XML Feeds

What is RSS?

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

Top Rated

    Long run performance numbers

    On an annual basis JP Morgan produces a report on the performance comparison of various local asset classes. They asses the total performance across various time periods of equities, property unit trusts, home repayments, bonds and fixed deposits.

    For most of the asset classes the data goes back to 1960 – hence a period of 49 years.

    It’s a useful exercise to assess the history and variability of returns across various asset classes in an attempt to assess probabilities of returns going forward.

    It’s useful to understand history in order to plan an appropriate asset mix.

    As investors know, equities fell in 2008 for the first time since declining 11,2% in 2002. One needs to go back as far as 1970 to see a similar percentage decline in one calendar year.

    However on a 5 year basis and for longer periods, equities have outperformed other asset classes, especially after tax.

    On a pre tax basis bonds outperformed equities over the last 15 years. This comes from a period when equities were expensive and bond yields high and starting to fall with the decline in inflation.

    The chart below indicates the performance over various time periods of the 3 main asset classes when compared to inflation.

    Naturally assessing returns over longer periods smoothes out the shorter term volatility. An investment into equities is far more volatile than cash, but it is interesting to note the relatively high volatility of bonds.

    Because of the high volatility equities should not be used as a short term investment medium.

    This leads on to another interesting measure, which is the long term wealth effect. While 49 years is a lifetime, it is important to remember that an investor aged 60 has an investment horizon of 30 years.

    JP Morgan calculates that a basket of consumer goods in 1960 costing R1000 would cost R55 370 at the end of 2008.

    An investment in:

    • Fixed deposit would have yielded R94 920
    • Government bonds, R108 500
    • Equities, R1 973 590.

    While the compounded wealth in the bank or bonds would have hardly kept ahead of inflation, capital invested into equities produced a far superior result.

    So the higher variability of returns of an investment into equities has in the past paid off with investors having received a far greater reward.

    It also highlights the importance of the cumulative returns and not the 1 month, quarter or annual returns on long term wealth preservation against the biggest negative factor, i.e. inflation.

    Please don’t hesitate to contact us, if you would like to discuss your asset allocation and investment planning in an environment that is starting to produce opportunities.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-30, 17:04:42, by ian Email , Leave a comment

    Positive comments from US Federal Reserve boost markets

    Local markets

    At midday, the JSE All Share had risen by 1.96% thanks to gains in resources, after Anglo-American’s results inspired investor confidence. The local bourse followed international markets into positive territory, though awaiting a rates announcement from the Reserve Bank this afternoon.

    The rand was trading at R8.44 to the US dollar at noon, as the American currency weakened and local investors wait to hear news of the rate cut. Trading is expected to be uneventful before the public holiday tomorrow.

    Gold was selling at $892.62 an ounce at 12:00, losing steam as equity markets strengthen, but further losses were stifled by a weaker dollar.

    International markets

    The Dow Jones climbed 2.11% yesterday, while the Nasdaq rose 2.28%, as US investors were encouraged by positive comments from the Federal Reserve regarding room for future expansion.

    After Wednesday’s public holiday, the Nikkei played catch-up, shooting up by 3.94% as better-than-expected data boosted hopes for economic recovery, and Honda Motor forecasted a small profit for 2009.

    Hong Kong’s Hang Seng rose 3.77%, more than offsetting losses made earlier in the week. Positive spending information from US markets vastly improved investor sentiment.
    Britain’s FTSE 100 had risen 2.13% by noon, lifted by gains on commodity and bank stocks as positive comments from the US Federal Reserve convinced some investors that the ailing economy was on the mend.

    Share price news

    Anglo American Platinum Corporation Limited climbed 6.67% in share price to sell at R160 a share at midday, after the company released their first quarter review and production report for 2009 this morning. Shares in Sappi Limited in the paper sector rose to R20.81 a share, enjoying an increase of 7.49% after 222 deals.

    KAP International Holdings in the diversified industrials sector lost 15.15% in share price as shares traded at R1.12 at noon. Capital Property Fund in the real estate investment trusts sector fell to R5.40 a share, a loss of 10%.

    Permalink2009-04-30, 12:12:35, by Natalie Email , Leave a comment

    Inflation Remains Sticky

    Tito Mboweni’s announcement earlier in the year to increase the frequency of MPC meetings has resulted in today’s release of inflation data being more keenly anticipated than it would have been otherwise. With the MPC meeting today and tomorrow, today’s inflation numbers will be used by the committee to help determine what their decision will be in terms of possible changes in the repo rate.

    However, while inflation used to be a key determinant in the MPC’s decision making framework, it has been somewhat cast aside, as growth (or lack thereof) becomes the key focus.

    Inflation for the 12 months ended March 2009 came in at 8.5%, slightly under last month’s 8.6%, but just above consensus of 8.4%. We have now had two consecutive months where inflation has been higher than consensus, and two months where inflation hasn’t dropped significantly. When economies slow down it is typical for inflation to drop as consumption decreases. We have not seen this occur. Taking a closer look at the inflation numbers, and being cognisant of local current affairs it becomes apparent that there are a couple ‘sticky’ areas in the economy, areas where inflation isn’t falling as it should.

    Year on year changes to food and beverage, home maintenance, and electricity, among other items that have a large component of ‘administered prices’ have been driving inflation. We have all heard in the past couple weeks of the Satawu strike in the transport industry, and the demands of NUM for a 15% pay increase for employees in the gold and coal sectors. Their demands may or may not be fair and realistic, but in economic terms if these sectors aren’t improving productivity significantly to account for above inflation wage demands, then they will be contributing to higher levels of inflation.

    Inflation expectations (which are inextricably linked to recent inflation levels) are what drive wage demands, and previous high inflation levels have stoked expectations. It will be extremely difficult to convince union leaders that below inflation wage increases are the way to go!

    Another area which has seen an above average inflation increase over the past year is the public transport sector, which saw prices increase by 13.8%. This even as petrol decreased nearly 15% over the same period. Clearly wage increases and other factors influenced this price change.

    Despite inflation remaining some distance above the 6% targeted maximum level, we expect the MPC to drop the repo rate by another 1% tomorrow. The economy is contracting, and the need to provide a stimulus to help it grow. Dropping the repo rate to 8.5% will result in a situation where we are nearly sitting with negative real rates. This phenomenon hasn’t been experienced in South Africa for at least the last decade.

    Potential situation assuming a 1% drop in the repo rate:

    Negative real rates bring on an increased incentive to invest and take risks as the cost of borrowing drops below the level of price appreciation. Theoretically speaking therefore borrowing at the depressed levels and investing in goods that appreciate at the rate of inflation will give you a positive real return. Obviously this isn’t as straight forward in reality, but negative real rates do encourage an increase in risk appetite.

    An increased appetite for risk is something that Mr Mboweni will be aiming for, so don’t be surprised to see a drop in interest rates tomorrow (Thursday 30 April).

    Take care,

    Mike Browne
    021 9144 966

    Permalink2009-04-29, 18:20:09, by Mike Email , Leave a comment

    JSE recovers, rand steady as global markets improve

    Local markets

    By midday, the JSE All Share had recovered 0.87% after yesterday’s dive as international markets looked more positive. Oil and gas stocks were up 4.92% and financial stocks lifted by 1.17%, however gold mining lost 1.96%.

    The rand was trading at R8.62 to the US dollar at 12:00, remaining steady as the dollar weakened in light of better-than-expected consumer confidence in the US, despite swine flu concerns and capital needs of major US banks.

    Gold was selling at $895 an ounce, though some analysts expect technical selling as investors reassess their positions before US GDP data is released and the Federal Reserve meeting.

    International markets

    The Dow Jones closed 0.10% down yesterday while the Nasdaq fell 0.33%, after investors remembered their anxiety over the capital needs of US banks. IBM’s dividend boost and some positive economic data were not enough to offset losses for US stocks.

    The Nikkei average was closed for trading today due to a public holiday in Japan.
    The Hang Seng rose 2.76% this morning, regaining ground lost yesterday, but investors remained concerned about further spreading of the swine flu outbreak.

    Britain's leading share index gained 0.84%, recovering as yesterday’s swine flu fears subsided and as mining and oil stocks rose, particularly boosted by Royal Dutch Shell's first-quarter results, which were better than forecasted.

    Share price news

    Howden Africa Holdings Limited, a company manufacturing specialized fans, air and gas handling equipment, gained 8.33% in share price as shares traded at R6.50 each at noon. Coal of Africa Limited gained 6.13% to trade at R8.65 a share after 14 deals.

    Electrical equipment company South Ocean Holdings Limited lost 10.71% in share price after a steady decline this morning, as investors traded shares at R1.25. Shares in another electrical equipment firm, ARB Holdings Limited, fell to R1.45 a share by midday, representing a loss of 9.38%.

    Permalink2009-04-29, 12:17:59, by Natalie Email , Leave a comment

    Mixed company trading updates

    While markets were hit by the news on the ongoing swine virus scare, US markets opened up in positive territory on reports about growing consumer confidence. Locally we saw a few companies come out with trading updates. As usual these were mixed and it’s always interesting to follow these and get a sense how companies are finding the current environment.

    Liberty International was hit on the confirmation of the much speculated rights offer. Like all UK property companies, it has been hit exceptionally hard as property prices have declined substantially. In the announcements today Liberty said that the IPD index, which is a measure of the price of physical property, fell 35,6% in the 18 months to December 2008 and a further 8,9% in the 3 months to March 2009.

    In addition to financial turbulence, other factors cited included: difficult conditions for achieving property disposals, obtaining finance, an increased level of tenant defaults and a greater reluctance by tenants to make decisions on new lettings.

    As at March Liberty International’s properties were valued at GBP6,4 billion a decrease of GBP0,6 billion since the beginning of the year alone. Against this asset value it has debt of GBP4 billion.

    The company is looking at a number of steps, including the raising of GBP500-600 million by means of a placing of new shares. The Gordon Family, which controls 21,7% of the ordinary shares will dilute down. They will be taking up a total of GBP40 million.

    Given the gearing, the decline of some over 40% in property prices has an enhanced effect on the value of shareholders equity. This accounts for the decline in price from R195 to around R50. It fell by 10% today to R52 by late afternoon. This is back at levels seen in June 2000.

    Cape based asset manager, Cadiz issued a trading update for its financial year to March 2009. Diluted headline EPS are expected to drop 23% to 33%. But it does say that it has reported a significantly improved second half. This is mainly due to its decision to repatriate its foreign currency investment in October 2008. The price gained 0,5% to 186c.

    Spar issued a trading update for its 6 months to March, saying that headline EPS should be up between 20% and 22%. The shares fell 1,8% to R54.

    Cashbuild reported its 3rd quarter operational results, saying that revenue was up 29% with existing store contributing 19% and new stores 10%. Shares were flat at R66.

    Paracon Holdings announced that its interim to March should reflect headline EPS down between 15% and 25% over the previous period. The price fell back 5c to 115c

    Reports in the US indicated that the annual decline in home prices slowed in February for the first time since 2007. While still negative, the S&P/Case-Schiller index declined 18,6% year on year compared to a record of 19% in the previous month.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-28, 17:04:43, by ian Email , Leave a comment

    Potential swine-flu pandemic depresses world markets

    Local markets

    The JSE All Share had slipped down 2.32% by midday Tuesday, after the long weekend. Though gold mining shares had gained 1.02%, energy stocks and resources took a dive in line with weaker international markets.

    The rand was selling steadily at R8.85 to the US dollar at noon, though analysts expect more pressure this afternoon as investors increase in risk aversion due to the swine flu outbreak overseas.

    Oil fell to $47.57 a barrel at 12:00, a drop of 6.89% after worries about the financial sector were renewed on news that Citigroup and Bank of America might need to find more capital.

    International markets

    Yesterday, the Dow Jones fell 0.64% and the Nasdaq lost 0.88%, despite news of a complete overhaul for General Motors and gains for biotechnology shares. Investors became increasingly risk averse on concerns that the swine flu outbreak could further depress the global economy.

    The Nikkei closed 2.67% down this morning on news of Citigroup and Bank of America’s capital requirements in the US, which served to revive investors’ fears for the slowing world economy. The same news served to dampen investors in Hong Kong, as the Hang Seng finished 1.92% to reach its lowest level in three weeks.

    Britain’s FTSE 100 had slid 1.83% by midday, as investors worried over the swine flu outbreak and its effect on the global economy, though pharmaceutical stocks gained on hopes of greater demand for its products.

    Share price news

    Real Africa Holdings Limited in the investment companies sector gained 9.38% as share prices rose to R3.50 each at midday, after four deals. In the education, training and employment sector, Adcorp Holdings Limited rose to R21.50 a share, an increase of 9.14% in share price.

    The biggest mover down at midday was Telemaster Holdings Limited, whose shares fell 17.95% to R1.60. Rail, road and freight company Cargo Carriers Limited lost 13.91% to trade at R6.50 a share at noon.

    Permalink2009-04-28, 12:33:57, by Natalie Email , Leave a comment

    China announces gold purchases

    The Financial Times reported that China announced today that they have been acquiring gold, adding to their reserves and now own over 1000 tons. This acted to lift bullion back up above the $900/oz level. It’s currently trading at $907/oz.

    For many years now most central banks have been net sellers of gold, preferring to hold US dollars instead.

    However most central banks have dramatically reduced their gold sales under the current central bank gold agreement which expires in September. According to the World Gold Council, the only major seller has been France which has sold 64 tonnes. Russia is a buyer, having acquired 51 tonnes in the last 6 months.

    China’s purchases over the last few years takes them from owning 600 tons in 2003 to 1054 tons according to Xiaolian, head of state administration of Foreign Exchange. It therefore becomes the world’s 5th biggest holder.

    Reports have been speculating about the possibility of China acquiring the 403,3 tonnes that the IMF can and has announced that it will sell. However the IMF still needs to go through a process of approvals first and this sale may not occur.

    With China’s total value of its gold holdings at only $31 billion, this is still very small relative to their total foreign exchange reserves of some $1,95 trillion. The bulk of this is held in US government debt and China has been concerned about the extent to which the US is printing and the possible effect on their bond exposure.

    The biggest demand in 2008 and into the first quarter of 2009 was from identifiable investment. This into investment vehicles such as gold exchange traded funds. In the March quarter investors acquired 469 tonnes of gold dwarfing the previous record of 145 tonnes in 3rd quarter 2008.

    This chart from the World Gold Council reflects central bank sales under the 2nd central bank gold agreement.

    Source : World Gold Council

    The World Gold Council has reported a substantial increase in investor interest, driven by renewed search for effective portfolio diversifiers and growing concerns over the outlook for price stability.

    While gold is volatile over the shorter term, the medium to longer term supply and demand fundamentals continue to be attractive.

    Have a wonderful long weekend

    Kind regards

    Ian de Lange
    021 9144966

    Permalink2009-04-24, 16:57:01, by ian Email , Leave a comment

    JSE quiet before long weekend

    Local markets

    Influenced by slower Asian markets, the JSE All Share had lost 0.27% by midday after a flat morning’s trade, though gold mining stocks had gained 2.92%. Analysts don’t expect too much market action before the long weekend.

    Also quiet was the rand, which was trading at R8.85 to the US dollar, R12.96 to the British pound and R11.72 to the euro at 12:00. The local currency remains unmoved by election developments.

    Oil was trading at $49.52 a barrel by noon, hovering around the $49 level after the effect of stock market gains was dampened by a stronger dollar and negative sentiment regarding demand.

    International markets

    Positive results for regional banks boosted financial shares and lifted US markets, offsetting gloomy economic data. The Dow Jones rose 0.89% and the Nasdaq inched up 0.37% yesterday.

    The Japanese Nikkei average lost 1.57% this morning after auto shares dropped as news came that US carmaker Chrysler was preparing a bankruptcy plan. Losses in mobile phone company KDDI and in JFE Holdings, a prominent steel producer, also injured the index.

    The Hang Seng edged up 0.29% as Huiyuan Juice shares rose on a potential contract with multinational Coca-Cola. Further gains on the Hong Kong index were prevented by negative investor sentiment regarding the speed of recovery of the mainland economy.

    The FTSE 100 had climbed 1.07% by noon after gains in commodity and bank stocks, which lifted on positive closes in US markets.

    Share price news

    Investments bank Iquad Group Limited climbed 20% to sell at R2.40 a share at midday, after only one deal. Micromega Holdings Limited, business support provider, rose to R2 a share, an increase of 5.26%.

    Afrocentric Investment Corporation Limited in the farming and fishing sector fell to R1.50 a share, losing 11.76% in share price by midday after seven deals. Blue Label Telecoms Limited in the wireless telecommunication services sector lost 9.41% as shares fell to R3.66 each after 25 deals.

    Permalink2009-04-24, 12:16:57, by Natalie Email , Leave a comment

    Politics Effect on the Markets

    This topic is something that most people wonder about, especially in times of political uncertainty and during elections. In the broadest sense, and over the extremely long term, policy and the effective implementation of policy will no doubt have an extremely material and profound influence on the strength/weakness of a country’s stock markets.

    At the very least there needs to be basic market rights in order for a market to operate. From here further other institutions will either serve to assist in the functioning of markets, or detract from them. Democratic, capitalism focussed economies have historically been then ones that have shown the best performance over time but because of the general lack of regulation over time, can be prone to exponential growth and (as we have been witnessing) severe contractions.

    As we move into the shorter term, we see the effects of politics becoming more muted. This phenomenon should not be surprising, as it generally is the case with every factor affecting the markets. Short term fluctuations in sentiment may result in generating the news flows for the day, but the longer term ‘big picture’ items are the ones that shape the way that the events are recorded in history.

    Typically the reason that we don’t see daily announcements making too much of an impact on that day’s market performance is that there will generally be an element of expectation that the event will happen already priced into the market. We find that when announcements or events are totally unexpected there can be large movements.

    Two international examples to illustrate this point would be the disaster of 9/11, and the election of Barrack Obama as president of the USA at the end of last year. The planes crashing into the Twin Towers was completely unexpected, and as such had a massive direct effect on stock markets around the world. The election of Barrack Obama, while maybe not priced into the markets when he was an underdog competing with Hillary Clinton to be the Democratic representative, would gradually have been priced into the market as the chances of him winning the election grew stronger and stronger. Being priced into the market essentially means that investors were placing greater emphasis on how Obama’s policies would affect the economy, various sectors, and each company in turn, and also how effective he would be in getting his policies implemented.

    Locally we saw that when NPA decided to drop charges against Jacob Zuma there wasn’t much impact on the market, as many investors would already have priced this outcome into their analysis. While the market did fall for the day, it wasn’t materially different to other global markets.

    Even more recently we see healthy markets today, and a stronger rand. The market strength can be attributed to world market performance over the past 2 days (we were closed for the day of voting), and the strength in the rand (currently sitting at 8.92) is probably an indication that the global community were impressed with witnessing what have so far been peaceful, well supported elections.

    I hope you had a good voting experience yesterday.

    Take care,

    Mike Browne
    021 9144 966

    Permalink2009-04-23, 15:37:07, by Mike Email , Leave a comment

    JSE plays catch up after uneventful election day

    Local markets

    At midday, the JSE All Share had moved up 1.70% on stronger oil and gas and resource stocks, while the gold mining sector stayed in the red. Influencing the local index were positive Asian markets, which helped lift the All Share after the JSE was closed for the elections yesterday.

    The rand was trading at R8.91 to the US dollar at noon, little changed as the national election went fairly smoothly. Analysts expect the local currency to rather be influenced by developments on the international front after the IMF cut its growth forecasts.

    An ounce of gold cost $892.35, up 0.26% as investors renewed their concern about the state of the world economy, and physical buying in India increased.

    International markets

    Manufacturing and biotechnology shares enjoyed a boost yesterday on US markets, sustained as corporate executives expressed optimism about the global economy after mixed 1st quarter results. The Dow Jones still closed down 1.04%, though the Nasdaq rose 0.14%.
    The Nikkei climbed 1.37% this morning, overcoming earlier losses after gains in electronics makers. Analysts say that the Japanese market is currently highly sensitive to company news, at least in the short term.
    The Hang Seng finished 2.26% higher after blue-chip stocks rose after sliding the last two days, however PCCW stocks fell after the company’s privatization proposal was denied.
    The FTSE 100 was 0.26% up by midday after a flat morning’s trade. Weaker bank and pharmaceutical stocks were overcome by gains in retailers. Traders believe the UK market to be awaiting further guidance after yesterday’s Budget announcement.

    Share price news

    Shares in TWP Holdings Limited, a company offering engineering expertise to the mining industry, were 12.50% up at 12:00, trading at R4.50 a share. Platinum producer Anooraq Resources Corporation moved up 11.84% to sell at R8.50 a share after six deals.

    Hwange Colliery Company Limited in the coal sector lost 9.50% as shares fell to R1.81 each. Diamond mining and exploration company Thabex Exploration Limited fell to R1 a share at noon, a loss of 9.09%.

    Permalink2009-04-23, 12:50:50, by Natalie Email , Leave a comment

    Shares are long duration assets

    Value investors around the world are getting excited as prices decline. The type of investors that does not buy shares with the hope that they will be up in price next week, but rather looks to buy into quality companies at very attractive prices, is getting excited at these current cheaper valuations.

    But the same volatility that is attractive to value managers is that element that scares most other investors.

    The long term chart of the JSE All Share index from 1985 gives an indication that while the trajectory of prices is up, there is substantial price volatility.

    Portfolio construction will sometimes attempt to alleviate this volatility by combining other asset classes that have a lower volatility with a lower expected return. A balanced fund for example could include property, bonds and cash. The inclusion of assets other than listed shares will dampen both volatility and long run expected returns.

    But don’t make the mistake of measuring the performance of a balanced fund to that of an equity fund over a discrete period of time, especially over a period of time when equity prices fell back, and incorrectly conclude that a balanced fund will always deliver superior performance.

    It is exactly because the shares of a listed company are volatile that an investor expects to receive a premium in return over bonds, property and cash.

    The volatility comes about because a share price is the represent value of future cash flows. Because a share does not have a maturity date and dividends typically grow over time, the duration of shares is very long. The longer the duration of an asset the higher the volatility.

    The only way to increase the probability of receiving the share premium return is to buy assets when they are as cheap as possible. We know that they are far cheaper than 12 months back, but they may not be the cheapest they will get.

    For investors looking to increase exposure to cheaper assets, a common practical method is to phase funds in.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-21, 17:40:43, by ian Email , Leave a comment

    BoA reports increase in troubled loans, global markets weaken

    Local markets

    Gains in energy, resources and gold mining stocks were not enough to offset losses on the JSE All Share, which had slid 0.3% by noon, in line with weaker global markets.

    A US dollar cost investors R9.11 at midday, as the local currency edged down in the face of increased aversion to risk. Investors are also engaging in a spate of short-covering before the national elections tomorrow.

    Gold was trading at $888.72 an ounce, up 0.53% as light, physical buying increased. Investors in the precious metal were cautious on the whole, waiting for movements on European and US share markets before committing themselves more fully.

    International markets

    In US markets, the Dow Jones lost 3.56% yesterday, with the Nasdaq finishing further down by 3.88%. Investors’ former confidence from fairly positive bank results was shaken after Bank of America announced an increase in troubled loans.

    Japanese investors were also affected by this news, causing the Nikkei average to close 2.39% lower this morning on the negative sentiment, coupled with a stronger yen that hurt exporters.

    The Hang Seng dropped by 2.95% as HSBC reacted to US bank news in a slide, and energy stocks retreated after an 8% fall in crude oil price and renewed caution from investors regarding the pace of world economic recovery.

    The FTSE 100 gained 0.11%, overcoming losses in banks and mining stocks thanks to stronger retailers after better-than-forecast results, as well as oil producers.

    Share price news

    Brimstone Investment Corporation Limited climbed by 17.65% to trade at R6 a share at noon after only one deal. After 10 deals, African Dawn Capital Limited rose to R1.85 a share, an increase in share price of 6.32%.

    Shares in Merchant-Industrial Properties Limited fell to R3.60 each, a drop of 10% by midday. Mazor Group Limited lost 8.50%, falling to R1.40 a share by the same time.

    Permalink2009-04-21, 12:38:59, by Natalie Email , Leave a comment

    Central bank intervention adds to currency volatility

    Global equity prices fell back again, reaffirming that prices are still in a broad sideways pattern. With global companies, economy’s and countries under pressure, central bank authorities are still on the path of easing interest rates and trying to increase the general stock of money.

    A Standard Bank fixed income report announced that in addition to the UK, the US and Switzerland, now Canada and Sweden may also soon look at quantitative easing – a euphemism for the printing of money.

    Source: Ecowin and Standard Bank

    The graph reflects the percentage change in US monetary supply versus that of Canada.

    As soon as central bank rates go as low as 0,5% there is very little point in going to zero.

    The ECB is likely to drop their interest rates by a further 0,25% to 1% in early May. Rates are also at historic lows

    Quantitative easing is simply designed to increase the stock of money and as the Standard Bank report indicates, “We see this policy as a deliberate attempt to devalue local currencies against local goods and services.”

    It will also ensure devaluation against other things like foreign currency.

    Bond managers, Pimco said this about the possible quantitative easing (QE), “The basic rationale behind a QE program is an acknowledgement that Milton Friedman was right when he said “inflation is always and everywhere a monetary phenomenon,” and that in order to generate inflation, all a central bank has to do is print money.”

    As central bankers have escalated their intervention in the currency markets, it is exceptionally difficult to anticipate short term currency movements.

    Thus far monetary easing by governments around the world has not had a perceived impact on asset prices. They want to avoid the scenario in Japan, which really only embarked on printing of money in 2001, some 11 years after the start of the downturn.

    The jury is still out.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-20, 17:26:08, by ian Email , Leave a comment

    Global markets flat ahead of political and corporate news

    Local markets

    By 12:00, the JSE All Share had fallen by 1.27% after a steady decline, led downwards by weaker resource stocks. On the positive side, gold miners had recovered by 0.86% after losses earlier in the morning.

    The rand stayed steady at R9.06 to the US dollar, as traders hold out until after Wednesday’s elections to change their positions. Also impacting the value of the local currency, more corporate earnings reports are expected to be released this week in the US.

    Gold was trading at R871.60 an ounce at midday, inching up by 0.26% after falling to a three-month low on Friday. The effect of increased risk aversion was tempered by the strengthening of the dollar.

    International markets

    The Dow Jones closed flat, managing a gain of 0.07%, after a consumer survey boosted hopes of economic stabilization for the US. Meanwhile, the Nasdaq closed up 0.16% as investors bought Apple stocks, hoping to gain when the corporate releases its results next week.

    The Nikkei average rose 0.19% this morning, offsetting earlier losses due to a stronger yen as gains in steelmakers provided compensation. The steel sector enjoyed a lift after Nomura Securities changed its status from neutral to bullish.

    The Hang Seng rose 0.96% to settle at its highest level in six months, inspired by developments on the mainland. Chinese airlines spoke of increased airfares to help stage a turnaround in the sector, bringing gains to Hong Kong stocks, while gains in Chinese banks and other stocks also buoyed the index.

    The FTSE 100 had slipped by 0.97% at noon, as gains in banks and energy shares were ignored for the moment by investors whose eyes are on corporate results and await the UK budget on Wednesday.

    Share price news

    Efficient Financial Holdings Limited was the top gainer at midday, as shares climbed after one deal to sell at R5.40 a share. Builders merchants Winhold Limited gained 9.89% as shares rose to R1 at noon.

    Aquarius Platinum Limited NPL’s experienced a sudden and dramatic drop at approximately 10.20am, falling to R15 each and losing 14.29% since trade opened this morning. IFA Hotels and Resorts lost 6.67% in share price as shares were trading at R1.40 each.

    Permalink2009-04-20, 12:23:44, by Natalie Email , Leave a comment

    The JSE has seen some strong moves up

    While the local equity market remains in a bear trend, technical analysts are looking for possible continuing upside. With very little consensus as to the direction of the markets, it is highly probable that various indices give so called false breakouts. For longer term investors with capital to invest and looking to accumulate values are attractive.

    The industrial index is up 17% from its 9 March low.

    JSE Industrial 25 index

    The financial index is up by some 30% from its low on the 9 March. This major percentage bounce up give a clear indication of the volatility in prices.

    A few examples of shares that have seen big moves up from recent lows include:

    o Standard Bank made a low of R60 and is up at R86 – up 43% from its low.

    o Implats closed at 11859 at the end of February – it is up 37% to its current R163.

    o The JSE stock closed at R28 at the end of February. It is up 31% to R50.

    These are extremely high gains in a short period of time. There are some indications that the down trend is being broken, but at this stage we still think that this is going to be a sideways trading market. This is fantastic for longer term accumulators of real assets

    Have a fantastic weekend

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-17, 17:26:29, by ian Email , Leave a comment

    Positive international markets fail to inspire JSE

    Local markets

    By noon, the JSE All share had slipped 0.07% as gains on international markets failed to inspire local investors, though the local bourse seemed to be on the path to recovery as gold miners and energy stocks gained 1.55% and 1.39% respectively.

    As emerging market currencies retained their attraction for some investors, the rand was trading at R8.93 to the US dollar at 12:00, remaining strong though slightly off higher levels achieved overnight.

    Oil was trading at $51.83 a barrel, recouping 1.63% thanks to stronger equity markets, after a recent slide which came on news of high inventory levels.

    International markets

    Though energy shares declined and prevented further gains, US equity markets gained yesterday on positive sentiment from investors regarding the stabilization of banks, in addition to hopes for good technology results. The Dow Jones closed 1.19% high, while the Nasdaq climbed 2.68%.

    Steelmakers propelled the Nikkei average 1.74% upwards this morning, after Toyota agreed to a smaller-than-expected price cut for Nippon Steel. However, the gains were not enough to save the index from its first negative week since the beginning of March.

    The Hang Seng edged up 0.12% as property stocks were boosted by an upgrade of the sector by Goldman Sachs from cautious to neutral, on early signs of economic stabilization. Further gains were limited by losses on the mainland’s index.

    Britain’s leading share index had risen 0.11% by midday in South Africa, as the FTSE 100 managed to shake off earlier losses in mining and pharmaceutical stocks.

    Share price news

    The share price of Village Main Reef Gold Mining Company Limited rose 33.33% after a single deal to cost investors R1 at midday. Eastern Platinum Limited enjoyed a steady morning’s gains as share prices rose to R4.95, an increase of 10.24%.

    Shares in Grand Parade Investments Limited fell 11.59% to trade at R2.06 a share at 12:00, also only after one deal. Huge Group Limited in the telecommunications industry slid to R1.20 a share, a loss of 7.69%.

    Permalink2009-04-17, 12:36:45, by Natalie Email , Leave a comment

    US foreign capital flows

    With the US government requiring substantial amounts to meet its fiscal deficit and knowing that they have somewhat distorted bond market dynamics by being both a buyer and an issuer of bonds, a useful report is their monthly TIC – Treasury International Capital report,

    The TIC report gives an indication of the net flows in and out of the US – The Wall Street Journal says that, “Financial market analysts consider the monthly data from the Treasury Department to be a significant but imprecise gauge of how easily the U.S. can finance its trade deficit. “

    The numbers do come out late - just yesterday the data for February was released.

    The end of 2008 saw substantial inflows into the US – in the period September to November foreigners bought $320 billion of US Treasury bills.

    This slowed dramatically in January. The most comprehensive category is the TIC flows, which includes bond, equities, short term securities, agency debt and changes in banks dollar holdings. For the month of January it came in at negative $146 billion – see chart below, which reflects data to January

    There was some expectation of an improvement, but the overall net flows again declined in February by $97 billion.

    This is a huge reversal from 2007 and 2008 where for the full year the TIC report reflected a net inflow of $617billion and $611 billion respectively.

    Of the total issued treasury securities, China is the largest foreign holder. In February they owned $744 billion followed by Japan with $662 billion.

    This trend gives an indication as to why US treasury bonds performed last year, but also why fundamentally we think that they are weak, given the lackluster demand from foreigners.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-16, 17:45:21, by ian Email , Leave a comment

    Signs of global economic recovery not enough to boost JSE

    Local markets

    An aimless opening on the JSE was followed by losses in all sectors, which led to a fall of 1.52% in the JSE All Share at 12:02. Mixed results on international markets sent conflicting signals to local investors, who continued to sell off their stocks.

    A US dollar cost traders R9.07, remaining steady though slightly lower after the euro weakened against the dollar.

    An ounce of gold cost $888.95, falling 0.12% as physical buying declined and certain key equity markets strengthened, which made shares more attractive as investment opportunities than safe-haven gold.

    International markets

    US investors grew in confidence yesterday after further signs that the recession could be on its way out, such as positive debt-repayment data from American Express. The Dow Jones closed up by 1.38%, while the Nasdaq edged up by 0.07%.

    Japan’s Nikkei average managed to hold onto a gain of 0.14% this morning, after investors took profits on news that China’s growth for last quarter was at its lowest level ever.

    Hong Kong’s Hang Seng fell 0.55% after profit taking, as poor earnings results and low economic growth figures for China offset the index’s earlier gains.

    Britain’s FTSE 100 inched up 0.80% on gains by banks and mining stocks, though losses in defensive stocks prevented a further rise for the index.

    Share price news

    One deal for diamond mining company Thabex Exploration Limited sent the share soaring 11.11% to R1.10 a share at midday. Meanwhile, Rare Holdings Limited, an investment holdings company, rose 10.92% to sell at R1.32 a share after ten deals.

    Rainbow Chicken Limited experienced a second day’s losses, falling 2.91% to R15 a share at noon. Murray and Roberts Limited lost 5.33% in share price as shares traded at R42.60 each, after the company announced it would be withdrawing from its contract to construct Dubai International Airport Concourse 3.

    Permalink2009-04-16, 12:14:07, by Natalie Email , Leave a comment

    Managing Return Expectations

    Managing expectations is an important part of investment management.

    The above statement is a simple one, and one can be forgiven for assuming that it is an easy concept to follow. It is human nature to continuously push the boundaries of possibility, and this can be manifested in the investment world through the pursuit of improving returns while lowering the level of risk.

    In this regard most investors, no matter how experienced, will desire to improve their returns, and it is this desire that will sometimes lead to the confusion of what is desired, and what should be expected. Where the difference between the desired return and the realistically expected return is large, and where the desire far outweighs the rational expectations, we find ourselves set up for disappointment.

    One is able to extrapolate from history that over the long term one can expect different return profiles from different asset allocations. These return profiles also come with their own risk profiles that one needs to be cognisant of. Key here is that these expectations are based on long term data. With markets going through both good and bad periods there will be shorter periods (perhaps extending to the medium term) where returns will be both above and below what is expected.

    In periods when above average returns are achieved, one must be careful not to extrapolate these special returns into the future. This will result in your expectations not matching the reality.

    On managing expectations between relative and absolute returns it is important to separate the component returns.

    On a portfolio level one should be looking at absolute returns, i.e. returns that are benchmarked to inflation / cash. This type of benchmark is desirable as ultimately your long term investment goals should be geared towards a real return benchmark.

    Each of the component asset class returns should be compared to relative indicators, i.e. returns that are benchmarked to indices / peers. An equity manager, for instance, can’t be expected to give positive returns when the market is down 30%.

    The asset manager should then be responsible with making the asset allocation call between the various asset classes, overweighting cheap assets, and underweighting expensive assets.

    A manager who is able to generally select investments that beat their peers, and asset classes that are cheap will be able to, over time, achieve the desired long term absolute and relative return targets. Key again is the long term time period, as any investment thesis needs time to reach its maturity.

    Enjoy the rest of your short week.

    Take care,

    Mike Browne
    021 9144 966

    Permalink2009-04-15, 17:35:16, by Mike Email , Leave a comment

    JSE tracks losses on US, Asian markets

    Local markets

    The JSE All Share had lost 0.47% at midday, led downwards by all sectors but financial stocks in particular, as investors engaged in profit taking. The local bourse tracked losses in US and Asian markets.

    By noon, the rand had fallen to R9.17 to the US dollar, pressured by a drop in the Dow Jones and a weaker euro.

    Gold was trading at $890.60 an ounce, remaining stable as investors examined movements on equity markets for risk appetite, and awaited profit results and manufacturing data from the US before changing their investments.

    International markets

    The Dow Jones fell 1.71% yesterday, accompanied by a fall in the Nasdaq of 1.67%. Investors’ hopes for an imminent economic recovery were put on hold as retail sales figures were less than positive.

    The Nikkei average lost 1.13% this morning, after the yen strengthened against the dollar on news of low US retail sales, which dented exporters. However, gains in pharmaceuticals and retailers served to minimise losses to the Japanese index.

    The Hang Seng overcame early losses to edge up 0.57%, reaching its highest level in six months. Investors bought Chinese stocks, hoping that Beijing will provide more help to local industries.

    The FTSE 100 had inched up 0.20% by 12:00 SA time, managing to regain ground lost after banks and mining stocks fell earlier in the day. Energy stocks gained after BG Group released news of a new oil discovery.

    Share price news

    Jubilee Platinum PLC was the biggest mover up at midday, trading at R1.80 a share, a price increase of 27.66%. Metorex Limited in the metals and minerals sector gained 6.63% in share price to sell at R1.77 a share.

    Shares in Rainbow Chicken Limited dropped down 9.09% to R14.31 after just three deals. After substantially more activity, Sappi Limited in the paper sector lost 5.25% to trade at R19.85 per share at noon.

    Permalink2009-04-15, 12:55:06, by Natalie Email , Leave a comment

    Conflicting views have resulted in a sideways market

    On an ongoing basis there is a debate as to whether the markets have made the bottom or whether there is a lot more to come. For the time being however the local market is trading in a largely sideways pattern and has been doing so now for some months. It’s only natural for investors to be confused because extremely successful investors have totally contrary views.

    Negative global equity view

    Successful investor and one time partner to George Soros, Jim Rogers was again espousing his views on Bloomberg.

    Rogers has been correctly bearish on equities for some time. He still says that while he is not sure whether this will be as bad as the 1930s, markets have not yet made a bottom.

    He thinks that no matter what happens to the world economy he will be benefit by owning commodities and specifically agricultural commodities.

    Positive global equity view

    On the other hand Ken Fisher, extremely successful US based money managers and ranked on the Forbes list of 500 richest Americans has a contrary view.

    In his latest commentary he says this, “Why aren't people buying stocks when stocks are cheap? Investors refuse to think a few years out to the resurgence of the economy because they're busy staring at their feet. Look up and out. This huge bear market has presented huge opportunities. Beyond simple cheapness, we're on the cusp of the biggest global monetary and fiscal stimulus relative to the world's GDP in history. There is a wall of money coming. And then a boom!”

    He goes on to say that there are problems, but there have always been problems.

    He cites 5 shares that he believes are trading at very good value such as Magna International that is trading on 5 times 2010 earnings and 2 times cash flow.

    Also Marathon Oil trading at 7 times 2009 earnings and 3 times cash flow. It’s on a 3,6% dividend yield.

    It’s the vastly conflicting views that quite frankly are making for the up and down market that we are seeing at the moment.

    These markets require patience and some element of varying asset allocations.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-14, 17:43:42, by ian Email , Leave a comment

    Better-than-expected US financial results bring confidence to global markets

    Local markets

    The JSE All Share had risen by 2.38% at midday after the Easter weekend, boosted by strong gains in the basic materials and financial sectors.

    The rand was trading at R9.01 to the dollar at noon, remaining within a range as investors were cautious ahead of the local elections on April 22.

    The oil price rose 2.17% to $53.13, reclaiming some of the ground lost after the International Energy Agency reduced its forecast for demand.

    International markets

    Yesterday, the Dow Jones edged lower by 0.32% after Boeing announced that they expected reduced profits for the first quarter, causing investor doubt as to the progress of recovery of the economy. The Nasdaq closed fractionally higher by 0.05%, as banks are expected to publish positive results for this quarter.

    The Nikkei slipped 0.92% at its close early this morning, as investors were more anxious over General Motors’ results than positive about stronger results for US financial stocks.
    The Hang Seng climbed by 4.55% by its close after a buoyant day’s trade, as investors renewed their hopes for stabilization in the financial sector on news of stronger US financial results and positive data from China.

    The FTSE 100 had risen 1.01% by midday, managing to offset losses in oil producers and defensive stocks as banks gained on Goldman Sachs’ results and mining stocks were supported by stronger metal prices.

    Share price news

    Aquarius Platinum’s nil paid letters (NPL) were trading at R19 at midday, up 19.50%. Eastern Platinum Limited gained 12.28% as investors traded shares for R4.48 at the same time.

    Amongst the biggest movers down was retailer Italtile Limited, whose shares were trading at R2.40 at 12:00, a loss in share price of 20%. Crookes Brothers Limited in the farming and fishing sector lost 13.04% as shares fell to R40 each.

    Permalink2009-04-14, 12:56:55, by Natalie Email , Leave a comment

    Is the poor economic data already factored into asset prices?

    The economic numbers coming out from South Africa and the rest of the world are quite dismal. Yesterday manufacturing numbers were released for February which reflected a very bleak picture. All economic charts paint a very weak picture, but we always need to remember that these are mostly rear looking.

    Johan Rossouw from Vunani concludes, “The manufacturing industry is in deep trouble and there can be little doubt that by the end of the first quarter of 2009 the South African economy will find itself solidly in recession.”

    Nedbank economists say that “the latest manufacturing numbers reflect a very weak picture for the second largest sector of the economy.”

    Both these economists along with others continue to expect a further 1% drop in official interest rates in April.

    Source: Vunani Securities

    South African production numbers mirror global industrial production, which has also fallen off a cliff from the 4th quarter of 2008.

    Source : Wachovia

    The main catalyst was the demise of Lehman Brothers on 15th September 2008, after which credit markets froze and producers clamped down. Its now almost 6 months after this event.

    Ever since the IMF started calculating global GDP series in 1970, global growth has not been negative. Wachovia in the US is projecting global 1% negative in 2009 with every G7 economy in deep recession.

    While the economic news is horrific, we do need to keep in mind that graphs of commercial, residential and stock prices also reflect massive declines. And so the confirmation of the poor economic data now being released now is by and large already in the prices of assets.

    MSCI World Index

    The drawdown of some 50% and more in asset prices has been severe. All investors need to gauge their actual performance relative this.

    We would like to take this opportunity to wish you a blessed Easter weekend.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-09, 14:04:16, by ian Email , Leave a comment

    Positive global markets lift JSE

    Local markets

    The JSE staged a turnaround this morning, joining international markets by moving higher by 1.48% at midday. Stronger resources and platinum stocks supported the local bourse, while gold miners fell, ending recent gains.

    The rand was trading at R9.09 to the US dollar at noon, strengthening further after Wednesday’s highs thanks to a firmer euro and positive closes on global equity markets.

    Gold was trading at $884.80 an ounce, holding steady as investors assess the share markets for risk appetite while retaining concern for the health of the global economy as well as possible inflation.

    International markets

    US investors were optimistic about increased consumer spending as well as news that the government will assist life insurance companies, which lead to a 0.61% rise in the Dow Jones and a 1.86% rise in the Nasdaq at close of trade yesterday.

    The Nikkei average soared 3.74% higher this morning, reaching its highest level in three months, after an economic rescue plan that is expected to boost consumer spending gave hope to electronics companies.

    The Hang Seng climbed 2.95%, adding a fifth straight week to recent gains after financial stocks rose on increased positive sentiment for investors.

    The FTSE 100 had risen by 0.44% by midday SA time, lifted by banks and commodities which were spurred upwards by positive closes overnight on US and Asian markets.

    Share price news

    The IPSA Group, which specializes in the construction, development and operation of electricity generation assets, rose to R2 a share at noon, an increase of 17.65%. Ellies Holdings Limited, manufacturers and distributors of television reception-related products, was trading at R1.02, an increase in share price of 17.24%.

    VLE In the shipping and ports sector, Value Group Limited tumbled 10.21% to sell at R2.55 a share at midday. Blue Financial Services lost 8.33% in share price this morning, trading at R2.20 just after 12:00.

    Permalink2009-04-09, 12:46:01, by Natalie Email , Leave a comment

    A Look at the G20

    For years now, influential groups of world leaders have been known according to how many member countries there are in the group, generally using “G” as a prefix. The first such grouping that I am aware of is the G8 (originally the G6 until Canada and Russia joined) that had their first summit in France in 1975. These groups typically meet to discuss key global issues, but generally lack the formal authoritative structure to implement decisions that other international organizations like the UN command.

    The G20 (of which South Africa is a member) is a group of countries that comprises 85% of the world’s GNP, and two thirds of the world’s population. It therefore allows for the majority of the world to be represented by a fairly small grouping. The group was established as recently as 1999 and discusses key policy items relating to the promotion of international financial stability.

    A special meeting of the G20 was convened in London at the beginning of the month and attracted a lot of attention due to the current financial climate. Part of the attention was drawn due to the large riots held in London over the period that the meetings took place.

    The meeting in London looked at how the countries should deal with the current global slowdown. There is a recognition that co-ordinated action is required to pull the world economy out of a potential recession as the inter-connectedness of the global economy is such that one country’s actions in isolation won’t have the desired result. While this need is recognised, there are various view points on how this should be achieved, with politicians from each country trying to get their agenda onto the table. The latest meeting has been characterised by the US and Japan calling for more deficit spending to generate economic growth (and not worrying for now about future inflation threats), while Germany and France have been at the forefront of those opposed to the unconstrained spending.

    Calls at the previous meeting (held in November 2008) to avoid implementing protectionist measures seem to have fallen to a large extent on deaf ears. The call was made as in the long term free trade improves the GDP all trade members, but trade restrictions can appear to be beneficial to the protectionist country in the short term, and as such many politicians use this as a tool to improve popularity. The World Bank found that 17 members had implemented trade restriction measures since their mid November meeting!

    It is clear that this group is perhaps not as efficient as it could be in an ideal world. We do, however, need to be realistic as to what this type of group can achieve. Merely participating in the dialogue improves relations and improves the probability that something will be done to advance international financial stability, which wouldn’t be the case if there was this setup.

    Take care,

    Mike Browne
    021 9144 966


    Permalink2009-04-08, 18:29:23, by Mike Email , Leave a comment

    Investor sentiment weakens, world markets fall

    Local markets

    Once again, gold mining was the only sector gaining on the JSE, while the other sectors had pressured the All Share down by 1.06% at 12:00.

    The rand had lost against the US dollar to trade at R9.23 at midday, as the local currency tracked losses in the euro. Investors continued to take profits after new financial data failed to restore positive sentiment.

    Meanwhile, oil was trading at $49.83 a barrel, losing 2.29% as investors optimism diminished and contributed to weaker equity markets in the US and Asia.

    International markets

    Yesterday, the Dow Jones lost 2.34% and the Nasdaq 2.81% after investors expected corporate earnings to be lower than hoped, and faced renewed fears of the effect of banks’ toxic assets.

    In Japan, the Nikkei average dropped by 2.69% this morning as exporters suffered under a stronger yen and companies such as Sharp and Kobe Steel revised their earnings estimates.

    In Hong Kong, the Hang Seng tipped down 3.04% as investors expected companies to recalculate first quarter profits in light of the economic downturn. Losses were limited by carmaker Dongfeng, whose March vehicle sales reached record levels.

    In Britain, the FTSE 100 had inched down by 0.65% due to weaker bank and commodity stocks after corporate earnings warnings. Pressure was eased somewhat by gains in food retailers and pharmaceuticals.

    Share price news

    IFA Hotels and Resorts Limited, developer of integrated and mixed-use resort projects rose a massive 87.50% at midday to sell at R1.50 a share. Shares in software company UCS Group Limited gained 17.56% to trade at R1.54 a share at noon after four deals.

    Metair Investments Limited in the automotive industry lost 11.17% in share price to cost investors R3.50 a share by midday. Canadian uranium corporation Uranium One Incorporated fell to R18 a share, a loss of 7.22%.

    Permalink2009-04-08, 12:12:10, by Natalie Email , Leave a comment

    IMF gold sales fact or fiction

    Gold appears to be acting contrary to the general market direction. As soon as risk appetite increases so appetite for safe haven gold declines and vice versa. One of the reasons for the decline in bullion last week was the mooted sale of gold by the IMF – International Monetary Fund.

    The mooted sale of gold was to help fund the IMF in the planned $50 billion for aid to the poorest countries.

    However while the IMF is a large holder, it’s not that easy for it to sell.

    The IMF is the worlds third largest holder of gold with some 3217 metric tons – 103,4 million ounces.

    However the bulk of this gold cannot be sold without restitution to members. This is the portion of gold holdings acquired since the Second Amendment of the IMF’s Articles of Agreement in April 1978. The portion that falls outside of this amendment and is available for sale is only 403,3 metric tons – it’s unlikely that the IMF will be quick to sell this down.

    The bulk of its holdings were acquired prior to this Second Amendment through 4 main types of transactions listed below.

    Therefore before the IMF can sell the bulk of its gold, 85% of the fund’s country shareholders need to approve the proposal. The US has a 17% vote and therefore a veto right.

    The IMF gold was obtained by:

    o Prescribed that 25% of the initial quota subscriptions were in gold – this is the largest source.
    o All payments of charges – e.g. interest on members use of IMF credit were normally made in gold
    o A member wanting to buy foreign currency could sell gold to IMF (the major user of this provision was SA in 1970-1971)
    o Payments for credit previously extended could be done in gold.

    The IMF states that its policy on gold is governed by the following principles:

    o As an undervalued asset held by the IMF, gold provides fundamental strength to its balance sheet. Any mobilization of IMF gold should avoid weakening its overall financial position.
    o The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies.
    o The IMF has a systemic responsibility to avoid causing disruptions to the functioning of the gold market.
    o Profits from any gold sales should be used whenever feasible to create an investment fund, of which only the income should be used.

    In fact in a time when the IMF sold 1/3 of its then gold holdings – 1976 – 1980, the price of gold was a in a very strong bull market.

    Over the recent years sales have been called for but typically come to nothing. The US apparently blocked a previous attempt to sell IMF gold in 2005.

    If history repeats then any actual sales of gold into the market will be non existent or small and will not be market disrupting.

    Kind regards

    Ian de Lange
    021 9144966

    Permalink2009-04-07, 17:44:33, by ian Email , Leave a comment

    Gold miners stronger, but not enough to boost JSE

    Local markets

    By midday, the JSE All Share had slipped by 1.76% despite staging an initial recovery as trade opened. Gold mining stocks were stronger, recouping some of yesterday’s losses, though the oil and gas and basic materials sectors continued to lose points and weigh down the local bourse.

    After yesterday’s highs, the rand slid slightly to R9.18 to the US dollar at midday, tracking the weaker euro as investors engaged in profit taking on global markets.

    Gold was trading at $876.75 an ounce at 12:00, rising by 0.89% as investors covered short positions, after the price of the precious metal declined over the last three days.

    International markets

    In US markets, the Dow Jones lost 0.52% and the Nasdaq fell 0.93%, ending a four-day rally. Investors were spooked by comments from a well-known analyst who reminded them of the crisis in the banking sector, and by news that a takeover bid for Sun Microsystems was on the rocks.

    In Japan, the Nikkei average fell 0.28% after an up-and-down trading session to close a four-day rally. Investors continued to fret about the US banking system, which added to the losses in financial stocks, though gains in carmakers helped to limit overall losses.

    The Hang Seng lost 0.46% as Hong Kong shares ended three days of gains, mainly due to losses in global bank stocks such as HSBC as sentiment worsened.

    In the UK, the British FTSE 100 had joined the worldwide losses by slipping 1.06% by midday. Gains in energy and mining shares could not fully offset losses in financials as investors took their cue from weaker global markets.

    Share price news

    Broadcasting contractors African Media Entertainment Limited gained 15% after four deals to trade at R23 a share at noon. Afrocentric Investment Corporation Limited in the farming and fishing sector was selling at R1.20 a share, an increase in share price of 14.29%.

    Micromega Holdings Limited in the business services industry once again made the list of the biggest movers down, losing 28.57% to sell at R1 a share at 12:01. After only one deal, Blue Financial Services slid 16% to trade at R2.10 a share.

    Permalink2009-04-07, 12:16:05, by Natalie Email , Leave a comment

    Adding up the bailout cost

    On a daily basis and post the G20 summit, global governments continue to develop plans on how they will provide funding to prop up lenders in an attempt to reverse the deflationary impact. A Bloomberg report at the end of March compiled an analysis of the total that the US government and Federal Reserve have spent or committed.

    That total now runs at $12,8 trillion.

    This is very close to the annual GDP of the US, which is officially at around $14,2 trillion per annum – but highly likely to contract in 2009.

    Of the $12,8 trillion some $4,1 trillion has been incurred.

    Across the water to the UK, they are in a bigger pickle. With a UK recession far worse than originally expected, deficit levels are expected to be just as huge as in the US. In November the deficit was expected to be at 8% of GDP. Now when the budget is presented on 22 April, this is expected to be above 10%.

    A Standard Bank foreign exchange report today made this statement, “We believe that major central banks, led by the Fed and the Bank of England, are devaluing money. They are doing so to avoid deflation and because they cannot bear the cost of much more fiscal easing.

    What happens if the central banks succeed in devaluing money? If money is devalued, its price will fall against local goods and services which is, of course, what’s needed to avoid deflation. But it will also devalue the price of money against other things as well, like assets. This may be part and parcel of the reason why many asset prices are rebounding right now.”

    The US bailout has been channelled across 3 main US institutions, The Federal Reserve, The FDIC (Federal Deposit Insurance Corporation) and the Treasury.
    The following table details how the Fed and the government have committed the money on behalf of American taxpayers over the past 20 months, according to data compiled by Bloomberg.

    With all the printing of money, its very apt to consider a statement apparently attributed to Austrian economist, Ludwig von Mises, who said, “It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises.”

    The overreaching of government should help drive an investors asset allocation

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-06, 18:42:57, by ian Email , Leave a comment

    JSE inches down, but Rand stays strong

    Local markets

    Weighed down by a dive from the gold mining sector as investors switched away from safe-haven buying, the JSE All Share had inched down by 0.02% at midday, though initially taking a lead from stronger international markets.

    The rand managed to retain its strength, trading at R8.99 to the US dollar at noon, as traders await local news of whether ANC president Jacob Zuma is still to stand trial on charges of corruption.

    Oil was trading at $54.55 per barrel, rising 2.92% as investors pinned hopes on the outcome of the G20 summit to lever the global economy out of recession.

    International markets

    On Friday, the Dow Jones closed up by 0.5% and the Nasdaq up by 1.20%. Investors were cheered by comments from Ben Bernanke, Chairman of the US Federal Reserve Bank, who promised that the central bank would go out of its way to stabilize banks.

    In Japan this morning, the Nikkei average finished 1.24% higher to reach its best level in three months as exporters gained on a weaker yen. Investors continued to hope that the worst of the global recession (in particular for their main trading partner, the US) may already be passed.

    The Hang Seng rose 2.89%, also reaching a three-month high as property stocks gained and HSBC experienced a strongly positive response to its rights issue.

    Meanwhile, the British FTSE 100 had climbed by 1.09% at midday, boosted by rising banks as well as energy and mining stocks which lifted on stronger commodity prices.

    Share price news

    Construction company Steffanuti Stocks Holdings Limited released a trading statement this morning, announcing that they expected earnings and headline earnings per share for the year ended 28 February 2009 to be 70% to 90% higher than for the same period last year.

    Investors acted quickly on this news, causing the shares to gain 10.45% to trade at R7.40 at midday. Also gaining was Wesizwe Platinum Limited, whose shares traded at R1.50 at noon, a rise of 16.28%.

    In the farming and fishing sector, Afrocentric Investment Corporation Limited lost 20.45% to trade at R1.05 a share after two deals. Mazor Group Limited experienced a 10.83% in share price this morning, as shares fell to R1.40.

    Permalink2009-04-06, 13:06:08, by Natalie Email , Leave a comment

    The principle of mean reversion is important

    I attended 2 presentations today. In the first we discussed various economic scenarios that may well play out. Given the world as we understand it today, there was higher emphasis on the negative news, without assessing the valuations of various asset classes.

    The second presentation from a very successful fund manger made the point that the one additional certainty in life, besides death and taxes is - mean reversion.

    Of the 2 main issues that investors need to focus on, i.e. economics or mean reversion, the latter is the more important one.

    But just what do we mean by mean reversion?

    Lets look at some detail to clarify.

    US investor, Vitaliy Katsenelson wrote a book called, Active Value Investing. He has studied the US markets over the last 100 years and isolated periods of time as being either:

    o Bull markets
    o Bear markets
    o Range bound markets

    All typical bear markets, except for the deepest one from October 1929 – July 1932 have been classified as long range sideways or range bound markets.

    The 2 main components of the total return from an investment into a share are:

    o Earnings growth, which in turn produces dividends; and
    o The change in valuation multiple, i.e. change in PE.

    Mean reversion is the principle that valuations are mean reverting. i.e. they oscillate over time around a mean.

    Looking back over all bull markets, it becomes evident that these were no caused by a growing economy, earnings growth, low interest rates or inflation, etc, but by the starting valuation.

    Both in bull markets and in range bound markets, it was found that the principle driver of returns was the starting valuation. This is essentially what we discussed yesterday with Pick n Pay. It’s the principle of buying when a company is cheap and selling when it reaches fair or above fair value.

    When the starting valuation is expensive, then no matter how positive the economy in respect of growth rates, low inflation, low interest rates, an investment tends to produce poor returns.

    Conversely when the starting valuation is attractive, then despite relatively poor economic growth rates, higher inflation and interest rates etc, an investment has a high probability of producing attractive returns.

    Chart 1

    Source: Active Value Investing

    Chart 1 reflects starting and ending PE ratios taking 10 year average earnings. Both bear and range bound markets start with expensive valuations.

    Bull markets start with low valuations.

    Valuations have become a lot more attractive from their highs in 2000 – i.e. prices have fallen substantially. It may still take some time to unwind fully, which means that the large up and down range bound market may persist.

    Have a wonderful weekend


    Ian de Lange
    021 9144 966

    Permalink2009-04-03, 17:39:51, by ian Email , Leave a comment

    Investors cautious ahead of US employment data, markets flat

    Local markets

    The JSE All Share had edged down by 0.37% by 12:23, pressured by losses in gold mining stocks despite a slight increase in the gold price. Investors consolidated their gains, waiting for US employment data to be released later today before taking new positions.

    The rand surged to R9.16 to the US dollar, after investors continued to place their confidence in emerging market currencies on news of a $1.1 pledge to rescue the global economy. The pledge, made by G20 leaders, served to revive risk appetite.

    Oil was trading at $53.62 a barrel at 12:21, recovering slightly after slipping down on profit taking as investors feared weak demand would continue in the near future.

    International markets

    The Dow Jones rose 2.79% yesterday while the Nasdaq climbed 3.29%, as investors took heart after further positive data and alterations to an accounting rule seemed to indicate that the economy might soon stabilize.

    The Japanese Nikkei edged up 0.34% this morning as sentiment regarding the US economy improved, which was supported by the buying of exporter shares by foreign investors.

    The Hang Seng closed 0.16% higher, also buoyed slightly by improved investor enthusiasm regarding stabilization in the US economy and recovery on mainland China, which more than offset losses due to profit taking.

    The FTSE 100 had slipped down by 0.28% just after midday, undoing yesterday’s gains as British caution kicked in ahead of the release of employment statistics from the US later today.

    Share price news

    Pallinghurst Resources (Guernsey) Limited rose 21.88% to cost investors R3.90 at 12:25 today. Eastern Platinum Limited gained 8.26% as shares prices soared to R3.54 after three deals.

    Fellow platinum producer Aquarius Platinum Limited did not fare as well, losing 11.76% to trade at R15 a share. DRD Gold Limited fell to R6.30 a share, a loss in share price of 9.35% after 171 deals.

    Permalink2009-04-03, 12:42:32, by Natalie Email , Leave a comment

    An example of buying an asset at an attractive price

    When investors allocate funds to an investment manager, they are looking for that manager to make decisions that will generate superior risk adjusted returns. At this time of high volatility many investors are nervous and prefer to avoid buying into real assets, but lets look at one good example of a an asset that has oscillated between cheap and expensive over the years.

    At its core investing not about speculation, or trying to anticipate what a price will do in a week’s time or even 6 months time. A value investor will try and buy an asset at the best possible price and retain that asset until such time as it gets expensive at which time they will look to sell and buy another other cheap assets.

    Yes it’s easier said than done and NO investor will ever be able to always buy at the bottom and sell at the top.

    It’s more a matter of getting the odds in your favour.

    Let’s take the example of Pick n Pay as depicted below. Here the price in red is bracketed by the earnings of the company at a 12 PE (blue) and a 20 (PE).

    When the price touches the blue line, the company is valued at 12 times earnings. When it touches the red line it’s valued at 20 times earnings. So at times the price of Pick n Pay shares has been very expensive and moved at and through the 20 times earnings level.

    At other times it’s been far cheaper and fallen closer and through to the 12 times earnings level.

    Source Inet and SIM

    Buying at a low PE of around 12 times earnings is no guarantee that subsequent returns will be good. But historically buying at an attractive valuation has substantially increased the odds of favourable returns – often doubling in 3- 4 years.

    Conversely buying at a far richer valuation of around or higher than 20 times earnings increases the odds of poor subsequent returns.

    On an ongoing basis most value fund managers cannot ascertain where the market is likely to be, or indeed if the JSE All Share index will reach 25 000 or 30 000. More importantly they will want to consistently try and buy assets as cheap as possible.

    The current environment is providing one such opportunity for value managers to do just that.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-04-02, 18:05:06, by ian Email , Leave a comment

    Investors optimistic ahead of G20, global markets rise

    Local markets

    At 12:00, a strong resources sector had powered the JSE All Share up by 3.81%, despite losses in gold miners. Investors on the local bourse were optimistic after positive results for US and Asian markets.

    The rand was trading at R9.24 to the US dollar, continuing its move to strength which began late yesterday after stronger equity markets and emerging market currencies.

    Gold was trading at $915.05 an ounce at midday, losing ground as investors remain hesitant ahead of news from the G20 meeting taking place in Britain today, which will be the birthplace of new financial rules and regulations intended to boost global economic recovery.

    International markets

    The Dow Jones closed higher by 2.01% while the Nasdaq climbed 1.51% on Wednesday, after relatively positive factory and home sales data indicated that the economy might be on the road to stabilization.

    The Nikkei average shot up by 4.40% this morning to its highest level in three months, after investors got wind of better-than-expected economic data from the US. Gains in banks, automakers and exporters lifted the market higher.

    The Hang Seng soared up by an enormous 7.41%, also reaching a three-month high. HSBC was emblematic of a global rally in bank stocks after fairly positive US economic data, as it rose by its highest amount in five months.

    Britain’s FTSE 100 had gained 3.22% by noon, following gains in the US and in Asia. Investors seem confident in the ability of the G20 meeting to decide on policy to ease the global economic slowdown.

    Share price news

    Property investment company Sable Holdings Limited climbed by 29.03% to sell at R20 a share at midday. Construction company ELB Group Limited rose to R6.87 a share, an increase in share price of 14.50% after news came of a director’s share purchase.

    Steel merchant Argent Industrial Limited fell to R7.50 at noon, losing 11.76% in share price after 14 deals. Telemaster Holdings Limited fell 4.76% since trade opened this morning, costing investors R2 a share at 12:01.

    Permalink2009-04-02, 12:19:25, by Natalie Email , Leave a comment

    Paradigms Shifts that Shift the Landscape

    Throughout history new trends that develop and continue to hold true in the medium term result in people questioning the existing paradigm (previous trend that has existed for a longer period) and its viability going forward. This line of questioning occurs not only in the world of investments, but across many spheres.

    The conundrum that everyone faced with a potentially changing paradigm is whether the trend is merely being altered temporarily, or if there is indeed a paradigm shift occurring. Getting this call correct can ultimately have long term consequences on your actions. One such potential ‘big picture’ question that Ian touched on yesterday was “Is the capitalist system dead, or are equity markets mispriced?”

    Knowing the definitive answer to this question would result in you being able to position your investments accordingly to capture to most upside. The problem that we, as investors, face is that there often isn’t a definitive answer to these questions, and even if they is they often don’t become apparent to the general public until a long period of time has elapsed, hence your insight may go unrewarded, and even criticised, for a lengthy period.

    Further complications arise when a new paradigm is evident, but where the outcome has been interpreted incorrectly by the rest of the community. Here the dotcom bubble and commodity price bubble are good examples in the investment world. Technology, computers, and the internet have clearly revolutionised the way that companies and people do business and live there lives, however it is evident that in the run up of the dotcom bubble, the shifting paradigm was clouding investors’ ability to separate the paradigm from the valuations.

    This (the paradigm shift cloud) is where we potentially find ourselves today. While not going so far as to declare that capitalism is dead, it is clearly evident that the role of government (on a global stage) is growing, and is going to continue to grow in the years to come. This is in stark contrast to the declining role that they have been playing over the last couple decades or so, and will resultantly probably produce a starkly different landscape in the next couple of decades.

    Having a handle on the potential scenarios that could unfold over the ensuing years, and how to benefit from these changes (there is always opportunity) will be key to assisting you to evolve.

    Potential scenarios of global deflation, stagflation, country default, changes in the supply and demand dynamics of financial instruments as a result of previous returns, and how the changing demographic interprets the world will influence how you should position your portfolio.

    Being able to accurately project which scenarios will unfold, and how they will influence global markets is a nigh impossible task. However, having an idea of the potential changes and how you would potentially react to them is crucial if you wish to be prepared for the coming years of change.

    Take care,

    Mike Browne
    021 9144 966

    Permalink2009-04-01, 18:27:31, by Mike Email , Leave a comment

    Mixed results on global markets

    Local markets

    The JSE All Share was not able to be reported at midday due to a technical glitch. Earlier this morning, trade was flat and analysts expect little action for the rest of Wednesday.

    The rand was trading at R9.45 to the US dollar at 12:10, remaining steady thanks to stronger equities and relatively positive trade data, while ignoring a weakening of the euro.

    Oil cost investors $48.45 a barrel just after midday, as the commodity price rose by 5.33% to recoup some overnight losses after further weakening of the American, Chinese and Japanese economies became evident.

    International markets

    Yesterday, the Dow Jones finished higher by 1.16% while the Nasdaq climbed by 1.78%. Investors showed interest in finance and tech shares, engaging in short covering.

    The Japanese Nikkei closed up by almost 3%, boosted by investor hopes that a resolution to the issue of failing automakers will soon be decided in the US, which drove investors to hunt for bargains.

    Meanwhile in Hong Kong, the Hang Seng slid down 0.42% due to losses in Chinese telecommunications companies. Further losses were prevented by gains in BOC Hong Kong.

    In Britain, the FTSE 100 had inched down by 0.50%, weighed on by weaker banking and commodity stocks.

    Share price news

    Micromega Holdings Limited was the biggest mover up at 12:10 on Wednesday, as share prices rose 13.64% after one deal to trade a t R1.25 a share. Building and construction company Afrimat Limited climbed 8.33% to sell at R1.95 a share.

    Metair Investments Limited in the auto parts sector tumbled by 22.05% to cost investors R3.50 a share just after midday. Astrapak Limited, a container and packaging producer, plunged 18.60% to trade at R7 a share after releasing a report yesterday of plans to dispose of certain of their businesses as well as announcing an agreement on an acquisition.

    Permalink2009-04-01, 13:00:38, by Natalie Email , Leave a comment