intel revenue warning, which might be an indicator of poor results for Japanese exporters and a reminder of a deepening recession.

    Hong Kong’s Hang Seng tumbled 3.81% down as three prominent Chinese banks lost a total of $25 billion in market capitalisation after nervous investors were spooked by a two-day slide in the equity market.

    In the UK, the FTSE 100 had slid by 0.17% as investors await another rate cut from the Bank of England. Negative sentiment relating to the dark economic outlook weighed down metal prices and mining stocks.

    Share price news

    Netcare Limited in the hospital management sector gained 3.07% in the value of their share price, which rose to R8.40 by midday. Shares in Reinet Investments SCA lifted to R9.61, up 2.23% after yesterday’s disclosure of total voting rights and capital.

    Broadcasting contractors Naspers Limited slid to R151.72 a share, down 5.47% since trade opened this morning. Impala Platinum Holdings Limited dived 4.69% to cost buyers R143.92 a share at noon, as investors reacted negatively to news that Impala will continue in its plans to acquire Mvela Resources and Northam Platinum Limited.

    Permalink2009-01-08, 12:46:34, by Natalie Email , 1 comment

    Reprieve at the Fuel Pump

    The petrol price can, as we have seen in the past 12 months in South Africa, be quite an emotive subject. One of the major reasons for this emotion is that the price of fuel plays quite a large role in most South African’s lives (particularly the poor).

    The direct effects of the fuel price are the cost of transport (land, sea, and air) and the cost of paraffin for those who don’t have electricity. The effects of the fuel price also seeps through to other places of our lives such as food (farmers also pay more to produce and transport their crops, and this needs to be passed on) and onto other products that require petrol/diesel as a large input in the production of the finished goods.

    It comes with great delight then, when the price of petrol was decreased by 18%, and diesel by 20% as the clock ticked over from 6 to 7 January 2009. The monthly movements can seem to some as possibly haphazard or random, but they are based on an agreed upon formula which takes into account the price that it costs to import fuel into the country. While it is a fairly technical calculation the major drivers are the dollar price of oil, and the rand / dollar exchange rate. While the rand has depreciated against the dollar over the second half of 2008, the oil price fell from a high of around $147 to below $40 at year end. To have an idea of what the petrol price will do the following month you can do worse than track the rand price for a barrel of brent crude oil.

    Motorists will now pay R6.01/litre inland and R5.76/litre at the coast for petrol. A far cry when it was over R10 in 2008 and at the same levels as it was almost 2 years ago!

    While this is relief to many consumers, those who are dependant on public transport haven’t been offered this reprieve as taxis have stated that they won’t be decreasing their fares. As is the case in a country with a large portion of the population living in poverty there were calls for government to subsidise the price of fuel when the price was shooting up. There have now been calls to government to force the taxi drivers to reduce their fares as taxi fares constitute a disproportionately large portion of the average taxi passenger’s disposable income.

    Unless specifically directed, it is highly unlikely that there will be wholesale drops in prices of goods and services, as prices tend to be sticky on the downside. The most reasonable scenario would be for prices to remain at current levels for an extended period, provided fuel prices don’t suddenly shoot up again. Food retailers will most likely be the ones to pass on some of the savings, but again one should only expect selected prices cuts for specific periods. Most of these companies have had their margins squeezed over the past 12 months, so any opportunity to increase their margin, without increasing their selling price will be welcomed with open arms.

    Another benefit of the rapidly falling petrol price will be on inflation, where it is a large component of CPI. A swiftly dropping inflation rate will make it easier for the Monetary Policy Committee to carrying dropping the repo rate, which will help heavily indebted consumers. Hopefully 2009 will provide us with a year of positive economic surprises.

    Take care,

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

    Permalink2009-01-07, 16:19:01, by Mike Email , Leave a comment

    US likely to release further stimulus package as bleak economic outlook continues

    Local markets

    The JSE All Share had fallen 0.82% by noon, despite strong gains in gold mining stocks. Traders expect the market to consolidate and stay range bound as investors look to the US for leads.

    The rand was trading at R9.35 to the US dollar at 12:00. However, analysts are hesitant to declare the rand’s recent improvements to be sustainable, given that the motivation to invest in an emerging market currency is risk-appetite driven, and could be open to sudden reversals expected in the current global economic climate.

    Oil was selling at $49.52 a barrel just after midday, moving steadily above the $48-dollar mark as conflict in the Middle East continues. Further increases will be limited by slowing global demand.

    If you plan on filling up at your local petrol station today, you will be pleasantly surprised to find that ULP and LRP petrol now costs R5.76 per litre if you fill up in the defined COASTAL region, down R1.35 from last month and either R5.82 or R6.01 if filling up in the INLAND region, depending on the grade of petrol you are after.

    International markets

    The Dow Jones finished 0.69% higher, as a government stimulus package looks probable after the Federal Reserve said that inflation was likely to be low and the dismal economic outlook prolonged.

    The Nasdaq closed 1.5% higher as investors expect technology stocks to gain substantially from the proposed US investment in infrastructure.

    Japan’s Nikkei finished up 1.74% to reach its highest level in two months. Leading the charge upward were exporters, who gained once again from a weaker yen, while investors were encouraged by news of a possible US stimulus package.

    In Hong Kong, the much-anticipated 3G licences were given out yesterday, causing trade in telecoms shares to pull back. The Hang Seng closed lower by 3.37% as a result, and compounded by the partial withdrawal of the Bank of America from China Construction Bank.

    The FTSE 100 had fallen 1.25% at 12:06, ending a six-session rally as miners and banks weighed on Britain’s leading index.

    Share price news

    Shares in Northam Platinum Limited had an up-and-down morning’s trade, settling at R28 at midday, up 8.95% after an announcement that the acquisition of Northam by Implats is still being considered. Sappi Limited enjoyed a 4.9% gain in share price, as shares traded for around R44.06 at midday.

    The MTN Group Limited took a tumble as shares fell to R113, down 3.42%. Though recovering slightly from a dive earlier this morning, Murray and Roberts Group Limited still experienced a 5.68% loss by 12:00, as share prices fell to R49.99.

    Permalink2009-01-07, 13:12:37, by Natalie Email , Leave a comment

    After the losses

    One has to go back to 1970 to see a similar decline to what investors experienced on the local stock market in 2008. The total loss on the JSE All Share index last year came in at 23,2%. Since 1960 the biggest loss was 25,8% in one calendar year – that being 1970.

    The one quarter price decline in 1970 followed the 1969 calendar year loss of 10%. Naturally at the beginning of 1971 many investors were very disgruntled after large losses to their portfolio values.

    Many investors had experienced exuberant gains in the 1969 boom period, only to end up highly disappointed as prices fell sharply from peaks.

    The mid 1970 were exceptionally tough periods around the world as the oil embargoes had a spiked effect on the price of oil and a detrimental impact on global economies.

    Local economist, Cees Bruggemans describes the 1970s as follows: “When one looks at 40-year global graphs of inflation and interest rates, whether short or long, something jumps at you rather forcefully. The 1970s were a disruption, in the process taking the world from low single-digit 1960s inflation to high double-digit inflation, with very few countries escaping this general step change.”

    Ken Fisher described the early 1970’s as “… the 1973--74 monster bear, when stocks bottomed in October 1974 but the U.S. economy kept sliding through March 1975.”

    As is the case today, there was a preponderance of bad financial news in the 1970’s, following the strong 1960’s. Many investors would have given in to their fears and looked to move their savings into cash in order to protect against further losses.

    Hindsight is perfect and so we can ascertain what type of return investors received by following a cash or shares alternative over the next 10 years from 1971 to 1980.

    As noted above one of the more important facts in that time period is that inflation starting picking up quite sharply – following the oil price gains. CPI was recorded at 4,8% in 1970 but by 1980 it had increased to 15,8% per annum.

    A R100 at the beginning of 1971 would need to have grown to R292 just to have kept pace with inflation over the 10 years. Had an investor been scared out of the market and invested into fixed deposit his investment would have only grown to R220. I.e. before tax on the interest, the investor was not keeping up with inflation.

    For those investors that stuck it out, or indeed for those who saw an opportunity to allocate new funds to assets that had declined in price from substantial peaks and invested into the JSE All Share index, their R100 would have grown to almost R900 over the ensuing 10 year period.

    This out performance over cash was over a period that included an index decline of 18,9% in 1975 and a decline of 10,9% in 1976.

    R100 invested at the beginning of 1971 after a 29,7% index loss in 1970 would have grown to the following after being invested for 10 years:

    o Inflation - R292
    o Fixed deposit - R221
    o JSE All Share index - R894

    Had the funds been invested for 2 more years, the R894 would have grown to R1200.

    There are no guarantees that history repeats itself, but it certainly rhymes. Yes a 10 year investment horizon is long, but at the start of 2009, I am sure that many recall the hype and concern around Y2K – it was not that long ago. This first decade of the 21st century has been exceptionally quick.

    The large disparity in outcomes of an investment into real assets and an investment into money market is just too large to ignore. For sure there are many particular years when having cash outperforms other assets, but when measured over multiple years, an investment into a real asset will outperform.

    The graph below reflects the annual total return of the JSE All Share index for each year from 1960. There are many years with negative performance.


    As always please don’t hesitate to contact us to discuss any aspect on this or your personal investment planning.

    Kind regards

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

    Permalink2009-01-06, 16:35:05, by ian Email , Leave a comment

    JSE gains on firmer resources

    Local markets

    By noon, the JSE All Share had gained by 1.57%, led upwards by firmer resources and taking its lead from stronger Asian markets rather than the dive on Wall Street yesterday.

    The rand was trading at R9.41 to the US dollar, remaining range-bound as investors trickle back after the holidays.

    Gold was trading at $846.20 an ounce, as the precious metal slid over half a percent further after the dollar weakened and markets expected a drop in demand from India.

    International markets


    The Dow Jones fell 0.91% yesterday after a bout of profit-selling, and the Nasdaq closed down 0.26%. Investors were concerned about slow sales in telecommunications companies, which are expected to worsen after analysts forecast slower wireless growth and worsening land-line performance.

    In Japan, the Nikkei average closed up by 0.42% early this morning as exporters soared thanks to a weaker yen, and investors were encouraged by hopes of an economic stimulus package from the new US administration.

    The Hang Seng slid 0.35% as investors took their positions on Chinese telecom stocks after news that suggested the much-anticipated 3G licences may be issued as soon as Wednesday.

    The FTSE 100 had gained 0.75% by midday as the 5-day rallies dimmed somewhat, though positive trading updates from retailers kept the bourse from slipping into the red.

    Share price news

    Super Group Limited in the shipping and ports sector gained 11.11% in share price, which cost investors R2 a share at 12:00. Also amongst the biggest movers up was Anglo American PLC, whose shares rose to R243.20, an increase of 6.67% after five directors announced yesterday that they would be buying shares.

    Shares in Growthpoint Properties Limited took a dive after a volatile morning’s trade, as prices coasted down to R1.81, lower by 13.81%. Steinhoff International Holdings lost 3.12% by noon, when a share cost buyers R12.42.

    Permalink2009-01-06, 12:31:24, by Natalie Email , Leave a comment

    Sound reasons to invest

    At the end of 2008 many investors were asking themselves the question, “Just exactly why am I invested in various assets that have now tumbled in price so dramatically?” And so at the start of 2009, let’s kick off by asking some more pertinent questions, “Why invest and what are some right and wrong reasons to invest.”

    We believe that it’s important to have a strong foundation to your investment plan – asking the right question is therefore critical.

    Naturally there is no one answer, and each person should develop their own specific reasons. We would opine that in general and for specific investments, some wrong reasons to invest would include:

    1. Greed – i.e. the desire to have more and more material wealth for the sake of it.
    2. Envy, which is the desire to have based on the success of others.
    3. Excessive speculation with little substance.
    4. Investing out of ignorance or following unwise counsel.

    Time and time again, “investors” with one or more of these overriding reasons fall short. The overarching element of greed in a decision typically leads people to put money into get rich quick schemes, lotteries, high return promises, short term stock picks etc. These may last for a time, but invariably the risks outweigh the rewards and investors often not only forfeit the return but the principal as well.

    A lot of what transpired in the world in 2008 was the result of a build-up of greed in the world. Especially in the US, which naturally had reverberations around the world, greedy capital found its way into riskier and riskier assets. What started out as honest investing started turning into sophisticated speculation.

    Unfortunately over a short time period, all investors lost capital, but those with the proper foundation, right reasons and longer time horizon will not be prejudiced.

    With long term investing there are no short cuts.

    Sound reasons for investing would include the following:

    1. Optimisation of excess savings for future use. Typically this involves investing savings for use into retirement years.

    2. Management of accumulated wealth to have additional funds to give away in the future. This requires planning to give away excess funds either during or after your lifetime.

    Wealth creation and management goes beyond merely accumulation of financial wealth at all costs.

    Sound reasons for investing excess capital form the foundation for long term wealth creation.

    Wishing you a prosperous 2009 in every respect.

    Kind regards

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

    Permalink2009-01-05, 17:13:41, by ian Email , Leave a comment

    Firmer oil prices boost global resource stocks

    Local markets

    The JSE All Share was off to a strong start this morning, gaining 3.14% by midday and following trends in global markets as investors hope for a recovery in the US economy this year. Leading the upward surge were companies in the oil and gas and basic materials indices.

    A US dollar cost investors R9.46 by noon. Trading activity was limited, and analysts expect a range-bound week for the rand.

    Oil surged up to $45.69 a barrel as further movements by Israeli forces in Gaza renewed supply disruption fears in the Middle East.

    International markets

    US markets began the 2009 trading year on a good note, as investors held onto hopes of an economic recovery despite a report that US factory activity had fallen to its lowest level in 28 years. The Dow Jones closed up by 2.94% on Friday, while the Nasdaq finished 3.5% higher.

    The Nikkei also ended Japan’s first day of trade positively, closing up 2.07% as exporters benefited from a weaker yen and resources gained on an increase in the oil price.

    The Hang Seng rose 3.46% as investors anticipated that the stimulus spending by the Chinese government would rejuvenate the ailing economy.

    Britain’s FTSE 100 had risen by 0.32% by 12:00 SA time, led upwards by gains in Vodafone as well as miners, who gained as a result of firmer copper prices. Investors were encouraged by news that US President-elect Barack Obama intends to cut taxes.

    Share price news

    Northam Platinum Limited had experienced a steady 7.98% gain in their share price by midday, when a share cost investors R22.99. Shares in Compagnie Fin Richemont in the clothing and footwear sector lifted 6.82% to sell at R18.17 a share.

    Amongst the biggest movers down, Pretoria Port Cement experienced a loss of 3.79% as shares slid to R30.50. Junior gold company Pomodzi Gold Limited experienced a 7.14% dive in share price after only two deals, as the share price fell to R1.30.

    Permalink2009-01-05, 12:36:52, by Natalie Email , Leave a comment

    Daily Equity Report Friday 2 January 2009

    The JSE closed up 1.19% at 21765 with value traded at R 2.80 billion. Advances led declines 156 to 118 with 84 shares unchanged out of 358 active. Mining closed up 4.22% at 25844, while Industrials were down 1.17% at 20180 and financials ended the day down 0.84% at 15647.

    The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 13.6% at 2328, FTSE/JSE RAFI 40 up 8.6% at 4321 and COAL MINING up 7.3% at 45991, while the worst were FTSE/JSE All Africa ex SA 30 with US$ values down 33.7% at 57, SHARIAH TOP40 INDEX down 30.3% at 2319 and FTSE/JSE All Africa ex SA 30 with S A Rand values down 28.9% at 68.

    There were 1 new lows today, including Trnshex topped the list, down 16.7% at 265.

    Of the major stocks Anglo was up 6.11% at 22389, Sasol ended up 4.31% at 29210, Mtn moved down 2.4% at 10590, Billiton moved up 4.16% at 18501, Naspersn ended down 1.55% at 16368.

    Best performers of the day were Decillion up 35.76% at 224 , Pinnacle up 30.77% at 238 , some of the losing shares included Trnshex off 16.67% at 265 and Eastplats off 10.79% at 281

    The Dow was up 1.8% at 8932.50 and the S&P 500 up 1.8% at 919.71 a few moments ago.

    Gold was up 0.8% at $ 877.00/oz

    The rand was last trading at R 9.33 to the dollar, R 13.50 to the pound and R 12.97 to the Euro.

    Permalink2009-01-02, 20:04:07, by admin Email , Leave a comment

    Markets enjoy positive start to 2009

    Local markets

    Following firmer global markets, the JSE All Share had climbed 1.34% by midday on the first trading day of 2009, lifted by stronger gold mining and basic materials stocks.

    A US dollar cost investors R9.43 at noon, as the American currency strengthened after better-than-expected data regarding US unemployment claims was released late on New Year’s Eve.

    Brent crude fell to $42.54 a barrel as investors bet that Wednesday’s late rally was overheated. The rally was initiated by reports that a fall in refinery activity would struggle to provide for an unexpected rise in crude stocks.

    International markets

    The Dow Jones closed up 1.25% on New Year’s Eve, after the U.S. Federal Reserve boldly agreed to buy $500 billion in mortgage-backed securities by mid-2009. Housing stocks gained as interest rates on U.S. 30-year fixed-rate mortgages dropped for the ninth week in a row.

    The Nasdaq finished 1.7% higher, boosted by large-cap tech companies that are seen as better able to withstand the economic crisis due to large cash reserves.

    The Hang Seng closed up 4.55% despite thin volumes of trade, led by strong gains in Chinese telecom companies as investors once again hoped for the imminent issue of 3G licences. Resources stocks climbed after a year-end rally in oil prices.

    The FTSE 100 had risen 0.71% by 12:00, led by gains in miners, oils, banks and retailers.

    Share price news

    Truworths International Limited surged up by 8.21% this morning, overcoming an early dive to trade at R36.90 a share at midday. After a flat morning’s action, Huge Group Limited suddenly gained 7.69% to sell at R1.40 a share.

    Pulp and fine paper products group Sappi Limited experienced a loss of 4.23% as shares fell to R36.01, despite news of their acquisition of the coated graphic paper business of M-real Corporation on Wednesday 31st. Steinhoff International Holdings Limited lost 3.35% as shares dived to R12.13 at noon.

    Permalink2009-01-02, 13:29:52, by Natalie Email , Leave a comment