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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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    Naspers releases results

    Naspers is an old established company that has managed to move with the times. It reported results today for the year to end of March. The company was founded in 1915, listing on the JSE in 1994. Its traditional business has been that of print media, but has evolved to that of a technology based company with over 90% of its earnings before interest and tax coming from pay TV and the internet.

    While its print business remains an excellent cash generator, margins came under some pressure due to slower advertising revenues and operating profits were down 4%. The margins are low at 11% for the printing business and 7% for the book business.

    The core of the business remains the pay TV business. This generated revenues up 29% and earnings before interest and amortisation up 22%. It’s hugely profitable with margins at 37% for the SA operation, down slightly from 40%. Total subscribers were up 23% to 2,4 million in SA and up 33% to 916 000 for the rest of Africa.

    The brands in this division include Multichoice, MNet and Super Sport.

    The margin pressure is also due to the ongoing rollout of their compact offering at R219 a month versus the premium product at R499 per month. While they do expect an increase in competition, these brands have a definite advantage. At the operating profit level, earnings for Pay TV were up 11%

    At the operating profit level, the internet division still remains in a loss, rising from R234m to R507m. This excludes the equity accounted earnings from mainly Tencent, mail.ru and Abril which more than doubled from R654m to R1,4 billion

    The acquisition of the 35% stake in Chinese Tencent, an instant messaging, internet portal, social network business has been very lucrative for Naspers. Tencent recently achieved a $1 billion in revenue and this company dominates the Chinese instant messaging market. Its main revenue stream is from online virtual goods – it markets a wide range of online “avatars” which are online cartoon characters, customised by the millions of users - all for a fee.

    At March the business had 935m total registered instant messaging users of which 410m were active – an increase of 29% year on year.

    58million peak concurrent instant messaging accounts were recorded.

    This business’ contribution to core earnings came in at R1,2 billion from R615m. In terms of a total valuation of Naspers, Tencent forms a large part. It is listed on the Hong Kong exchange with MIH (Naspers) the largest single shareholder.

    The company has over the years an aggressive policy of making global acquisitions in high growth businesses and ultimately away from the original core printing business.

    The share price gained 3,3% to R203 and appears expensive on a price to earnings ratio of 17,5 times on core headline earnings. The way to value this business is however to place a value on each main component and aggregate this.

    This is a company with a core cash generator in the form of its pay TV business and big upside potential if it can bag another Tencent type business in global markets.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-30, 17:44:54, by ian Email , Leave a comment

    Global markets mostly positive at close of 2nd quarter

    Local markets

    A positive close on US markets and stronger gold mining and oil and gas stocks lifted the JSE All Share by 0.29% by midday Tuesday. Traders await a surge of local data today, including money supply, consumer confidence and trade statistics.

    The rand was trading at R7.75 to the US dollar at noon after the dollar weakened. Although the barrage of local data is unlikely to affect the exchange rate, the rand might react to negative trade data affected by an erratic oil price.

    The gold price rose 0.41% to sell at $940.88 an ounce, aided by a weaker dollar that came on the back of stronger equity markets.

    International markets

    Yesterday, the Dow Jones climbed 1.08%, alongside the S & P 500 which rose 0.91% and the Nasdaq, which edged up by 0.32%. Higher oil prices boosted energy shares, while some fund managers ‘window-dressed’ their portfolios by selling off losers and buying winners for this quarter.

    The Nikkei average gained 1.79% this morning to reach its highest quarterly level in nine years. Investor sentiment has improved on perceived signals of the beginning of an economic recovery.

    The Hang Seng fell 0.81% as investors booked profits after an amazing four-month long rally, ending their best quarter in over 15 years on a weaker note.

    Britain's leading share index inched up 0.03% at the close of the quarter, after earlier losses led by defensive stocks came after investors squared their positions. The mood was cautious before the release of final UK GDP data.

    Share price news

    Anglo American Platinum Corporation Limited rose 6.38% to trade at R150 a share at midday, after just one deal. Meanwhile, Eastern Platinum Limited climbed 5.56% to R3.80 a share after 26 deals.

    Diamond company Trans Hex Group Limited fell to R2.32 a share just past midday, a loss of 7.20%. Gold miner Central Rand Gold Limited lost 6.98% as shares fell to R4 each after one deal.

    Permalink2009-06-30, 12:33:47, by Natalie Email , Leave a comment

    California may have to issue IOU's

    An issue that has been in the news recently is the perilous financial position of the state of California, which not only faces a budget deficit, but faces an actual cash flow shortage and unless it manages to do a last minute deal will find itself with no choice but to issue IOU’s.

    California, the largest state in the US and if ranked, would be around the world’s 8th largest economy, is more than just a microcosm of the whole US. As with all US states it runs its own budget, raises certain taxes and incurs costs. It has been building up debt and now faces a $24 billion budget deficit for its new year which starts this week on 1 July.

    The unbalanced budget and cash shortfall is apparently at a level not seen since the great depression, with a cash shortfall of $2,8 billion in July growing to $6,5 billion in September.

    The decline in revenues, brought about by the housing slump, credit crisis, hit California very hard and the unemployment levels has risen to 11,5% from 6,8%. The combination of lower property, income and sales taxes, together with steadily rising state expenditure, has put this massive state in a precarious financial position.

    Controller John Chiang is saying that the inability of the state to meet its payments, will mean short changing taxpayers, local government’s and small businesses with payments made in the form of IOU’s.

    This is the result of a portion of government that would typically meet its cash shortfalls through raising debt. The difficulty with which it is trying to close this budget deficit means that it faces a massive downgrading of its current issued debt.

    If it gets to the point that California has to part issue IOU, these will trade in the secondary market, but at a discount to their face value. The discount will give an indication of the extent to which costs will need to be cut.

    At the individual level

    While California’s economic woes may be seen as a form of the severe economic position in global governments, taken a few notches down to the private level, its virtually the same position that so many people are facing around the world today.

    i.e. high levels of accumulated debt, which need to be financed.

    On Friday I consulted to a widow who finds herself in this position. After running a few year with high levels of expenses exceeding income levels, she has allowed debt levels to accumulate beyond where they can now be properly serviced. Being an estate agent has not helped matters with both property deals and bond approvals turning down dramatically over the last 12 months.

    Individuals cannot issue IOU to meet their payments and so have no choice but to liquidate assets and pay down debt.

    This is a forced reduction in demand for new debt, which impacts many businesses.

    Today this did not affect the local financial sector, which ended up 1,73%.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-29, 19:55:59, by ian Email , Leave a comment

    Gains on JSE hampered by stronger rand

    Local markets

    The JSE All Share had risen 0.2% by midday, led upwards by gains in financial and gold mining stocks. Resource stocks were not as positive due to a strong rand.

    The rand was trading at R7.84 to the US dollar at noon. Analysts don’t expect too much movement today, suggesting that a renewed appetite for risk and a weaker US dollar will continue to support the rand.

    Oil was trading at $68.19 a barrel, an increase of 1.78%. Investors await economic data this week, including US employment statistics for June, and consumer confidence and manufacturing indices.

    International markets

    The Japanese Nikkei fell 0.95% this morning despite earlier gains, due to weaker oil prices which affected companies such as Mitsubishi Corporation.

    The Shanghai index rose 1.61% to reach its highest close in a year, after coal and property stocks boosted the Chinese index alongside increased liquidity.

    The Hang Seng lost 0.39% by its close today, ending the previous three-day’s rally. Again, lower energy prices took their toll on resource stocks, and turnover fell to its lowest level in three months before the expiry of index futures.

    The FTSE 100 had edged up 0.26% by 12:00, thanks to gains in oil and mining stocks, and positive moves by Vodafone, who is possibly going to make an offer for competitor T-Mobile.

    Share price news

    Silverbridge Holdings Limited shot to the top of the biggest movers up after a single deal boosted the share price 14.67% to R1.72. Investment bank Peregrine Holdings Limited also gained 7.53% by midday, sending the share price up to R7 after two deals.

    Slipping 7.83% after ten deals to sell at R2.12 a share was Grand Parade Investments Limited. Aquarius Platinum Limited fell 6.54% to trade at R30 a share at noon, after five deals.

    Permalink2009-06-29, 12:18:56, by Natalie Email , Leave a comment

    Greenspan is worried about future inflation

    The current US Federal Reserve chairman, Ben Bernanke, continues to come under pressure as he was grilled in a congressional hearing this week. Meanwhile writing in the FT, his predecessor Alan Greenspan, the person many say was party to fuelling the levels of US debt that precipitated the problems, spoke about his concern for future levels of inflation.

    Greenspan was Federal Reserve chairman in the US over a protracted period where inflation was not really a problem.

    It was a time where asset price inflation, led by greater levels of debt, led to increased consumption expenditure.

    At the same time that gearing was allowing for increased spending, a lot of the world’s productive capacity was moved to China, which allowed for prices of consumer prices to remain low.

    Everything was going along well, until the global economic crisis exposed a few problem areas such as:

    • Over geared corporate balance sheets
    • Over geared private household balance sheets.
    • Over geared government, facing lower tax revenues and high fiscal deficits.

    When companies and households are under pressure, they rein in their spending – there is no choice. See the chart below which indicates US savings rates. It has declined from 12% in the early 1980 and went negative in 2005, when households did not need to save as they were extracting wealth from asset appreciation.

    Classical Keynesian theory says that governments must pick up the slack when households and corporates have to pull back. However this presumes that government has the ability to raise taxes, increase their fiscal deficits and spend. At this point in time it’s not necessarily true.

    Even locally we have the new Minister of Finance suggesting that government spending needs to be cut back as tax receipts come in lower than expected.

    Now Greenspan, the previous Federal Reserve Bank chairman is saying that government spending commitments over the next decade are “staggering”. Debt issuance is precariously close to the national borrowing ceiling and the risk is that this is going to start being factored into longer term US government bond interest rates.

    I.e. governments don’t have a lot of firing power.

    He pointed out that the US is faced with a choice of either paring back their massive budget deficits, or setting the stage for a potential upsurge in inflation. His view is that the best chance for worldwide economic growth is to continue to rely on private market forces to allocate capital and other resources.
    The worst possible scenario is low economic growth with high inflation – what has been termed as stagflation.

    Chart : US personal saving rate

    We continue to watch closely as to how this will play out.

    Have a fantastic weekend

    Kind regards

    Ian de Lange
    021 9144966

    Permalink2009-06-26, 17:27:31, by ian Email , Leave a comment

    Stronger close on Wall Street boosts global markets

    Local markets

    A stronger finish for US markets yesterday encouraged gains on the JSE All Share, which had regained 1.93% after its losses yesterday. Leading the charge upward were companies in the basic materials and oil and gas sectors.

    The rand was trading at R7.97 to the US dollar at midday, strengthening against the dollar after Wall Street’s rally last night and the SA Reserve Bank’s decision to keep the interest rate the same.

    Gold cost investors $945.27 an ounce at 12:00, reaching its highest level in a week after oil prices looked set to boost inflation, making the precious metal look like an attractive hedge investment.

    International markets

    US markets were relatively buoyant after Ben Bernanke, Chairman of the US Federal Reserve, survived some hard questions about the Merrill Lynch deal from Congress. The Dow Jones and the Nasdaq climbed 2.08% on gains from retailers, homebuilders and energy stocks.

    The Nikkei rose 0.83% this morning, after Bridgestone improved its earnings predictions and Suzuki and Volkswagen were rumoured to be in talks over a possible merger.

    The Hang Seng gained 1.78%, continuing its three-day rally as property and banking shares extended their gains after news that the US and China’s monetary policies will remain unchanged in the immediate future.

    The British FTSE 100 gained 0.56% by midday, after mining stocks rose in line with increasing risk appetite from investors, and energy shares lifted on the back of firmer oil prices.

    Share price news

    Anooraq Resources Corporation was the biggest mover up at midday on Friday, as three deals boosted the share 11.43% to trade at R7.80. Also gaining was Merafe Resources Limited in the metals and minerals sector, whose 93 deals lifted the share price to R1.04 at 12:00, an increase of 7.22%.

    Shares in Crookes Brothers Limited in the farming and fishing industry fell 10% after three deals left the share trading at R40.50 each. Investment bank Iquad group Limited lost 8.73% to trade at R2.51 a share just after midday.

    Permalink2009-06-26, 12:28:49, by Natalie Email , Leave a comment

    No interest rate cut

    The expectation was for one more cut of 0,5%, but it was not to be. The Reserve Bank preferred to stay pat on its key repo rate at 7,5%. This may be the end of the current interest rate cutting cycle.

    Inflation has proved to be stubborn. The May inflation rate at annual 8% remains on the higher end, mainly due to food inflation. Housing and utilities inflation is also high due to increases in electricity.

    Nevertheless the Reserve Bank forecast for inflation is that it will continue to moderate downwards and enter the upper limit, i.e. 6% during the second quarter of 2010 and to remain there for the rest of the forecast to end of 2011.

    The Reserve Bank announcement went on to note that the very weak growth prospects for the economy remain a downside risk for the economy, i.e. weak economy will translate into lower inflation. There is a large difference between the actual production and capacity production, i.e. the output gap, which means that businesses have less pricing power.

    They note that GDP contracted in the first quarter by 6,4%, which we know, but went on to say that recent data indicates that the negative trend will continue.

    They note PPI (producer price inflation) numbers which were released. These came in at a negative 3% year on year – see chart below. This was below expectations and the first annual decline since November 2003. These very weak producer numbers will help push down consumer inflation.

    Other factors mentioned the announcement included:

    Domestic exports have been under pressure in 2009 due to the very weak global economy.

    Real final consumption by households declined on a quarter by quarter annualised rate of 4,9%, while household consumption expenditure under ongoing pressure in 2009.

    They note that this is likely to continue due to far tighter credit criteria from banks and the negative wealth effects.

    Job losses are growing with 179 000 jobs lost in the formal non agricultural sector during the first quarter of 2009

    Countering these effects on inflation, factors that will push inflation up include oil prices which have risen in 2009 with a hike in petrol prices in July now likely. Also the cost push pressures from the electricity price hike, which at an average 31,3%, is far ahead of the inflation rate.

    The announcement was a surprise. The JSE ended down. Bond holders also lost money as the yield on long bonds moved up, with the yield on the R157 up by 1,8% to 8,48%.

    Time will tell if this was the correct move. But rates have been cut fairly sharply already from December 2008.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-25, 17:29:34, by ian Email , Leave a comment

    JSE retreats after yesterday’s rally

    Local markets

    After yesterday’s late rally, the JSE All Share had retreated 0.69% by noon after resource stocks led the local bourse down into the red. However, gold mining, oil and gas related shares managed to hold onto small positive gains.

    There was little action on the local currency market this morning as investors await news of the interest rate decision to be announced later today. The rand was stable at R8.07 to the US dollar at midday.

    Oil was selling at $68 a barrel at 12:00, recovering 1.49% after a recent slide that came on news of rising US inventories and a steady dollar.

    International markets

    Yesterday, the Dow Jones lost 0.28% while the Nasdaq gained 1.55%. The Dow was hit by comments by the Federal Reserve that did not dispel anxiety about the state of the economy. Software maker Oracle announced better-than-expected results, which helped to boost technology shares.

    In Japan, the Nikkei average rose 2.15%, reaching its highest level in more than a month. A weaker yen lifted exporters stocks and property shares rose on improving investor sentiment.

    Hong Kong’s index, the Hang Seng climbed 2.14% on short-covering of financial stocks, and property stocks also gained on news of a continuation of low interest rates in the US.

    The British FTSE 100 had lost 0.27% by 12:00 after lower raw materials prices took their toll on commodity stocks, and the US Federal Reserve remarks that the recession was lifting failed to instill optimism amongst UK investors.

    Share price news

    Jubilee Platinum PLC gained 14.22% after 26 deals boosted the share price to R4.90 at midday. Coal of Africa Limited rose to R10.79 a share after three deals lifted the share price by 7.79%.

    Masonite Africa Limited in the building and construction materials sector fell 10.45% to R30 a share after just one deal. Once again in the news, Amecor in the electronic equipment sector lost 7.69%, falling to R1.20 a share also after one deal.

    Permalink2009-06-25, 12:24:07, by Natalie Email , Leave a comment

    Inflation Fails to Break 8%

    This morning saw the release, by Statistics SA, of the latest inflation data for South Africa. The inflation rate, as measured by CPI for urban areas, came in at 8.0% for the 12 months ending 31 May 2009, 0.1% higher than consensus.

    While we have seen inflation come down from a high of 13.7% that it reached in August 2008, the rate of decline has, in the last few months, been consistently slower than expected by consensus. Even though inflation has been sticky, we now have inflation at a level that hasn’t been seen since October 2007.

    As inflation sits above its targeted 6% upper band, regular economic thinking would be for the Reserve Bank to increase lending rates in an attempt to slow spending. But in an economy that shed approximately 179 000 jobs in the formal non-agricultural business sector in the first quarter of 2009 and is in recession, the MPC will most probably look to lower rates in an attempt to stimulate the economy. Higher inflation than expected could, however, limit the rate cut to 0.5%, after seeing monthly cuts of 1% since the beginning of the year. The MPC will come out with their decision tomorrow afternoon.

    We have used the below graph a few times in reports on inflation and interest rates. Here it has been updated. You can see that we are now in a situation where we have negative real interest rates, and the expected drop in interest rates tomorrow will have the effect of moving rates even further below inflation, which as mentioned before should have stimulatory consequences.

    Food and non-alcoholic beverages continue to put upward pressure on the inflation rate coming in at 12.3% for the year to May, with the ‘sin’ items (alcohol and tobacco) increasing at a rate of 10.7% over the same period. Unsurprisingly these inflation items also resulted in restaurant and hotel costs increasing by 13% over the year. Other inflation drivers included recreation and culture (13.7%) and health (11.7%).

    Items that helped bring inflation levels down over the 12 months in review were transport, at only 0.5% for the year. This is mainly on the back of an oil price that has dropped significantly since May last year resulting in private transport operation inflation being -16.2%! Clothing and footwear was up only 5% and the cost of communication up only 0.9%.

    We now await not only the result of the MPC decision tomorrow, but also the accompanying commentary to see how the Committee sees things going forward.

    Take care,

    Mike Browne
    021 9144 966

    Permalink2009-06-24, 17:43:04, by Mike Email , Leave a comment

    Bargain hunting boosts global markets

    Local markets

    At 12:00, gold mining and resources shares had gained 2.84% and 2.85% respectively, boosting the JSE All Share into a 1.31% recovery after yesterday’s losses.

    The rand was trading at R8.10 to the US dollar at noon, remaining range-bound as traders await news of the local CPI figure due to be released this afternoon.

    An ounce of gold cost $928.85, edging up 0.42% as investors prepare for the result of a meeting of the US Federal Reserve regarding interest rates.

    International markets

    The Dow Jones lost 0.19% and the Nasdaq slid 0.07% yesterday, as US markets continued to lament a weak economic recovery after housing statistics didn’t boost investor sentiment. The S & P 500, however, managed to hold onto a 0.23% increase.

    In Asia, the Japanese Nikkei rose 0.43% this morning after investors bought up bargains. The Shanghai index rose 1.02% to reach its highest close in a year after gains in Chinese metal and steel shares. Hong Kong’s Hang Seng climbed 2.02%, though further gains were limited by investor caution ahead of the meeting of the US Federal Reserve.

    Britain’s FTSE 100 had gained 0.20% by midday, as gains in mining and banking stocks overcame earlier losses due to weaker defensive shares.

    Share price news

    Huge Group Limited’s 18 deals boosted the share price 61.29% to trade at R1 at midday. Sovereign Food Investments Limited in the farming and fishing sector enjoyed gains of 9.83% in share price, as shares sold for around R9.50 after two deals this morning.

    Avusa Limited in the media agency sector fell 5.66% after three deals took a hit on the share price, pushing it down to R18.50 a share at noon. Glenrand MIB Limited fell 4.55% to sell at R1.05 a share, also after just two deals. Glenrand issued a report of security dealings this morning by director AP du Preez, who bought R296 983,65 worth of shares.

    Permalink2009-06-24, 12:16:41, by Natalie Email , Leave a comment


    For those that would like to access some of our more popular pages on your mobile phone, we have made sharenet.mobi available.

    The sharenet.mobi service has the latest sens news, spot prices and Quickshare available.

    Simple type sharenet.mobi into the browser on your cell phone.

    If this does not work, then your phone is possibly not able to display HTML pages, in which case you can use our SMS service.

    For more details please see http://www.sharenet.co.za/v3/mobile.php

    Permalink2009-06-24, 11:46:44, by admin Email , 1 comment

    Banks provide an update to earnings

    At the beginning of the year we mentioned that as results and announcements from companies start to come through we will gain a clearer indication of the extent to which the economic crisis has been factored into prices. Some 2 years after the start of the credit crisis in the US, it’s the global real economy that is still battling along. Banks are at the forefront of both the consumer and corporate market and a worse than this and we will see a definite slowdown in new advances.

    Today 2 banks came out with trading updates.

    Absa Bank issued a trading update for the 6 months to end of June. It mentioned that in April at the company’s AGM it had already cautioned shareholders that trading conditions had become challenging and that there would be an increase in impairments, lower interest rate margin and a reduction in the value of its investment portfolios.

    Today, now just a weak before closing off its 6 month results it is estimating that its headline EPS for Absa group will be down between 15% and 25%. The core banking component has been harder hit with the estimated headline EPS down between 25% and 35% from the prior year.

    This negative news has been largely priced into the market and the share price therefore gained 1,29% on the day.

    The current consensus is for EPS to decline by 15,5% for the year to December and so if this is tending towards a decline of 25% for the full year, there is likely to be a further downscaling of forward earnings.

    On its historical EPS the price trades at 6,9 times PE and a dividend yield of 5,8%.

    Firstrand has a June year end. It also came out with a trading statement, saying that it has also previously announced a deterioration but that in fact the scenario has played out much faster than anticipated. It mentioned declining asset growth, further increase in bad debts and the negative impact of faster than anticipated reducing interest rates on capital having a negative impact on earnings for FNB and Wesbank.

    The investment banking division, RMB, has been hard hit by a decline in asset prices, lower earnings from its private equity division, a poor second half from fixed income and currency business. The result is likely to be RMB earnings down 50% - 55%.

    Overall, Firstrand is now expecting normalised EPS for the year to June to be down between 30% and 35%.

    Again a large dose of this has been factored into the current price and it shed just 11c or 0,8% to 1329c. On an historical basis the PE is 8 and the dividend yield is 5,4%.

    Various industries have varying degrees of visibility on future earnings. Prior to this downturn, in an environment that reflects a steady increase in gearing levels, banks as lenders have done well. Now they are finding it difficult to make advances and keep bad debt levels in check in a generally over borrowed environment. Growing earnings is going to prove difficult for the larger players and those not targeting other markets.

    Global markets continue to move down. The JSE ended the day off 0,45% with financials down 0,19%.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-23, 17:50:57, by ian Email , Leave a comment

    World markets knocked by dive in the Dow

    Local markets

    By noon, the JSE All Share had fallen 1.68%, in line with yesterday’s avalanche on Wall Street. Taking most of the hit were gold mining and financial stocks, which slid 2.25% and 2.48% respectively by 12:00.

    The rand was trading lower off yesterday’s levels after the dive in the Dow Jones plumped up the US dollar, which cost R8.21 at midday.

    Oil was trading at $65.71 a barrel, gaining 1.09% despite the World Bank predicting a deeper recession this year with weak demand.

    International markets

    After a thorough rethink, investors concluded that now was not a good time to be in the market due to the delay in global economic recovery. Spurred on by weaker crude futures and commodities, shares were sold off across the board, leaving the Dow Jones down 2.35% and the Nasdaq down 3.35%.

    The Nikkei lost 2.82% this morning as investors reacted to movements on US markets, and offloaded riskier shares in the anxiety over the world economy.

    The Hang Seng fell 2.89% as lower energy and metals prices seemed to confirm doubts about the recovery of the global economy.

    The FTSE 100 had inched up 0.34% by midday as gains in food retailers and pharmaceutical stocks more than offset losses due to increasing risk aversion amongst investors.

    Share price news

    Amecor in the electronic equipment sector gained 18.18% after one deal pushed the share price up to R1.30 at midday. African and Overseas Enterprises Limited in the soft goods sector lifted 12.50% to sell at R9 a share, also after one deal.

    Rare Holdings Limited fell to R1.10 after a single deal pressured the share price by 34.91%. Builders merchants Illiad Africa Limited lost 12.78% after 111 deals took the share price down to R6.28. Illiad released a trading statement this morning announcing that that earnings and headline earnings per share are expected to be between 65% and 75% lower than the previous comparative period.

    Permalink2009-06-23, 12:17:19, by Natalie Email , Leave a comment

    Implied Future inflation

    The Monetary Policy committee meets again this week to decide on any change to the repo rate. The consensus remains at a 0,5% interest rate cut. Their current mandate is still inflation targeting, but this is under immense political pressure into the future. The question then is should inflation linked bonds be a part of a portfolio?

    One of the biggest risks that all investors face is inflation risk. On this risk, there seems to be a general consensus that, given the extent that governments are stimulating economies, higher inflation is looming, but that its not necessarily problematic just now.

    Investors, concerned about future inflation have the option of buying inflation linked bonds. These are bonds that, unlike conventional bonds, price in official inflation and so provide a steady real rate of return to investors. These are typically issued in countries where inflation runs fairly high and were first issued in SA in 2000.

    In the US Treasury Inflation Protected Securities (TIPS), were first introduced in 1997.

    The rationale for the issuance is mainly to show the resolve of government to keep inflation low and reduce the cost of debt. Demand for these bonds is typically high due to asset liability matching purposes and so governments find ready and willing buyers.

    One way to assess the future implied inflation priced into the bond market is to look at the difference in yields between the conventional and inflation linked bonds, known as the implied break even inflation rate.

    This differential, indicating future inflation may not be perfect because supply and demand dynamics come into the equitation. Often high demand and low issuance of inflation linked bonds is reflected in a lower yield.

    Currently the real yield on the R189 is 2,2%. The implied inflation when compared to the nominal yield on the R157 is 6,1%. The graph below reflects how these yields have moved since 2007. During December 2008 the implied inflation reduced to 4%, which reflected very expensive conventional bonds.

    At the same time the real yield on inflation linked bonds has come down from 3,5% to its current 2,2% - they appear expensive. If a bond investor believes that future inflation will be less than 6% then he should look to invest into conventional bonds. If the belief is for inflation to run higher than 6% then inflation linked bonds may still be attractive, even at these levels.

    These are some of the decisions that bonds managers face on an ongoing basis. The volatility of the differential, even over a relatively short period of time, means that active management across the spectrum of money market instruments and bonds is vital.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-22, 18:15:29, by ian Email , Leave a comment

    Global markets flat as caution prevails

    Local markets

    By midday on Monday, the JSE All Share had slipped 0.72% after beginning firmer on news of Xstrata’s initial proposal for Anglo American which lifted resource stocks. Losing ground were companies in the oil and gas, and gold mining sectors.

    The rand was trading at R8.10 to the US dollar, weakening slightly as the euro weakened against the dollar. Analysts expect the rand to trade sideways this week, as local employment and consumer inflation data are to be released on Wednesday, and producer inflation data and interest rates to be announced Thursday.

    Oil was selling at $67.07 a barrel at noon, sliding 2.80% as investors remain concerned about weak US demand, which signals the world’s largest economy is still trying to stabilize.

    International markets

    On Friday, the Dow Jones fell 0.19% after energy shares weakened on falling oil prices. The Nasdaq gained 1.09% as technology shares were boosted by positive broker comments about Microsoft.

    The Japanese Nikkei edged up 0.41%, as investor concern about a market correction was overcome by strong gains in brewer Sapporo Holdings and Nissan Motor Co.

    The Hang Seng lifted 0.77% this morning, coming off earlier gains as investors remained cautious before the US interest rates announcement later this week. Two IPO’s were pounced on by investors looking for new interest in the market.

    The British FTSE 100 had fallen 1.07% by midday Johannesburg time, after energy and mining shares suffered at the hands of lower commodity prices. Further losses were limited by the Xstrata-Anglo American merger proposal.

    Share price news

    Anglo American PLC was the top mover upwards this morning, as investors bought on news of a possible merger of Anglo with Xstrata. Shares lifted 6.02% to sell at R229.90 a share at midday, after 3810 deals. Comair Limited continued on last week’s winning streak, gaining 4.40% by noon as shares traded at R1.90 after two deals.

    Africa Cellular Towers lost 6.25% as shares fell to R1.05 after five deals. Metmar Limited in the non-ferrous metals sector fell 5.88% after nine deals pressured the price down to R4 a share at midday.

    Permalink2009-06-22, 12:56:23, by Natalie Email , Leave a comment

    Short term interest rates

    We discussed the required rate of return in yesterday’s report. The base component of the required rate of return for any investment is the so called risk free rate. While in practice there is actually no risk free asset, the yield on US Treasuries is typically accepted as being as close to risk free as possible.

    The term risk free is expressed due to the very low to negligible risk of interest and capital default because the issuing government has the ability to print currency to settle its debt obligations in its own currency.

    Risk free does not therefore obviate earning a return less than inflation. In this sense low risk money market “investments” are high risk, especially where monetary authorities have a low tolerance for maintaining the purchasing power of the currency that they issue.

    In the last 12 months, monetary authorities around the world have been driving down the short term interest rates in an attempt to boost liquidity and stimulate economic growth in the aftermath of the credit crunch.

    SA was slightly behind the curve, but the Reserve Bank has reduced prime rate by 4,5% since December.

    The graph, which tracks the repo rate and 3 and 6 month Jibar gives a clear indication of how rapidly rates have fallen. Jibar is the Johannesburg Interbank Agreed Rate.

    It’s also interesting to note that the last time rates were cut so sharply was in 2003, which was the start of the major bull market in local equities, which peaked in May 2008.

    We are not suggesting that we are now at the start of the next major bull market, but the lower interest rates move, the lower the base rate used for discounting future cash flows. This is naturally attractive for asset valuations.

    These low rates are starting to make yields on short term call accounts less and less attractive.

    Have a fantastic sporting weekend

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-19, 17:04:38, by ian Email , Leave a comment

    Positive US data boosts global markets

    Local markets

    The JSE All Share had inched up 0.6% by midday on Friday in line with international markets, despite the fact that companies in the oil and gas index had lost 5.58% and were weighing heavily on the local bourse.

    The rand was stable at R8.11 to the US dollar after a quiet morning’s trade, staying at yesterday’s weaker levels which came after the dollar strengthened and a lower current account deficit was recorded.

    Brent crude was selling at $70.54 a barrel, continuing yesterday’s gains after positive US economic data and Nigeria’s supply worries.

    International markets

    The Dow Jones closed higher by 0.69% yesterday, while the Nasdaq edged down 0.02%. For the most part stocks did well, after US employment and manufacturing data revived hopes of an economic recovery.

    The Nikkei rose 0.85% this morning, though posting its worst week since March after cautious investors required more proof of economic recovery before engaging in significant buying.

    The Hang Seng climbed 0.81% after investors were encouraged by positive economic data from the US. Further buying will have to wait until investors have seen 2nd quarter business and economic trends.

    The FTSE 100 had gained 1.74% after rising oil prices lifted energy shares, and house-builder Taylor Wimpey released positive news which boosted investor sentiment.

    Share price news

    Jubilee Platinum gained 9.57% after yesterday’s losses, after ten deals boosted the share to R5.15 at noon. Rival platinum company Anglo American Platinum Corporation Limited rose 6.67% to trade at R160 a share after only one deal.

    COM Comair Limited fell 7.50% to R1.85 a share after five deals, while Sasol Limited dropped to R280.89, a decrease in share price of 5.58% after an enormous 1661 deals. Sasol released a trading statement this morning that announced the company expects a 40-50% decrease in EPS and HEPS for this year.

    Permalink2009-06-19, 12:25:42, by Natalie Email , Leave a comment

    The required rate of return

    All investors whether they know it or not are seeking a required rate of return. The only reason to invest into a company with volatile earnings and a volatile share price rather than a bank deposit is in the expectation of a higher rate of return.

    Ultimately the success of otherwise of an investment into any asset has less to do with the outlook, earnings, economy etc, but rather the price paid relative to the intrinsic value. Overpay for an asset and no matter how fantastic the future outlook, the investment is likely to be poor. Conversely pay a cheap to realistic price for an asset and a few years of poor earnings and weak economy will do little to dampen the returns achieved.

    On this note then let’s look at valuing cash flows and the required rate of return.

    I spent the day yesterday listening to 5 local fund managers discuss their portfolios, how they have structured their asset allocation and the types of shares that they are investing in based on their investment process and outlook.

    With most managers there was an element of getting more defensive.

    One of the managers that we chatted to had however recently increased his exposure to equities following an undervalued position. Having done this on the basis that equity valuations reflected values that were historically cheap, he agreed that given some of the global structural changes, there was room to increase their required rate of return. His firm had in fact slightly upped their required hurdle rate 2 years back. The discount rate to value a listed company’s future earnings was in the ranges between 13% and 16%

    I posed the same question again to a large fund manager today, asking them given what appears to be a slight structural change in the long run returns for asset classes, are they making changes to their assumptions used. Again the answer was yes, on cash the long run expected real rate of return may well come down to 1,5% while the required equity risk premium may well have to be moved up slightly from 7,5% to 8%.

    Both fund managers had essentially updated the same assumptions to their valuations models.

    What do I mean by discount rate and equity risk premium?

    An investor with an array of options, in which to invest his capital, will want to consider the valuation of an asset using a required rate of return. The lower the perceived risk, the lower the required rate of return – the higher the perceived risk, the higher the required rate of return.

    If one considers that listed equity should provide a 8% real rate of return instead of say 7,5% real rate of return over time, then when net present valuing future cash flows, an investor will slightly increase his discount rate.

    Remember that the value of any business today is the net present value of its future cash flows. All investment managers try to make some assessment of future cash flows, discount these back to a net present value and then compare the result to the traded price.

    At the basic level the formula for the discount rate is the risk free rate plus an equity market risk premium.

    On the other hand as interest rates or the risk free rate declines, so the discount rate will decline, which is positive for valuations.

    Despite the haziness of the future outlook, and even after applying higher discount rates, there are many assets that appear attractively priced. From this reduced starting point and taking a reasonable investment horizon, investors should be adequately rewarded for the risks taken.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-18, 18:46:46, by ian Email , Leave a comment

    JSE edges up after recovery in resource stocks

    Local markets

    The JSE All Share had recovered 0.41% by midday after yesterday’s losses, thanks to gains in gold mining and resource stocks. The local bourse seemed to ignore negative closes on key international markets for the moment.

    The rand was trading at R8.11 to the US dollar at 12:00, staying within its range though the euro was firmer. Little movement is expected today or tomorrow due to the fact that no economic data is to be released.

    Oil cost $70.10 a barrel at noon, rising 1.59% as traders compared stability in the dollar with positive data on US crude oil inventories and Chinese fuel exports.

    International markets

    The Nasdaq rose 0.66% yesterday after positive broker remarks boosted tech shares. However, the Dow slipped 0.09% and the S&P 500 lost 0.14% due to losses in financial shares and uncertainty surrounding the government’s proposals for banking reforms.

    The Nikkei fell 1.39% this morning, after losses in banks and exporters weighed on the index. Investors decided to take profits while they could as economic recovery seemed a little less certain after some pessimistic corporate outlooks.

    The Hang Seng slid 1.70%, adding a fourth day to three days of losses as rating downgrades for US banks and the continuing spread of swine flu increased investor anxiety.

    The FTSE 100 had edged down 0.15% by noon, as losses in oil and banking shares overcame gains in mining stocks.

    Share price news

    Anooraq Resources Corporation enjoyed a 11.06%% gain as share prices climbed to R9.44 at 12:00 after four deals. Howden Africa Holdings Limited, makers of specialized fans, air and gas handling solutions, rose to R7.50 a share and gained 7.14% after one deal.

    After 34 deals, investors in Jubilee Platinum PLC sold off their stocks leading to a loss of 10% which left the share price at R4.50 at midday. Palabora Mining Company Limited fell 6.79% to trade at R74.01 a share after one deal.

    Permalink2009-06-18, 12:29:40, by Natalie Email , Leave a comment

    Technical Analysis

    While fundamental analysis is the predominant tool used by professional fund mangers, many also make use of technical analysis, especially to try and refine their entry and exit points to investments. On the other hand there are analysts that only make use of technical analysis.

    A technical analyst will monitor price action on the underlying premise that the price is a reflection of mass psychology, or crowds in action and will attempt to forecast future price movements on the assumption that crowd psychology moves between panic, fear and pessimism on the one hand and confidence, excessive optimism and greed on the other.

    A pure technical analyst will not concern himself with fundamental analysis on the premise that everything that has or could affect the share’s value, including all the fundamentals, is already reflected in the price.

    Some have identified 3 main categories to technical analysis:

    • Sentiment indicators
    • Flow of funds indicators
    • Market structure indicators.

    Sentiment indicators track different groups of investors, e.g. professional fund managers or sell side (stockbroker) analysis summarising for example ratio of up rated versus down weighted shares. Technical analysts therefore try and gauge the overriding sentiment looking for major turning points.

    Flow of funds analysis looks at things like the commitment of traders, which is a breakdown of the open interest on futures markets. It may also assess indicators such as the price of put options – these typically tend to rise in price when sellers become nervous of market values.

    Market structure indicators monitor price trends using various indicators in a way to try and gauge the health of the prevailing trend. The types of indicators used would include:

    • Moving averages
    • Trendlines
    • Peak and rough analysis
    • Momentum indicators.

    Despite common perceptions, technical analysis is far from foolproof.

    We don’t think that investing should be done on the basis of technical analysis alone, but rather that it should be used as an additional tool in the armoury of a portfolio manager.

    For Jhb investors - if you would like an opportunity to meet on the 25th or 26th June to discuss your investment planning, please contact Vincent on vincent@seedinvestments.co.za

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-17, 16:54:50, by ian Email , Leave a comment

    Losses in resources weigh on global markets

    Local markets

    Losses for companies in the oil and gas and basic materials sector weighed on the JSE All Share, which had lost 2.40% by midday. After being closed for a public holiday yesterday, the local bourse played catch up to international markets and took note of losses on US markets.

    The rand was selling at R8.04 to the US dollar at 12:00, remaining within the range as potential signs of global economic recovery dim as economic data fails to fully support the turnaround.

    Gold was trading at $932.85 an ounce at noon, slipping 0.12% after yesterday’s rally on international markets and seeking direction from the currency market.

    International markets

    The Dow Jones fell 1.25% and the Nasdaq lost 1.11% yesterday after investors were worried about mixed economic data and poor sales results. Though May’s housing statistics were fairly positive, industrial production fell by more than what was expected.

    The Nikkei average finished 0.9% higher this morning, as Sanyo gained after releasing a statement saying it had managed to secure buyers for the hybrid-car batteries the company produces.

    The Hang Seng slid 0.45% after losses in resource stocks pressured the index downwards, but a late rally in Chinese banking stocks limited some of the losses.

    The FTSE 100 had fallen 1.27% by midday as mining stocks fell on reduced confidence in metals demand, accompanied by metal prices that continue to sit far below last year’s highs.

    Share price news

    Freeworld Coatings Limited in the specialty chemicals sector rose 4.8% to R6.55 a share after 27 deals resulted in a highly volatile morning’s trading. DRD Gold Limited enjoyed a 4.13% gain as share prices lifted to R6.80 at noon after 43 deals.

    Shares in Wesizwe Platinum Limited dived 10.26% to a share price of R2.45 after 53 deals. Also on the downward march was Sovereign Food Investments Limited in the farming and fishing sector, whose 2 deals sent the share sliding 9.09% to trade at R8 a share at 12:00.

    Permalink2009-06-17, 12:19:59, by Natalie Email , Leave a comment

    Liquidity risk

    Last week, in light of news about millions lost with the alleged pyramid scheme operated by Tannenbaum, we discussed some pointers that prospective shareholders should look out for when enticed with attractive investment offerings. Hard on its heals is the failure of Edwafin.

    While not necessarily on Ponzi scheme, “investment firm” Edwafin is under administration, with debts of apparently R228,5m and assets of just R16,5m. Investors were enticed to buy debentures listed by the company, but now find themselves as unsecured creditors of a company with little prospect of receiving their funds back.

    As advisors to clients, we are contacted by various promoters trying to sell their wares, including Edwafin.

    We have always placed a high premium on risk management, understanding that investing is more than trying to assess the possible returns from an array of opportunities - more often it’s analysing, understanding and pricing in the various risks.

    Risk is not necessarily volatility of a price. Some investment risks can include business risk, valuation risk, force of sale risk or liquidity risk.

    Investment liquidity risk

    Let’s look at liquidity risk. This is the risk in trying to close out an investment position. At the one end of the spectrum is money on call with a bank and at the other end is an investment into an unlisted company, or some form of structured product.

    Because not all investments are as liquid as others, this must be built into the valuation. An investment into an unlisted company is not as liquid as an investment into a listed company and therefore demands a slight risk premium. Its one factor why an investment into private equity should, but not necessarily, provide an investor with a higher return.

    Very often promoters of investments package things in such a way that has the appearance of reducing this risk. For example when we were approached by an unlisted UK property fund some 4-5 years back, I raised the possibility that because of the underlying investments in physical property, investors may find themselves in an illiquid investment, which was not being adequately highlighted by the promoters.

    While new investors were streaming in, existing investors could exit – giving the appearance of a liquid market. But, like in a ponzi scheme, as soon as new investors dried up, there was no means to pay back existing investors, who unwittingly found themselves invested in illiquid shares.

    If all the possible risks can be considered at the outset, then these can be priced in and an appropriate structure created.

    An exit strategy is just as, if not always more, important than the initial purchase.

    On that note have a good day off tomorrow. It’s getting close to mid year – perhaps time to assess your investment and retirement planning. Vincent Heys will be in Jhb on the 25th and 26th of June. Contact him for a confidential discussion about your investments and any queries that you may have. Vincent@seedinvestments.co.za


    Ian de Lange
    021 9144 966

    Permalink2009-06-15, 17:06:56, by ian Email , Leave a comment

    JSE quiet, global markets down as optimism fades

    Local markets

    At midday, the JSE All Share was down 1.49% as stocks across the board had edged into the red, following Asian markets. Resources led the downward slide. Traders don’t expect too much action today due to the ‘long weekend’, and this is confirmed so far by low trading volumes with little movement.

    The rand was trading at R8.05 to the US dollar at noon, remaining range bound as little is expected in the way of international action. Some traders were taking profits as economic recovery hopes dim.

    Oil was selling at $70.11 a barrel, up 0.16% though traders remain concerned that the recent rally is “too fast, too soon” and that supply and demand fundamentals aren’t matching the price hype.

    International markets

    Friday was a landmark day for the Dow Jones as it broke into the positive for the first time since the beginning of the year. The Dow closed at 0.32% while the Nasdaq lost 0.19%. Analysts expect investors to keep an eye on housing statistics and CPI figures due to be released this week.

    Japan's Nikkei dropped 0.95% this morning after investors engaged in profit-taking. Losses were limited by gains in property stocks after the sector’s rating was lifted to neutral from being underweight thanks to rising positive sentiment and better credit markets.
    Hong Kong shares lost 2.07% after three days of finishing in the black, after lower energy prices and profit taking took their toll on the Asian index.

    The British FTSE 100 lost 1.95% by midday after a pull-back in mining and energy stocks, pressured by falling commodity prices.

    Share price news

    After just one deal, Anooraq Resources Corporation in the platinum sector rose 13.37% to trade at R9.75 at midday. Hospitality Prop Fund B in the real estate holdings and development sector gained 5.77% as a single deal boosted the share price to R16.50.

    ARB Holdings Limited in the electrical equipment sector fell 15.79% to sell at R1.60 a share at midday, after four deals. Also in the platinum sector, Lonmin PLC lost 9.53% as shares fell to R174.51 after 248 deals. Lonmin reported today that its Number One furnace was shut down due to a matte run-out.

    Permalink2009-06-15, 12:46:42, by Natalie Email , Leave a comment

    Some signs of an uptick in economies

    There are some signs that global the global economy is picking up from its very deep lows. However with the excesses still to be worked out, any growth is likely to be at low levels for a long time still. Two indicators that reflect firmer global demand are the oil price and the Baltic Dry Index.

    According to statistics produced by Wachovia economists, the US has been in recession for a year and a half and this will likely mark the largest contraction in the US economy in the post Word War II era. They are forecasting an uptick in GDP numbers in the second half of this year and into 2010.

    US GDP

    Oil broke above $73/bbl yesterday after the International Energy Agency raised its outlook on global demand, to 83.3Mbd, citing improving economic fundamentals.

    A report across my desk mentioned also that a number of infrastructure projects are coming back on line and there has been increased bidding for energy assets (e.g., Toronto-listed Addax Petroleum Corp soared yesterday after reports that Chinese firms will soon unveil takeover offers). It also mentioned that oil traders see “funds money” flowing into the oil market again.

    The Baltic Dry index is a shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed).

    The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) - Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index's composite measurement.

    After collapsing in 2008, global trade has started picking up.

    Vincent Heys will be in JHB on the 25th and 26th June and has some time to meet to discuss your investments. Please contact him on Vincent@seedinvestments.co.za

    Take care and have a fantastic weekend

    Kind regards

    Ian de Lange
    021 9144966

    Permalink2009-06-12, 17:08:54, by ian Email , Leave a comment

    Global markets mixed, JSE flat ahead of weekend

    Local markets

    The JSE All Share had fallen 0.92% by midday, continuing yesterday’s slide with losses in every sector. Analysts predict little further action today as the rand is likely to keep weighing on the local market.

    The rand was trading lower at R8.01 to the US dollar at noon, mainly influenced by a weaker dollar-euro exchange rate, though investors are likely to remain cautious ahead of the Confidence Index due to be released by the University of Michigan later today.

    Gold was softer, trading at $949.50 an ounce at 12:00 after the dollar stabilized and equity markets rose, tarnishing the appeal of the precious metal as an alternative investment.

    International markets

    The Dow Jones closed 0.37% up and the Nasdaq finished 0.5% higher yesterday after positive retail sales and unemployment data boosted hopes for economic recovery, and oil and commodity stocks rose on higher prices.

    In Japan, the Nikkei average rose 1.55% this morning after positive data from Japan and China heightened hopes for economic recovery and pre-empted buying across the board.

    The Hang Seng lifted 0.52%, its third day in a row of positive gains as the index managed to offset losses due to the slide in Chinese shares. Banks led the upward movement on the back of optimistic US data.

    The British FTSE 100 was down 0.02% at noon after Barclays’ $13.5 bn sale of Barclays Global Investors to BlackRock received mixed reactions from investors.

    Share price news

    The top mover up at midday was Central Rand Gold Limited, whose 4 deals hoisted the share up 15.85% to trade at R4.75. Amecor in the electronic equipment sector rose to R1.28 a share after 6 deals, a gain of 6.67%.

    Junior mining and exploration company Thabex Exploration Limited fell to R1 a share at noon, a dive of 31.03% after a single deal. Decillion Limited, an investment bank, lost 9.09% after one deal took the share down to R2.

    Permalink2009-06-12, 12:31:16, by Natalie Email , Leave a comment

    Tips on avoiding investment scams

    This week South Africa was rocked with an investment scandal, that in terms of the purported sheer size of up to R15 billion, will dwarf any previous scams. While we know that despite tight regulations, there will always be scams looking for culprits, it is very important that investors assess counterparty risk before an investment is made.

    In the alleged scam of Tannenbaum billions of rands were invested into a private operating company promising investors fantastic returns. It amazes how supposed smart investors apparently put in millions without a hint of due diligence.

    I found this on the CFA (Chartered Financial Analyst) website, adapted slightly for local situation. As advisors and investment managers to high net worth investors, this is part of the due diligence process we do on an ongoing basis. There are no guarantees, but with investments it is vital that counterparty risk is reduced to as close to zero as possible.

    10 tips on avoiding investment fraud – posted after the Bernie Madoff scheme came to light.

    1. Understand clearly the investment strategy – “Some investment opportunities appear alluring simply because they are described in impressive, complicated terms. Investment strategies and financial products should be clear and understandable. The nature of the risks involved can vary widely and should be well understood. Even the venerable Peter Lynch advised people to invest only in what they understood – advice he abided by in his successful career. If you don’t understand it, stay away.

    2. Match investment strategy to reported performance – One of the red flags in the Madoff affair is that reported performance was too consistently good. Other investment scams, popular on the internet, purport to use ultra-safe “prime bank” financial instruments from the world’s largest banks. E-mails that promise double-digit returns are incongruent with the safe investment strategies they purport to offer. Also, find out if the firm has its reported performance numbers independently audited, who audits them, and if possible whether these figures comply with Global Investment Performance Standards, a set of ethical principles for calculating and reporting investment results.

    3. Watch for e-mail solicitations and Internet fraud – The internet is a low-cost way for scammers to reach millions of people. Unsolicited e-mail messages offering you investment opportunities that sound too good to be true probably are. Online bulletin boards and electronic investment newsletters are also fertile ground to disseminate false information on thinly traded stocks for a pump-and-dump scheme. Treat information from unknown sources on the internet with great suspicion.

    4. Be wary of “sure things," quick returns, and special access – Legitimate investment professionals do not promise sure bets. Legitimate get-rich-quick schemes simply do not exist. Scammers often make the implausible combination of safety and high returns seem plausible by granting you “special access” based on your relationship with a mutual acquaintance or affiliation with a specific religion or ethnic group. Also, understand clearly the terms by which you can redeem shares or exit the investment. When can it be done and what are the fees? Ponzi schemes become unsustainable when investors pull out their money.

    5. Understand what, if any, regulatory oversight exists – Fraud may be less prevalent in regulated settings, like mutual funds. Hedge funds are less regulated than mutual funds and the risks must be carefully analysed.

    6. Assess the operational risk and infrastructure – Any investment management operation should have a physical infrastructure for trading and administration. Ask to see them and inquire about the firm’s processes and controls. It is important that a firm have separate, independent operations for asset management, trading, and custody to provide checks and balances against fraud.

    7. Ask about independent audits and who performs them. An auditor should be independent, reputable, and congruent with the size and scope of the investment operation.

    8. Assess the personnel – Ultimately, the reliability of any operation is predicated on the integrity and competence of its people. So find out who makes investment decisions and who implements the investment strategy. They should be separate people with relevant experience, education, and training. Credible investment professionals speak knowledgably and comfortably about their professional standards.

    9. Perform a background check. If an advisor firm or investment manager is not listed with the FSB (www.fsb.co.za), find out why. If they are, make sure their record is clear.

    10. Limit your exposure – One of the surest ways to avoid the catastrophe associated with investment fraud is to limit the amount you invest. Diversification is one of the most fundamental and enduring investment principles. Investors often expose themselves to unnecessary risks by concentrating their funds in one or two securities. By limiting your exposure to five to 10 percent of your assets, the principle of diversification can protect you if an investment turns out to be fraudulent.

    Although these points cannot guarantee that you will avoid investment fraud, they will increase the likelihood that you will make smart choices.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-11, 20:16:20, by ian Email , Leave a comment

    Markets flat as investors await US employment, retail data

    Local markets

    There were losses across the board for the JSE, with oil and gas shares leading the charge downward. By midday, the JSE All Share had fallen 0.82% as investors lacked direction after mixed Asian markets.

    The rand was trading at R8.04 to the US dollar, staying range-bound as traders and analysts await US employment and retail data due later today.

    Gold had edged up 0.09% by noon to trade at $953.85 an ounce as the precious metal was supported by hedge strategies and a rally in the oil price, reminding investors of the possibility of inflation.

    International markets

    On US markets yesterday, investors worried that higher interest rates would discourage spending both for businesses and consumers, causing shares to fall, though last-minute buying helped to offset further losses. The Dow Jones lost 0.27% and the Nasdaq slipped by 0.38%.

    In Japan this morning, the Nikkei inched down 0.1% despite gains in steel stocks after a brokerage upgraded the sector, after investors were also concerned about the effect of rising US interest rates on their primary export market.

    In Hong Kong, the Hang Seng finished marginally up by 0.03% after a moderately volatile trading session that left the index flat. Property stocks lost ground on rising interest rate anxiety.

    Britain’s FTSE 100 had edged up by 0.29% at 12:00 as gains in pharmaceuticals, which came after Morgan Stanley upgraded the sector, just managed to overcome losses in oil and mining stocks.

    Share price news

    Amecor in the electronic equipment sector gained 33% after 14 deals took the share price up to R1.20 at midday. The company released their consolidated results this morning, in which turnover was reported to have increased by a massive 227%.

    Ipsa Group, involved in the construction, development and operation of electricity generation assets and the supply of electricity, made news as the biggest mover downwards, as the share price dropped 13.79% to R1.25 at midday after just one deal.

    The most active share in terms of volume was FSR Firstrand Limited, which had traded 4447224 shares by midday. Meanwhile BIL BHP Billiton took the lead in terms of value traded, losing R19 849.75 worth of shares by 12:00.

    Permalink2009-06-11, 12:12:06, by Natalie Email , Leave a comment

    US Showing Its Resolve

    The USA, and its citizens, very often gets lambasted by many people around the world. When you’re a large and prosperous country it is very tempting for citizens from other countries to try to bring you down by any means available.

    In the past the USA hasn’t generally tried to improve their image, and this has led to a further deterioration of their image abroad. Events over the last 2 years or so, many originating in the USA, which have contributed to a global recession, have pleased those who would like to see nothing more than the fall of the USA. But while their image might need a bit of a polish, a country doesn’t become a global super power without being able to deal with hardships. The USA got to where they are through hard work, and you can be sure that they will do everything in their power to remain on top.

    Much of their success over the past century can probably be attributed to the fact that they are efficient at most activities. We currently see much of the world in turmoil, and while many countries are focussing all their attention on putting out fires, the USA are already sorting through the wreckage and in some cases starting the rebuilding process again, not withstanding the fact that there are still many fires that they are attending to.

    Today we will probably see the announcement by the US Supreme Court that the purchase of most of Chrysler’s asset by Fiat SpA can go through. Chrysler filed for bankruptcy on 30 April, and less than one and a half months later the case has pretty much been finalised, and the re-organised company can look to move forward in an attempt to make profits again.

    The new entity will essentially consist of all of Chrysler’s strong assets, and the alignment with Fiat will result in the combined entity being the 6th largest car manufacturer in the world. The two companies are very complementary, with little overlap in terms of geographic reach (Chrysler in North America and Fiat doesn’t have much presence in that region) or product mix (Fiat’s fuel efficient models versus Chrysler’s gas guzzlers), which should result in large synergies between the two organisations. The US government will retain a 9.85% ownership in Chrysler.

    In other news the US Treasury has given permission to 10 banks to pay back their TARP debts in an attempt to get them to operate in a more ‘normal’ manner. Currently banks with TARP assets on their balance sheets have to operate under strict regulation from the US, and the repayment of this debt will enable the banks to operate more autonomously.

    Below is the list of banks that have permission to repay their debt, and the amount that they plan to repay:

    Here again, the US is attempting to bring their financial system back to normality as rapidly as possible. They have not just granted permission to any bank, banks have been required to pass stress tests, and then apply for permission. Bank of America, Citigroup, and Wells Fargo are among the banks that haven’t been given approval to pay back their debt yet.

    Only those banks deemed stable enough to operate without extensive government support have been given permission. The Treasury clearly doesn’t want to be in the position to bail these companies out again.

    While the merits of having a US based automaker and US banks being released from their debt so soon can be debated, what can’t be questioned is the speed with which the various mechanisms have allowed these troubled businesses to operate in a more normal manner. Time will tell whether this process was rushed, or whether the timing was spot on!

    Take care,

    Mike Browne
    021 9144 966

    Permalink2009-06-10, 17:08:17, by Mike Email , Leave a comment

    Positive investor sentiment boosts global markets

    Local markets

    Energy and resource stocks were up 3.50% and 2.33% respectively, and gold mining stocks down 1.26% by midday, leaving the JSE All Share 1.63% higher. The local bourse seemed to be taking direction from positive Asian markets.

    Meanwhile, a weaker US dollar boosted the rand-dollar exchange rate, costing currency traders R8.05 by noon.

    Oil prices reached their highest level so far this year, selling at $70.44 a barrel as investors continue to build a hedge against a falling US dollar and protect themselves against possible inflation.

    International markets

    US markets closed with mixed results yesterday, as the Dow Jones edged down by 0.02% while the Nasdaq gained 0.96% after technology stocks were boosted by a positive report from Texas Instruments.

    The Japanese Nikkei average rose 2.09% this morning, as positive sentiment sent new funds into the market. Investors are eager for the index to reach the 10 000 mark, which could signal economic recovery.

    The Hang Seng soared 4.03% as investors banked on China releasing positive economic data, allowing the index to offset some of the losses made over the last two days of trading.

    The British FTSE 100 had lifted by 1.86% at 12:00, thanks to stronger commodity prices that once again served to boost mining and energy shares.

    Share price news

    Shares in Uranium One Incorporated rose 12.77% after 69 deals took the price up to R21.20 a share at midday. Clientele Limited in the life assurance sector lifted 7.69% to trade at R5.60 a share after a single deal.

    Moving downwards was Huge Group Limited, an investment holding company that lost 11.50% to sell at R1 a share after 9 deals. Shares in Mutual & Federal Insurance Company Limited fell to R14.80 at noon, after one deal sent the price sliding by 6.03%.

    Permalink2009-06-10, 12:25:50, by Natalie Email , Leave a comment

    Selected shares are making new 12 month highs

    The JSE gained ground in late trading and closed back up through the 23 000 level. Gold jumped up over 2% from lower levels as bullion remained above the $950/oz level. Global markets are mixed with the US slightly down.

    Despite the local JSE being a long way off its market peak of over 12 months back now, there are selected shares that are trading at new 12 month highs.

    The list today included 6 shares that traded at a new 12 month high. 5 of these were:

    Spur, which traded below R6 last July has been moving steadily up and closed at 995c. It does not appear cheap at this level, but investors enjoy the relatively high dividend yield.

    JD Group is a share that not many would be making new highs. The furniture business has been exceptionally difficult over the last few years. JD was oversold and then had a large tax disagreement, which it eventually finalised with SARS. Having fallen to just above R20 in June 2008 it has been volatile but up and closed at R42 having touched 4319c. It’s still far off its peak of R100

    Mr Price is an investor favourite. It gained a further 10c to 2880c. Consensus forecast is for the PE to come down to 9,5 times and the DY to 5,9% and therefore it does not appear expensive. In the current environment where consumers are trading down, it is in the right market position. At its low it fell to R15 and has therefore almost doubled from a year back.

    Famous Brands is another company that traded at a new 12 month high. The shares gained 5c to R18. The company issued a cautionary announcement today

    The share graph of Nu Clicks has been essentially sideways since mid 2007. On a 1 and 2 year forward basis the price appears attractive on a 10 and then dropping to an estimated 8,8 PE ratio at the current price.

    So while there remains a lot of negative news flow, investors are finding value in various pockets and have been prepared to pay up for shares, taking values far ahead of recent lows.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-09, 17:37:46, by ian Email , Leave a comment

    Gains in gold miners and resources not enough to lift JSE

    Local markets

    By midday Tuesday, the JSE All Share had edged down by 0.29% as gains in resources and gold mining stocks were not enough to move the local bourse into positive territory after Monday’s losses.

    R8.15 could buy investors a US dollar at noon, as the local currency strengthened against the dollar thanks to a firmer euro.

    Precious metal gold was selling at $951.40 a fine ounce, increasing by 0.15% in line with its growing appeal as a hedge against inflation and a drop in the US dollar.

    International markets

    Positive sentiment managed to shift flat US markets yesterday just before their close, as investors saw dips as a chance to buy lower, especially for banking stocks. The Dow Jones inched up to close at 0.02% while the Nasdaq finished down 0.38% after lower iPhone prices affected Apple stocks.

    In Japan, the Nikkei average fell 0.8% this morning, as exporter stocks moved off yesterday’s eight-month high and lower metals prices pummeled commodity-related stocks. Smelters also fell after last week’s rally as investors booked profits.

    In Hong Kong, the Hang Seng index lost 1.07% after investors felt the market was oversold after the rallies in recent weeks.

    In Britain, the FTSE 100 had gained 0.25% by noon, after higher commodity and oil prices boosted mining and oil stocks. Bank shares also enjoyed slight gains.

    Share price news

    Platinum producer Anooraq Resources Corporation lifted 11.11% in share price to trade at R10 a share at midday, after only two deals. Comair Limited in the airlines and airports sector gained 10.53% to trade at R2.10 a share, also after two deals.

    Once again in the news, Silverbridge Holdings Limited fell to R1.80 a share, losing 7.69% in share price. After 47 deals, African Dawn Capital fell to R1.95 a share, a loss of 7.14% in share price.

    Permalink2009-06-09, 12:25:35, by Natalie Email , Leave a comment

    Asset class returns in US dollars

    Here is a brief annual overview of returns across various asset classes from the perspective of a US dollar investor. There are numerous indices and methods used to measure returns from various asset classes and so when presented with statistics you need to ensure that they have not been distorted to present a more favourable picture than is really the case.

    An important consideration is the starting date. Start with a low base and this can present favourable compounded data for years to come.

    While some assets, such as bonds, appear to have lower risk, we consider these assets expensive with very little possibility of high real returns for investors.

    Gold in US dollars has done well, but this again is off a very low base. 2001/2002 was very cheap for bullion.

    Conversely US shares peaked in 2000 and again the starting point was relatively high, hence the low compounded return.

    Selected Asset class returns

    Source: Eleven Two Fund Management

    Notes on the stats

    1. US Bond - Measured by the Lehman Brothers Aggregate Bond Index. This is a benchmark index made up of the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities that are of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million.

    2. US Stocks - The Russell 3000® Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market. The Russell 3000 is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected.

    3. Gold – the one ounce spot price of gold in US dollars.

    4. Foreign Stock: The MSCI EAFE Index was developed by Morgan Stanley Capital International Inc. as an equity benchmark for international stock performance. The Index includes stocks from Europe, Australasia, and the Far East.

    5. US Home Prices - The S&P/Case-Shiller® Home Price Indices measures the residential housing market, tracking changes in the value of the residential real estate market in 20 metropolitan region across the United States. These indices use the repeat sales pricing technique to measure housing markets. First developed by Karl Case and Robert Shiller, this methodology collects data on single-family home re-sales, capturing re-sold sale prices to form sale pairs. This index family consists of 20 regional indices and two composite indices as aggregates of the regions. In addition, the S&P/Case-Shiller® U.S. National Home Price Index is a broader composite of single-family home price indices for the nine U.S. Census divisions and is calculated quarterly.

    6. Commodities - The Dow Jones - AIG Commodity Index (DJ-AIGCI) ® is designed to be a highly liquid and diversified benchmark for commodities as an asset class. The DJ-AIGCI is composed of futures contracts on 20 physical commodities (aluminum, cocoa, coffee, copper, corn, cotton, crude oil, gold, heating oil, lean hogs, live cattle, natural gas, nickel, silver, soy beans, soybean oil, sugar, unleaded gasoline, wheat, and zinc). As much as 33% of this index is made up of energy related commodities.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-08, 17:59:02, by ian Email , Leave a comment

    JSE follows global markets down

    Local markets

    By noon on Monday, the JSE All Share had slipped 1.66%, joining the Asian markets in the red after last week’s rally. Basic materials stocks lost 3.17%, leading the downward slide.

    The rand was trading at R8.17 to the US dollar at midday, after the American currency strengthened. Analysts suggest that the exchange rate is likely to react to US retail data due out this week.

    Oil was selling at $66.79 a barrel, losing 1.78% and bringing an end to a rally that almost doubled the oil price over the last four months.

    International markets

    US markets were flat on Friday; the Dow Jones closed 0.15% up and the Nasdaq finished 0.03% down as investors struggled to read the mixed signals sent by May’s employment data.
    The Japanese Nikkei average finished 1% higher this morning, reaching its highest close in eight months as investors interpreted US jobs data positively as a sign of economic recovery. Exporters were lifted by a weaker yen.

    The Hang Seng lost 2.28% at its close this morning, as investors reacted conservatively to the mixed signals from US employment data and booked profits while they wait for more economic data from China and the US later this week.

    Britain’s FTSE 100 had fallen 1.11% by midday, after weaker commodity prices weighed on energy and mining stocks. Negative sentiment also pressured banks lower.

    Share price news

    Silverbridge Holdings Limited rose to R2 a share just after midday, a gain in share price of 33.33% after two deals. Uranium One Incorporated gained 10.07% after 80 deals to trade at R16.40 a share.

    Enterprise Risk Management Limited fell 13.33% to sell at R1.30 a share at 12:04. After 29 deals, Coal of Africa lost 12.66% to cost investors R11.25 a share after the company announced earlier today that it had successfully commissioned the Coal Handling and Preparation Plant at its Mooiplaats Colliery in Mpumalanga.

    Permalink2009-06-08, 12:43:44, by Natalie Email , Leave a comment

    Longer term investment horizons smooth out shorter term volatility

    Both time and reasonable timing are very important ingredients for successful investing. Timing is important to avoid buying into very expensive assets, with little hope of recovery over the planned investment, while a reasonable time horizon is important to smooth out shorter term volatility.

    The chart below displays annualised rolling returns. The black line is one year returns, while the red is a far longer 20 year rolling returns.

    What stands out is that the shorter term (i.e. 1 year) volatility is virtually all smoothed out when an investor adopts a longer investment horizon, which should be the case for all investors.

    In any one year period an investor is very likely to be subjected to a 12 month return of over 60% at an extreme on the positive side and a negative 30% on the downside. Most investors therefore make the incorrect assumption that this same level of 12 month volatility that they are experiencing should be extrapolated over longer periods of time.

    I.e. if returns from markets are volatile over short periods of time, they must be volatile over longer periods of time. But this is not the case. Over the past 49 years the average equity returns as indicated by the JSE All Share index has been just shy of 20%. At times the 20 year rolling average has gone just ahead of 20% and at other times just less than 20%.

    Equity rolling returns – 1 year and 20 years

    Source : Cadiz

    What is a possibility going forward 20 years from now, where companies perhaps use less and less gearing, debt becomes more expensive and returns on equity decline, is that instead of the expected 18% - 20% from the local equity market, this drops to say 15%.

    No one knows exactly what the long run average will be, but we do know that it will be far smoother than the shorter term returns.

    Have a great weekend

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-05, 16:40:03, by ian Email , Leave a comment

    Resources boosted by Rio Tinto – BHP Billiton joint venture

    Local markets

    Stronger resource stocks pulled up the JSE All Share, as the local bourse rose 1.77% by midday on news of a joint venture between BHP Billiton and Rio Tinto. Limiting further gains were gold mining shares, which had lost 1% by noon.

    Amongst currency traders, all eyes were on US employment data, letting the rand slide slightly to trade at R8.07 to the dollar.

    By noon, the gold price had dropped 0.32% to sell at $975.85 an ounce, as investors also awaited US jobs data to give a sign of whether the world’s largest economy is on the road to recovery.

    International markets

    Mixed information such as a rise in productivity alongside weak consumer spending left US markets fairly unchanged yesterday. The Dow Jones rose 0.86% and the Nasdaq lifted 1.32% at close of trade.

    The Japanese Nikkei climbed 1.02% this morning, reaching its highest close in eight months as energy and resource stocks rose on the back of higher commodity prices boosted by some positive data from the US.

    The Hang Seng finished 0.96% higher, as energy stocks lifted the Hong Kong index thanks to high crude oil prices. Electricity producers rose after an increase in coal contract prices in two Chinese provinces was given the green light.

    The FTSE 100 had risen 1.39% by 12:00, as mining stocks gained on news that Rio Tinto’s joint venture with BHP Billiton would be replacing a proposed $19.5 billion deal with Chinalco.

    Share price news

    After just two deals, Trans Hex Group Limited in the diamond sector gained 25.13% to sell at R2.49 a share at 12:00. Picking up after a slump earlier in the day, Jubilee Platinum continues on its recent rally, rising 20% to trade at R7 a share after a busy 183 deals.

    Speciality chemicals company Freeworld Coatings Limited lost 4.61% after five deals left the share at R6 by noon. Mazor Group Limited in the building and construction sector fell to R2.32 a share, losing 4.13% after just one deal.

    Permalink2009-06-05, 12:17:42, by Natalie Email , Leave a comment

    US financing concerns

    The US Treasury Secretary must be a worried man. The US requires bucket loads of new capital, which they cannot raise from taxpayers and so must go to lenders. Lenders have mostly been foreign, the biggest been China. They have less ability and indeed are also getting nervous of the financial predicament of the lender.

    The trip by US Treasury Secretary to China at the beginning of this week to meet the president and the premier was apparently unscheduled – i.e. at short notice. The main thrust was to discuss China’s concern about the US financial situation and the safety of their bond holding.

    Pimco as one of the US’s largest bond managers and one of the US government’s preferred management companies to assist with buying higher risk debt, continues to make some very concerning remarks on the US government’s predicament. This can’t be too palatable for the US Treasury secretary, but just as the US needs to placate the Chinese, they need private companies like Pimco to also be buyers of debt.

    An FT report today reporting on the failure of emerging economy Latvia to issue debt, said that global sovereign debt issuance this year is expected to be $11,69 trillion up from $10,57 trillion last year. These stats are according to the Organisation for Economic Co-operation and Development.

    According to the recent Pimco report they expect the US alone to have a gross issuance of up to $3 trillion and net at close to $2 trillion, which is almost 4 times supply in 2008.

    Bill Gross in the Pimco investment outlook goes on to question who will be buyers of this massive increase in debt issuance, saying that prior to 2009 it was enough to count on the recycling of the US trade/current account deficit to fund Treasury borrowing requirements. But with the trade deficit down substantially to around $500 billion, “…it is obvious that the Chinese and other surplus nations cannot fund the deficit even if they were fully on board – which they are not.”

    Gross goes on to say that someone else has to write out cheques for up to $1,5 trillion additional Treasury notes and bonds. The Fed can and is a buyer of last resort (i.e. print money to lend to the government). But he says that they need to tread cautiously because this is longer term inflationary. Foreigners, nervous of the US dollar, will turn into sellers.

    The obvious solution is to move quickly to a balanced budget, but in a scenario that is slowly heading to a debt trap, this is looking more and more difficult.

    Yesterday Federal Reserve chairman, Ben Bernanke was confirming the Pimco outlook, urging Congress to act to bring down long term budget deficits, also warning that if they don’t this may lead to future debt traps.

    The updated US Administration budget deficit for financial 09 is now at an expected $1,841 trillion, declining to $1,258 trillion in financial 10. At this stage the expected cumulative deficit for 2010 to 2019 in the US is $7,1 trillion.

    These are large underlying economic issues, which don’t play out in weeks or months, but over the longer term.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-04, 17:37:10, by ian Email , Leave a comment

    JSE, global markets continue to dip

    Local markets

    Shadowing movements on international markets, the JSE had fallen 0.63% by midday on Thursday. Weighing down the local bourse were gold mining and resources stocks, while financial shares managed to buck the downward trend.

    A US dollar cost R8.04 at noon as the rand strengthened slightly against the American currency. Traders anticipate a further strengthening today if commodity stocks recover as expected.

    Oil cost $66.68 a barrel at 12:00, recovering 2.58% after a recent slide that came after news of high US inventory stocks.

    International markets

    Yesterday the Dow Jones closed 0.75% lower, accompanied by a 0.59% fall in the Nasdaq. Gloomy economic data regarding the US service sector neutralized hopes for an early recovery, and falling oil prices took a toll on energy stocks.

    The Nikkei fell 0.75% early this morning, ending a six-day rally after shipping stocks lost their hold as poor economic data from the US dulled hopes for a global recovery.

    Also reacting to the US news was Hong Kong’s Hang Seng, which slipped 0.4% as investors sought bargains before close of trade. Falling oil prices pressured the index, harming energy stocks, and property stocks also took a blow.

    One of the few gainers around the world, the FTSE 100 had edged up 0.39% at midday as oil, bank and insurance stocks rose. Investors were keeping a watchful eye out for the Bank of England’s monetary policy review to be released later this afternoon.

    Share price news

    Investment bank Iquad Group Limited gained 9.09% by noon after one deal pushed the share price up to R3. Once again amongst the top movers up was Jubilee Platinum PLC, which after 35 deals had risen 7.32% to R4.40 a share after a staggered morning’s trading.

    Mutual & Federal Insurance Company Limited fell 8.82% after seven deals to trade at R15.50 a share at 12:00. Aquarius Platinum Limited slid 6.43% to sell at R36.95 a share after fifteen deals.

    Permalink2009-06-04, 12:15:56, by Natalie Email , Leave a comment

    State of the Nation Address

    President Jacob Zuma today presented his first state of the nation address. In it he summarized government’s priorities over the next 5 years. In today’s report we take a brief look at a few of the areas of focus.

    A key aspect that the President outlined is the need to alleviate poverty through job creation. The government recognises that the slow down in global growth will have an impact on the ability of the public and private sector alike to create jobs and grow the economy, but they have made the undertaking to use the tools that they have to assist the local economy.

    Some of these tools include procuring more goods and services locally without affecting our global competitiveness by pushing the prices up too high. Government has also sought to avoid retrenchments, where possible, by offering training to those employees whose jobs are under threat. This will not only result in jobs being saved, but should also help in the longer term by improving the skill base of our population.

    The state will attempt to promote a more inclusive country by, inter alia, providing support to small and medium enterprises. One of the ways in which this will be done will be to increase procurement from these enterprises, and another is the reduction of the regulatory burden on small businesses. President Zuma implored all South Africans to hold hands and find common goals which will enable us as a country to move forward. He did warn that this will take hard work!

    The aim is to create 500 000 jobs between now and the end of 2009, and 4 million jobs by 2014.

    Education was also a high priority in the state of the nation address. The President reiterated that teaching and being taught is a two way street, “Teachers should be in school, in class, on time, teaching, with no neglect of duty and no abuse of pupils! The children should be in class, on time, learning, be respectful of their teachers and each other, and do their homework.” There is also the need to increase the number of children in schools and improve the quality of the education that they are receiving. Government has set a target of getting enrolment rates at secondary schools up to 95% by 2014, which is clearly recognition that basic education isn’t sufficient to grow the economy and reduce poverty in any meaningful way.

    South Africa remains committed to building a better Africa, which this will be done by ensuring that foreign relations contribute to an environment where growth and development can occur. A strong AU and SADC will assist in the pursuit of growth and development. The reduction in conflict in the various African regions (including Darfur and Zimbabwe) will assist in growing the continent, and by extension South Africa.

    In this address Jacob Zuma has set some tough goals to achieve. He has been accused in the past of promising everything to everyone. Now that he is in office and has put his five year agenda on the table we will be able to measure him against his targets, and see how effective he and his government are at delivering on these promises. Let’s hope that he succeeds!

    Take care,

    Mike Browne
    021 9144 966

    Permalink2009-06-03, 17:41:23, by Mike Email , Leave a comment

    Positive US housing data boosts global markets

    Local markets

    Initially tracking positive movements on US and Asian markets, the JSE All Share had slipped 1.07% by midday. Leading the downward movement were resource and financial stocks.

    The rand was trading at R8.04 to the US dollar at noon, continuing to hover around the R8 mark as the dollar slides in response to returning optimism about the global economy and risk appetite increases.

    An ounce of gold cost $981.20 as investors sought a hedge against the inflation expected as the dollar continues to depreciate. Demand for gold is on the rise, following hopes of a recovery in the global economy which will spur sales of electrical equipment and other products that use gold as an input.

    International markets

    The Dow Jones finished 0.22% higher and the Nasdaq rose 0.44% yesterday, boosted by positive housing data. Further gains were limited by a drop in financial stocks as investors were concerned about the dilutive impact of share offerings in the past few days.

    Japan’s Nikkei average lifted 0.38% this morning after gains in resources and shares linked to the production of semi-conductors, which came after positive US housing data that boosted hopes for global economic recovery.

    The Hang Seng inched up 1.02% as Hong Kong investors also felt inspired after the good news of US housing sales, which managed to offset profit-taking after the index’s recent rally.

    The British FTSE 100 had lost 1.9% by midday Johannesburg time as commodities and banks fell, alongside companies that went ex-dividend, such as Vodaphone.

    Share price news

    First Uranium Corporation in the non-ferrous metals sector gained 17.19% to sell at R30 a share at midday after two deals sent the share soaring. Also moving upwards was Witwatersrand Consolidated Gold Resources Limited rose to R85 a share, gaining 7.59% after nine deals.

    Silverbridge Holdings Limited fell 9.09% after a single trade to sell at R1.50 a share at noon. Also falling was Italtile Limited, whose shares lost 6.72% to cost investors R2.50 a share after two deals.

    Permalink2009-06-03, 12:34:03, by Grant Leyland Email , Leave a comment

    UK commercial property as an investment

    Richard Bernstein, now retired chief strategist for Merrill Lynch, in distilling his 20 years at Merrill’s, penned a final report wherein he listed 10 of the most important investment guidelines learnt in his time at the firm. One of them resonated with the current investment opportunity in global property that appears attractive.

    Number 8 on his list of investment guidelines was “Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.”

    When investors are literally throwing investment funds into a specific are, it drives up prices and drives down potential future returns.

    The opposite is true, when investment capital dries up, prices come down, but future potential returns are driven up.

    An investment area that has seen such a drying up of available capital is the UK commercial property market. Many investors have over the years been attracted to investing into either an apartment or commercial property, using part equity and part borrowed money. Through the late 90’s and into the first years of this century the returns were attractive.

    The flood of money from around the world to the safe haven UK property market drove yields down and down. But investors were not concerned about low yields, because the lower yields were an indication of how their capital values were going up and up.

    Where investors had geared the investment, the returns were exceptionally pleasing.

    This was until such time as prices peaked and starting coming down. Here the positive attributes of gearing start to work in reverse. A fund that is geared 50% debt and 50% equity will experience a decline of 2 for every 1 write down of property prices. As the gearing incases, so does this ratio.

    As property prices have been marked down and down, while outstanding debt (loan) values remain the same, so loan to asset values have increased. For many funds, this weakening of capital adequacy has breached covenant agreements with the banks, who in turn have demanded that property funds lower debt (i.e. lower their loan to asset ratios).

    Property funds including large listed funds such as Liberty International have had to go through capital raising exercises; they have been sellers of property and also dramatically slowed down dividend payments to equity investors.

    New equity is being raised at deep discounts to current net asset values. This is very dilutionary for existing investors, but appears to be very attractive for new investors willing to take a 3 year plus view.

    The graph below reflects total return on physical UK property

    Having been underweight property we are starting to become excited about the values that we are seeing and looking for opportunities.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-02, 17:27:39, by ian Email , Leave a comment

    JSE slips after recent rally

    Local markets

    Midday on Tuesday, the JSE All Share had lost steam after several sessions of gains, slipping 0.46% as investors believed that the gains could not be sustained for much longer after technical highs were reached. Declining oil and gas and basic materials stocks weighed on the local bourse.

    The rand was trading at R8.09 to the US dollar at noon, strengthening slightly after the euro weakened against the American currency, despite a surprising remark by Reserve Bank Governor Tito Mboweni that the rand strength was doing the economy a disservice.

    Oil was selling at $67.08 a barrel, continuing to rise 1.64% as investors expect an economic recovery to come from a world-wide fiscal stimulus.

    International markets

    Comforting economic data bolstered US markets yesterday, while GM’s bankruptcy filing removed uncertainty as to the outcome for the company. The Dow Jones rose 2.60% and the Nasdaq lifted 3.06% as investors believed that it was likely that demand would stabilize sooner than expected.

    The Japanese Nikkei edged up 0.27% this morning, once again reaching its highest level in eight months at its close. Car makers rose after GM’s uncertainty fell away, as did technology stocks after US data showed a positive outlook for the economy.

    The Hang Seng lost 2.64% as investors sold off expensive blue chip shares and consolidated their gains after a recent rally. Chinese stocks listed on the Hong Kong index gained thanks to much liquidity.

    The FTSE 100 had fallen 1.22% by 12:00, as banks declined after a major shareholder sold its holding in Barclays, and energy stocks offset recent gains.

    Share price news

    Vehicle distributor Combined Motor Holdings Limited rose to R6.99, a gain of 11.84% after one deal. After 58 deals, Jubilee Platinum PLC rose 10.19% to sell at R4 at noon.

    In the electrical equipment sector, South Ocean Holdings fell 19.20% to cost investors R1.01 a share at midday after the company released a no change statement. Investment bank Brait SA slid 6.57% this morning after 1 deal pressured the share price down to R14.50.

    Permalink2009-06-02, 12:42:07, by Natalie Email , Leave a comment

    A strong start to June

    Global markets started the month off in positive territory. This follows a very strong May month and 3 month period. The JSE gained 10,3% in May and with the rand weakness was up over 17% in US dollar terms. The 3 month rally for global markets was one of the strongest since November 1998.

    Finalised over the weekend and officially announced today, GM had no option but to file for bankruptcy. The chapter 11 process in the US assists debt laden firms to apply with a federal bankruptcy court for protection under chapter 11 of the US Bankruptcy code. It allows the business to be operated under trustee principle.

    Debts can be cancelled and re-organised. The debtor company proposes a plan of action, for which all interested creditors vote.

    Part of this code allows a company in chapter 11 to sell some of substantially all of its assets. As part of its announcement, GM will look to sell the strongest parts of its business to a new entity, essentially starting afresh.

    It is hoping for a relatively quick process – 60 – 90 days from now. Some of the stronger brands will move across. GM announced staff retrenchments of 5100 salaried employees. The company has staff around the world of around 230 000.

    Ordinary shareholders who always stand last in queue in a bankrupt company will see their value written down to zero. The $27 billion bondholders will secure only a 10% stake in the new company, US and Canadian governments will initially own 72,5% and the United Auto Workers union healthcare fund 17,5%.

    The widely followed Dow Jones Industrial average of 30 large US shares replaced both GM and Citigroup. GM entered the index in 1915, but given the 90% price decline and now the bankruptcy announcement, the Wall Street Journal editors have replaced both with Cisco Systems and Travelers Companies Inc

    Because the index is weighted to prices and because GM’s had fallen below $1, the switch makes little to now impact. Indeed at the start the day, the US indices had opened up very strongly.

    Many markets are now moving up through their 200 day moving average and this is seen as a positive sign. Consensus is that this is a bear market rally. What is not yet apparent is how long or how far it will go.

    In other news Treasury Secretary Timothy Geithner arrived in China to placate the Chinese on their holdings of US government bonds. They are worried about their investment and rightly so as the US government continues to announce record fiscal deficits and ballooning cumulative debt with little hope of repayment.

    Yields on 10 year and 30 year debt have spiked up from the beginning of the year and this is hampering the residential mortgage market, which in turn is not assisting to stabilise the US property market.

    Because the government wants to stabilise the property market as the main security to the debt markets, they definitely don’t want to see yields rise. There is a possibility that the US Treasury and Federal Reserve come out and announce an increase in Fed buying of treasury issued bonds to try and reign in the yields again. If this occurs it is again likely to be a temporary measure.

    As GM’s debt levels just got too substantial relative to the income required to service it, so the US government is facing a very similar scenario, unless they can do something very drastic.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-06-01, 17:26:21, by ian Email , Leave a comment

    Global markets gain as investor sentiment improves

    Local markets

    The JSE All Share had risen 2.30% by midday, following movements on Asian markets as basic materials and oil and gas stocks gained 3.64% and 1.81% respectively.

    The rand was trading at R7.93 to the US dollar at 12:00 as the US currency weakened slightly. US data is expected to affect risk appetite and the rand-dollar exchange rate.

    Gold cost investors $986.40 an ounce, lifted by a weakening dollar and risk aversion as investors attempted to hedge against global inflation.

    International markets

    The Dow Jones closed 1.15% higher and the Nasdaq rose 1.29% on Friday, after stronger commodity prices boosted resource stocks and a weakening dollar encouraged interest in multinational corporations.

    The Nikkei average finished 1.63% up this morning, after resource shares and shipping stocks rose on rumours of a recovery in Chinese demand.

    The Hang Seng soared 3.95% to reach an eight-month high, after Hong Kong shares rose in response to new data from China that suggest a quicker economic recovery than expected.
    The FTSE 100 had gained 1.78% by noon as oil and metal prices lifted commodity stocks as a result of improved investor sentiment about a global economic recovery.

    Share price news

    Mustek Limited in the computer hardware rose to R1.30 a share at midday, gaining 27.45%. Also amongst the top movers up was Jubilee Platinum, climbing 14.75% to sell at R3.50 a share.

    Not doing as well was Ellies Holdings, whose shares fell 7.34% to trade at R1.01 at noon. Palabora Mining Company Limited in the non-ferrous metals sector slid 6.74% to R76.01 a share.

    Permalink2009-06-01, 12:26:22, by Natalie Email , Leave a comment