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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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    Volatility and Market Movements

    Yesterday we had a look at how stability breeds instability, and today we’ll look at related topic, namely how volatility in the market affects the market’s performance. It should come as no surprise after yesterday’s report that the change in the market’s volatility is inversely proportional to the change in the level of the market.

    The extent to which this relationship holds true, though, is what was surprising. The indicator that is used in South Africa to measure volatility is the SAVI, which is calculated by the JSE, while the ALSI’s return measures market movements.

    The fact that an investor’s level of comfort is inversely proportional to the level of volatility makes logical sense as humans are genetically wired to seek stability and shun change.

    Looking at the percentage change in the level of the SAVI versus the level of change in the ALSI since 1 February 2007 (the longest period that data points can be obtained for both variables) it is remarkable at how strong their inverse relationship is.

    Over this period, in fact, these two indicators have a correlation of -0.74. Since the beginning of March this year (just before the market bottomed) the correlation between the change in the level of the SAVI and the change in the level of the ALSI falls to -0.98 (i.e. an almost perfect inverse relationship).

    From the information above it is clear that a profitable investment strategy would revolve around increasing market exposure before periods of low volatility and decreasing exposure before volatility rises. Unfortunately there is no causal relationship here, and volatility isn’t a lead indicator for equity returns. One therefore has to be able to instinctively feel where the volatility is going in the future (or use some other means to gauge where volatility is going) in order to be able to profit from this strategy.

    We have now had a period of nearly 5 months where the market has returned over 30%, while the SAVI has fallen by around 40% to levels last seen in June last year. Investors should take note where volatility stands now in relation to its history when assessing market risk.

    Enjoy your weekend.

    Take care,

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

    Permalink2009-07-31, 16:32:44, by Mike Email , Leave a comment

    JSE edges down on profit taking in resource stocks

    Local markets

    At 12:00 on Friday, the JSE All Share had skidded down by 0.18% after profit taking in basic materials and gold mining stocks, which was not completely offset by gains in the oil and gas sector.

    The rand strengthened against the US dollar, exchanging at R7.79 at midday which was also putting resource stocks under some pressure.

    Oil was selling at $68.61 a barrel, gaining 0.9% after positive economic data from the US lifted commodity markets and boosted hopes of a global recovery.

    International markets

    The Dow Jones rose 0.92% and the Nasdaq closed 0.84% higher yesterday after positive corporate results were released and fewer unemployment claims were reported.

    The Nikkei finished 1.89% higher this morning to reach a 10-month high. The Japanese index was boosted by good corporate earnings which lifted some technology, automotive and property stocks.

    The Shanghai index rose 2.72% while the Hang Seng climbed 1.68% after investors received central bank reassurance that monetary policy will remain fairly liberal and not discourage lending.

    The British FTSE 100 had slipped 0.02% by noon as weaker energy shares just overtook gains in banking and mining stocks. Investors were cautious ahead of US GDP data that may or may not suggest signs of economic recovery.

    Share price news

    Anooraq Resources Corporation was trading at R7 a share at midday, a gain of 12% after three deals. Rare Holdings Limited, holding company for fluid conveyance product manufacturers, gained 8.33% after one deal lifted the share price to R1.30.

    Anglo American Platinum Corporation Limited fell 9.09% after seven deals sent the share price tumbling to R100. In the shipping and ports sector, Value Group Limited dropped 5.36% to trade at R2.65 after two deals.

    Permalink2009-07-31, 12:25:02, by Natalie Email , Leave a comment

    Stability Breeds Instability

    Hyman Minsky was a well known American economist who proposed that the financial markets as we know them are inherently unstable and furthermore that their stability breeds instability. Let’s examine this paradox further.

    Financial markets as we know them today typically thrive on certainty and punish uncertainty whether on all asset classes, a specific asset class, or a specific sector of an asset class. The last year or so has been a perfect case study of this fact.

    While the general case holds (of markets thriving on certainty), the certainty and stability that gets created ultimately undermines the system. Looking back to June last year we saw commodity prices shooting through the roof on the belief (certainty) that China would absorb any new production on its way to becoming a global super power. The theory became a self fulfilling prophecy until such time that there was a realisation that the theory may not in fact hold over the same time horizon that commodity prices were discounting. When this happened we saw a massive collapse in the prices of many commodities (oil went from nearly $150 a barrel down to $40 odd a barrel).

    This phenomenon most likely occurs because when asset prices rise investors feel more comfortable that the price will continue to rise, they therefore have no problem with assisting the price to rise further by purchasing said asset at the higher price. Slowly but surely the proportion of investors that are invested in the asset, purely as a result of its price increasing, increases. ‘Investors’ (or more accurately speculators) start paying less and less attention to valuations and research, and more and more attention to the wealth created and blue sky stories.

    When the realisation that the wealth creation may not actually perpetuate into the distant future sets in and when the blue sky stories don’t become a reality, the asset price has moved to such highs that there is an inevitable market crash (typically below true value).

    A massive destabilisation of the system.

    We find at this point that robust debate is re-engaged, and different market participants put thought behind the true value of the asset. Volatility in the asset price most likely reasserts itself as there remains no ‘consensus view’ on where the asset price should be trading.

    Slowly but surely once again market participants start to come to a consensus on where the asset should trade, and this is where we see volatility starting to decrease and the asset price starting to move north again. The cycle repeats itself unless government intervenes.

    Tomorrow we will take a look at how volatility and markets are related.

    Take care,

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

    Permalink2009-07-30, 17:03:34, by Mike Email , Leave a comment

    The ZAR/USD still under the R8 mark – for now

    Local markets

    By noon on Thursday, the JSE All Share had crept up 0.88% after positive moves in the basic materials sector led gains across the board.

    The rand was trading at R7.83 to the US dollar at 12:00, tracking Dow Jones futures according to analysts, who expect the local currency to once again break through the R8 mark.

    Oil cost traders $66.54, recovering by 2.37% after yesterday’s slide, which was triggered by news of climbing US inventories.

    International markets

    Yesterday, the Dow Jones fell 0.29% and the Nasdaq slid 0.39% after weaker commodity prices pressured energy and resource stocks, and a gloomy US report of fewer durable goods orders worried investors.

    The Japanese Nikkei average rose 0.51% this morning, reaching a 9-month closing high, after Honda and Nissan stocks gained on news of positive corporate earnings reports.

    The Shanghai index closed 1.69% higher and the Hang Seng lifted by 0.49%, managing to recover some of yesterday’s losses, but further gains were limited due to investor concern that the recent rally was too strong for the corporate earnings expected.

    The FTSE 100 had gained 1.13% thanks to stronger mining and energy shares after positive corporate results from Royal Dutch Shell and other blue-chip companies.

    Share price news

    The IPSA Group gained 12% this morning as shares rose to R1.40 at midday after two deals. After five deals, shares in Africa Cellular Towers climbed 10% to trade at R1.10.

    Amongst the movers downwards, IFA Hotels and Resorts lost 7.50% in share price to trade at R1.11 a share at midday after two deals. Non-ferrous metals company Palabora Mining Company Limited fell to R61.08 a share after just two deals, a loss of 5.89%.

    Permalink2009-07-30, 12:36:04, by Natalie Email , Leave a comment

    June Inflation

    Inflation numbers for end of June were released today. The inflation number is an important input into financial models. For all investors inflation is the minimum hurdle rate over time, given its insidious ability to erode the purchasing power of savings.

    It is a moot point as to how accurate the figure is. Clearly it’s based on a basket of finished goods such as food and household contents to services such as restaurants, housing, education transport etc.

    The basket varies from person to person and from time to time the official basket of goods and services is amended. What is important is the consistency of the measurement process.

    Following on from this what is also important is the direction of the rate of change as opposed to the absolute number itself.

    With the official headline number having more recently peaked in August 2008 at 13,7%, it has been steadily coming down. While tending to have been a bit stickier on the downside in March, April and May, the June number came in at below the consensus at 6,9% versus the consensus as 7,1%.

    Food inflation was negative 0,3% month on month, which is a positive sign because food inflation has been high for some time. The coming months should reflect lower food inflation given the dramatic decline in the price of inputs such as maize over the last 12 months.

    The official inflation rate is generally expected to fall to 6,7% year on year at next month reporting – i.e. end of July and possibly lower still. However it is still outside the Reserve Bank target rate and listening to a fixed income manager today, who recently met with a Reserve Bank official, it does not look like we are in for any further interest rate cuts.

    The electricity hike is still to come through in the numbers and then there are wage hikes which are coming in ahead of the current rate and so there are a number of negatives for inflation going forward.

    Longer term then while the world faces a possible low to deflationary environment, some local fund managers have slightly upped their long run outlook for inflation to around 5,5%.


    Source : Nedbank Economic unit

    Certain industries such as food retailers benefit more from higher food inflation and conversely less as inflation, especially for food, trends down. Some fund managers expect to see some pressure on food retailer earnings as food inflation drops back from the very high levels.

    Kind regards

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

    Permalink2009-07-29, 17:23:19, by ian Email , Leave a comment

    Gold miners buck the trend while other sectors fall on the JSE

    Local markets

    The gold mining sector was the only one in the black on Wednesday at midday, while losses in the oil and gas and basic materials sectors weighed on the JSE All Share, causing the local bourse to lose 0.87%.

    The rand was trading at R7.90 a US dollar at 12:00, still hovering above the R7.75 mark ahead of CPI figures due later today.

    Oil cost traders $67.71 a barrel as the commodity continued yesterday’s decline, after investors grew cautious on falling consumer confidence and weak API crude data.

    International markets

    After positive earnings were reported for some major corporations, the healthcare, health insurance and biotech sectors gained, though poor consumer confidence data still managed to dent the Dow Jones, which closed 0.13% lower yesterday.

    The Nikkei inched up 0.26% this morning as the average reached its highest close in almost two months. High-tech shares were given a boost, but further gains were limited before the release of key corporate results.

    The Shanghai index dived 5% this morning after a heavy turnover, yanking Hong Kong shares down by 2.37% amid fears that banks will soon restrict lending.

    The FTSE 100 had risen 0.79% by noon as financial stocks rebounded after yesterday’s losses, overcoming weaker gas and mining shares.

    Share price news

    Shares in Great Basin Gold rose to R11.48 at midday, a gain of 9.33%. Beverages company KWV Beleggings Beperk climbed 8.54% to trade at R76 a share after just one deal.

    IFA Hotels and Resorts sank 20% to sell at R1.20 a share after a single deal. In the shipping and ports sector, Mobile Industries fell to R1.45 a share, losing 6.45% also after one deal.

    Permalink2009-07-29, 12:39:32, by Natalie Email , Leave a comment

    More on China

    Jeremy Grantham from GMO released his latest report where he discusses global markets and GMO’s current approach. As always the reading of his views, as an experienced manager and a good understanding of long term valuations, is important for all investors.

    With the US and global markets having got to very cheap levels in March where the S$P500 fell to a low of 666, it has raced up very quickly to 950. His view is that if this index moves up to 1000 to 1100, it will be time to take some risk off the table.

    He sees 880 as long term fair value for the S&P500.

    Quality US stocks are their favourite. He then goes on to mention their other favourite as emerging market equities, which have had an exceptional run, especially from the point of view of a US dollar investor because of dollar weakness in 2009.

    However within emerging markets, China is potentially expensive. Grantham says “Being pro-emerging, yet anti China is a dilemma for us; we are working to resolve it.”

    “Deciphering the strength of the Chinese economy will play also play a major role in formulating our view of any future relative strength of emerging.”

    One of his colleagues is concerned about China, with a suspicion that the economy is dangerously unbalanced and very likely to come unhinged in the next few quarters, surprising the pants off investors.”

    The graph below of the Chinese market from its lows at the end of 2008 gives an indication of the possible formation of a bubble once again.

    Yesterday saw a new listing in the form of Sichuan Expressway which listed at 3,60 yuan but closed at 10,0 yuan, having raced up on demand from investors. It was even suspended having breached levels on the upside.

    This is an area that will become increasingly important to global investors.

    Kind regards

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

    Permalink2009-07-28, 18:30:24, by ian Email , Leave a comment

    Global markets on the up despite mixed news

    Local markets

    The JSE All Share had risen 0.46% by midday on Tuesday, with gains across the board after the local bourse took direction from slightly positive US markets yesterday.

    The rand was trading at R7.78 to the US dollar at noon, remaining range bound around the R7.75 mark.

    Oil cost $70.59 a barrel, rising 2.3% to continue its three-week rally despite mixed signals from economic updates and corporate results.

    International markets

    The Dow Jones inched up 0.17% and the Nasdaq up 0.1% on US markets yesterday, as investors took heart from new home sales and bought up financial stocks, particularly in regional banks hard hit by credit losses.

    The Japanese Nikkei average closed 0.01% down this morning, ending a nine-session rally as investors became cautious and took profits from shares that had led the gains.

    The Hang Seng lifted 1.84%, almost reaching its highest level in 11 months and bringing the rally to its fourth day. Property stocks gained after investors acted on record new home loan data.

    The British FTSE 100 edged down 0.07% by 12:00 offsetting earlier gains in energy and bank stocks when investor confidence grew after positive corporate results from BP.

    Share price news

    Cenmag Holdings Limited, an investment holding company whose subsidiaries are involved in the manufacture and sale of electrical equipment, soared 63.16% after three deals boosted the share price to R1.55 at midday. Back in the news this morning was Ellies Holdings Limited, whose shares climbed 6.40% to trade at R1.33 after seven deals.

    First Uranium Corporation lost 20.88% as shares tumbled to R26.03 after just one deal. Also losing ground at noon was Sentula Mining Limited, whose 28 deals took the price down 7.78% to R4.15 a share.

    Permalink2009-07-28, 12:26:40, by Natalie Email , Leave a comment

    Funding the US

    The big economic shift from the West to the East is fascinating. At a presentation today I listened to the inimitable Michael Power, investment strategist from Investec Asset Management. While the steady shift appears inevitable, what must be particularly galling for the US is to have to increasingly answer to China about its current and future expected fiscal position.

    Today and tomorrow, US Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton will host Vice Premier Wang Qishan in Washington at a summit called the Strategic and Economic Dialogue.

    Apparently Fed Reserve Chairman, Ben Bernanke will also brief the Chinese officials about how the US plans to keep inflation in check over the next few years. Somehow I don’t think inflation is the issue, but how the US intends reigning in government spending. US President Obama is set to address the opening ceremony.

    Just a short while back in June, Geithner was in China fielding questions then about the US fiscal deficit.

    There does appear to be an increase in co-operation between the US and China, but I think that the US has no choice but to co-operate with the growing superpower given its higher and higher reliance on the Chinese for funding. Both countries however need the ongoing co-operation of the other.

    From China’s perspective one of the biggest risks that it faces is that it is acting as banker to the US and officials are getting nervous of the possibility of being repaid in depreciated dollars. The governor of the Chinese central bank has commented that the US finds itself in a financial crisis through over consumption and a high reliance on credit.

    Over the years the surplus reserves generated through Chinese exports have been sent back to the US and used to acquire US bonds. This “cheap funding” has allowed the US to live beyond its means, but now its heading for a crunch time. The People’s Bank of China announced recently that its foreign reserves have reached $2,1 trillion. A large portion of this is held in US treasury bonds.

    The US Treasury is facing a massive deficit. i.e. it needs fresh capital to plug the very big fiscal hole. Many of the individual states, with California the biggest, also face huge funding deficits. This money cannot merely be printed by the Federal Reserve, but needs to be received from net savers - i.e. the likes of China.

    The scenario forces the West to co-operate with the East

    That’s all for now

    Kind regards

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

    Permalink2009-07-27, 17:25:14, by ian Email , Leave a comment

    Gains in oil & gas stocks boost JSE

    Local markets

    The JSE All Share had edged up 0.74% by noon on Monday, lifted by gains in the oil and gas and financial sectors as the local bourse tracked gains on US and Asian markets.

    The rand was trading at R7.75 to the US dollar at 12:00, losing steam but still firmly under the R8 mark after last week’s gains.

    An ounce of gold cost $957.05, edging up slightly as the US dollar weakened and investors sought a buffer against inflation.

    International markets

    On Friday, the Dow Jones closed up 0.26% thanks to rising pharmaceutical and energy stocks, while the Nasdaq fell 0.39% after Microsoft announced poor results for the quarter.

    In Japan, the Nikkei lifted 1.45% this morning, bringing the index to its ninth straight session of gains. Investors hoped for further better-than-expected corporate results and looked for signs of economic recovery.

    In China, the Shanghai index rose 1.86% after Sichuan Expressway experienced strong gains on its first day of trade. The share tripled in value from its IPO price, though some analysts suggest the rise was fueled by excessive speculation.

    The FTSE 100 had lost 0.1% by midday SA time, eroding earlier gains in banking and resource stocks as investor confidence began to waver.

    Share price news

    Interwaste Holdings Limited on the ALTX, a holding company for a group of environmentally-conscious waste management companies, rose to R1 a share at midday, an increase of 21.95% in share price after six deals. Central Rand Gold Limited climbed 8% to trade at R2.70 a share after two deals.

    Investment company Real Africa Holdings Limited fell 7.48% to sell at R2.35 a share at noon. Meanwhile, after four deals Ellies Holdings Limited slid 6.98% to trade at R1.20 a share.

    Permalink2009-07-27, 12:06:09, by Natalie Email , Leave a comment

    Some points on a living annuity

    Most investors who have money in pension and provident funds will at some point look to allocate the bulk of these funds to a living annuity. Fund managers Coronation released an article discussing some of the pertinent issues that we agree with.

    While the tax rates on the lump sum withdrawals from pension and provident funds have been simplified, the rates are punitive for levels above for lump sums above R600 000 at 27% and above R900 000 at 36%.

    A maximum of one third of the pension fund can be commuted as a lump sum, but with the higher tax rates, many investors with provident funds will also be transferring the bulk of their funds to a living annuity.

    Coronation point out the risk of not taking enough risk in the portfolio, when allocating the bulk of a living annuity to low risk money market funds and at the same time having a fairly high income drawdown.

    While money market has provided an investor with an annual return of 9,8% per annum since 2000, an investment of R1m eight years ago with a 7% annual income, would now have a real value of only R569 800.

    Had the initial R70 000 been inflated just with inflation from 2000, this would now be the equivalent of R116 850 and would represent a 12% drawdown on the current value, which is not sustainable.

    So while a 7% income or drawdown from the annuity may appear sustainable when compared to historical and even current interest rates, the problem comes in that the annual annuity needs to be escalated annually just to compensate for inflation and this starts to have a real negative impact on the underlying portfolio. A consistently high cash component is unlikely to provide the real return required for most retirees.

    Some of the advantages of a living annuity

    The investor of the annuity has the full flexibility to create a portfolio with no section 28 restrictions. i.e. 100% of the portfolio can be allocated to local equities or even offshore for that matter.

    An income must be drawdown at a rate of between 2,5% and 17,5% per annum. This is altered on an annual basis.

    On death the balance of the annuity, unlike a compulsory annuity, will be transferred to a nominated beneficiary.

    Unlike conventional or guaranteed annuities therefore, living annuities provide the investor with flexibility, choice and ownership retention.

    The living annuity itself does not attract any taxable income on capital profits, interest or rental income etc, but rather the level of income drawdown in the investor’s hands.

    For this reason where an investor has a total portfolio composed of a portion allocated to a living annuity and a portion in discretionary assets, it is important to optimise the asset allocation. If you are in your position, discretionary investors should be skewed to growth assets and living annuity assets skewed to income generating assets.

    Have a wonderful weekend

    Kind regards

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

    Permalink2009-07-24, 17:27:22, by ian Email , Leave a comment

    Global markets rally on positive US corporate profits; rand loses ground as dollar regains strength

    Local Markets

    Local stocks have opened positively after a rally on Wall St, which prompted a surge in Asian markets overnight. Quarterly corporate profits are largely appearing to beat forecasts, spurring hopes that the US economy may be on the mend and consequentially its related global markets. The Chinese markets, in particular, have ignored recent international trends and domestic housing and consumer data there have seen its stock indices rise to six-week highs. Resources and retailers have opened well this morning and, by midday, the All Share had gained 0.26%.

    The rand lost some ground this morning on the back of a stronger dollar. The dollar improved against the euro as jobless claims in the US were better than expected. Further rand weakness can be expected as the dollar strength continues. By midday, the rand traded at R7.71 to the dollar.

    The gold price opened in a firm position this morning but was slightly off its six-week high reached the previous day. Investors are focused on the dollar movements as well as equity performances. Any signs of impending inflation would boost the bullion’s appeal as a hedge. Gold is sure to benefit though as rallies in the equity markets upgrade investor risk appetite, where gold becomes a safe-haven asset. At noon, a troy ounce traded for $951.17.

    International Markets

    Equities in the US rallied on Thursday in the wake of strong quarterly corporate profits and encouraging home sales data. Automobile sales data were also improved, suggesting that consumer spending may indeed be on the rise and the automobile industry may be repairing itself. However, Microsoft Corp, Amazon Inc. and American Express all posted subdued quarterly results after the bell yesterday so the broader market looks set to recline slightly. At close the Dow Jones was up 2.12% and the Nasdaq had gained 2.45%.

    The benchmark Nikkei average climbed nearly 2% overnight, posting its eight consecutive day of gains. This upliftment comes on the back of a spate of US corporate earnings that beat analysts’ forecasts. Chip equipment stocks in Japan also benefitted after announcing better-than-expected earnings goals. The index closed 1.55% up.

    Equities in Hong Kong gained overnight to close at a level last seen prior to the Lehman brothers collapse. Propelled by heartening corporate earnings momentum and Beijing’s confirmed commitment to an flexible monetary policy program, the Hang Seng managed to lock in further gains to record its best weekly gain in six weeks. The index closed 0.83% up.
    The performance of shares in London this morning thwarted hopes of a tenth consecutive winning session. Profit-taking in the mining and insurance sectors forced the index lower.

    Hopes of a tenth-consecutive winning session faded on Friday as London equity markets started lower in the face of profit taking in the insurance and mining sectors. Recently insurers had rallied amid much speculation of takeovers. Miners such as Anglo American suffered from poor results posted for sub-units over the world. However by midday, the FTSE 100 was trading firm at 0.62 % up.

    Share Price News

    Barloworld Ltd of the Diversified Industrials sector enjoyed voluminous incoming trade this morning. The share price strengthened by 3.82% to trade for R42.45 per share by midday. Also faring well amid the morning rally was Foschini Ltd of the Retailers (Soft Goods) sector. The bellwether retailer’s share cost R58.00 by noon, reflecting a 2.46% gain.

    Performing extremely poorly was Africa Media Entertainment Ltd of the Broadcasting Contractors sector. The share traded for R23.00 at noon, marking a large 11.54% decline. Also suffering from volatility in the market was Impala Platinum Holdings Ltd of the Platinum sector. Its shares cost R180.50 each by midday (a 2.43% reduction).

    Permalink2009-07-24, 12:37:46, by Grant Leyland Email , Leave a comment

    US bank profitability

    From anecdotal evidence, there appears a general reluctance on the part of both local and global banks to extend new advances. This is understandable following the aftermath of the credit crunch. But how then does this line up with announcements, especially from the US, of record second quarter profits.

    US banks have mostly reported large increases in second quarter profits. These have come in ahead of profit forecasts and have definitely helped boost share prices over the last few months.

    Wells Fargo one the US’s largest mortgage lenders, which acquired Wachovia in January, reported second quarter profits yesterday up 81% to $3,17 billion.

    Bank of America, which itself acquired Merrill Lynch and Co earlier in the year, reported a 5,5% drop in profits, but still coming in at $2,42 billion.

    Citigroup profits came in at $4,28 billion, but this was due to the profit on the sale of the Smith Barney brokerage.

    JP Morgan Chase reported a rise in profits to $2,72 billion on record trading fees and stock and bond underwriting.

    Investment bank and the fifth biggest in terms of assets, Goldman Sachs, recorded record profits 2 weeks back, with net income coming in at $3,44 billion

    Credit Suisse has reported profits up 29% to 1,57 billion Swiss francs or £890m.

    How have these banks generated these profits in an environment where they are not extending credit, bad debts or non performing loans are rising and the economy is still very weak?

    A big area is the wide spreads from the virtually 0% on money market to the 4,5% on US long bonds. A report from offshore Standard Bank said the following on bank profitability, “Banks are going to try and make profits in the safest way they can and the safest way is simply to use the steepness of the yield curve that has been created by the central banks. The safest way is not to go out and extend credit to companies that might go to the wall”

    In essence then banks have been given easy and virtually free capital as short term rates have come down close to zero. Instead of lending this out in the normal course, they have typically invested slightly longer and at higher rates and banked the differential as huge profits.

    Nouriel Roubini, professor of economics at New York University’s Stern School of Business, aptly summed up the state of affairs as follows: “In brief, banks are benefiting from close to zero borrowing costs and fewer competitors; they are benefiting from a massive transfer of wealth from savers to borrowers given a dozen different government bailout and subsidy programs for the financial system; they are not properly provisioning/reserving for massive future loan losses; they are not properly marking down current losses from loans in delinquency; they are using the recent mark-to-market accounting changes by FASB to inflate the value of many assets; they are using a number of accounting tricks to minimize reported losses and maximize reported earnings”

    The lending environment to corporates and the private market will normalise, but it may take a bit longer than the record profitability US banks seems to indicate.

    Kind regards

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

    Permalink2009-07-23, 18:17:46, by ian Email , Leave a comment

    Markets in Asia bounce back despite subdued Wall St; JSE remains firm above the line

    Local Markets

    The JSE opened positively this morning following overnight gains in Asian markets. A renewal in confidence in banking and property stocks globally is driving expectations that economic recovery is just around the corner. Globally, investors are focusing on the interim reports of bellwether corporate big-houses coming out of European and North American markets. The All Share was trading 0.67% up by midday.

    The rand remains firm around R7.70 to the dollar. It opened without much volatility this morning although some further risk aversion is expected today after yesterday’s bold extensions. Investors are still awaiting the outcome of merger talks between MTN and Bharti-Airtel. By midday, the rand traded at R7.69 to the dollar.

    The oil price hovered around the $65 per barrel mark again during the morning session. This comes on the back of mixed results from the US crude inventory analysis. The data reflected mixed demand for the various oil-based chemical stocks. This slowdown in the rise of the oil price curbs the two-week rally that saw oil climb from $58.78 to over $66 recently. By midday, a barrel of Brent Crude cost $66.51.

    International Markets

    US equities fluctuated over Wednesday as investors responded to possible indications of a renewal in strength in the housing and consumer sectors and mixed indicators on banks’ future bad debts. Major banks such as Morgan Stanley warned of loan write-offs to follow and the market took heed, focusing rather on signs of stabilisation in other sectors. The Dow Jones closed fairly flat at 0.39% down whilst the Nasdaq finished 0.53% up.

    The Nikkei average in Japan gained 0.7% overnight to reach a three-week closing high as Sony Corp and other exporters benefited from the weakened yen, with buying in futures giving additional support. High-tech exporters such as Kyocera Corp gained from confidence that US consumer spending is improving. This follows firm quarterly profits posted by bellwethers such as Apple Inc. recently. The Nikkei closed 0.72% this morning.

    Shares in Hong Kong extended gains to climb nearly 3% to a ten-month closing high overnight. A resurgence in banking and property sectors lifted the market out of its two-day lull. Hong Kong’s top property developer Sun Hung Kai Properties was the biggest percentage gainer, rising 5.4% on expectations that the luxury residential market will outperform. The Hang Seng closed 2.96% up this morning.

    London equities were plagued this morning by a surge of interim reports. The markets opened under pressure from eight consecutive days of gains and a subdued performance on Wall St overnight. The forward impetus was quickly thwarted by profit-taking, but focus remains on the incoming interim reports. By midday, the FTSE 100 was trading 0.09% under.

    Share Price News

    Steinhoff International Holdings Ltd of the Furnishings and Floor Coverings sector performed well this morning, often attracting large volumes of trade when the market is looking to stabilize. At midday, a share traded at R15.80 (a 4.22% gain). Also faring well during the morning session was miner Merafe Resources Ltd of the Metals and Minerals sector. Its shares rose consistently to trade for R1.11 each by noon, reflecting a 3.74% gain.

    Reinet Investments of the Investment Companies sector lost significant ground this morning as investors retreated towards mining and retailing stocks. By midday, its shares cost R10.68 each, marking a 2.02% decline. Also amongst the losers was Pretoria Port Cement Ltd of the Building and Construction Materials sector. The major cement producer traded at R28.15 per share by noon (a 1.23% decrease).

    Permalink2009-07-23, 13:37:01, by Grant Leyland Email , Leave a comment

    is China the next bubble?

    Following the release of the June GDP numbers from China, a report from Wells Fargo Securities questioned whether China is the next bubble? Naturally given its growing dominance and impact on the world’s economy, there is much debate as to whether China is the powerhouse than can pull the world out of the current economic slowdown.

    Year on year growth rate slowed to 6,1% in the first quarter or 2009, but this picked up again to 7,9%, mostly as foreign trade started to stabilise again after the very poor 4th quarter 2008 and first quarter 2009.

    The Chinese government responded very quickly and aggressively to the 2008 crisis, and started to actively encourage banks to lend. The government announced a stimulus plan in November 2008 of $586 billion.

    In March it was announced that public infrastructure development would take about 38% of this stimulus package. Projects lined up include railway, road, irrigation and airport construction. Other areas include reconstruction work to areas hit by the Sichuan earthquake last May, rural development, technology advancement, education and cultural etc.

    Interest rates were cut, lending restrictions, which were put in place in early 2008, were rescinded, and banks were encouraged to lend, allowing loan growth to explode over the past few months. See the chart below.


    According to the report, this growth in lending now exceeds that put in place at the beginning of the decade when the government was attempting to stimulate the economy.

    Despite the massive rise in lending, the gearing levels are coming off a very low base and because the Chinese are net savers, the loan to deposit ratio has actually trended down over the last decade.

    Unlike in the US, households have a relatively low percentage of loans relative to overall GDP. In the US loans to individuals are at 97% of GDP (with US GDP around $14 trillion). In China this ratio is at 20%.

    There is a risk that loans to businesses may prove to be uneconomic and end up as being non performing. i.e. the projects and businesses themselves prove unsustainable and therefore unable to repay the debt. This is the big concern in my mind.

    The report concluded that there are few signs of excessive leverage and that the government is very wary of creating a lending boom, which occurred in the late 1980’s. This will be an important area to watch in order to determine if China has the real ability to become the powerhouse the world requires.

    Kind regards

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

    Permalink2009-07-22, 17:22:15, by ian Email , Leave a comment

    Signs that US consumer demand is waning subdue markets internationally whilst local investors focus on MTN – Bharti deal

    Local Markets

    The JSE opened fairly flat this morning as investors sought to book profits made in previous sessions. Mixed outcomes in Asian markets failed to settle uncertainties whilst Wall Street’s overnight performance suggested consecutive gains in previous sessions may have been built on presumptuous forecasts. Local investors remain focused on talks between MTN and Bharti Airtel.

    The potential merger could prompt a surge of confidence in related equities and the cash injection would almost certainly buoy the rand. By noon, the All Share was 0.98% down.
    The oil price lingered around the $65 per barrel mark this morning after settling on s similar level in Asia overnight. US crude inventories have increased, suggesting further consumer demand woes.

    This was exacerbated by Fed Chairman Ben Bernanke’s remarks on Tuesday that numerous impending factors were likely to curb consumer spending. The oil price has benefitted recently from improved corporate earnings data but much of this improvement is attributed to cost-shedding via lay-offs and this has had a detrimental knock-on effect on unemployment and consequently consumer spending. By midday, a barrel of Brent Crude traded for $65.58.

    During the morning session, the rand remained buoyant around the levels seen at Wednesday’s close. The market is fixed on the outcome of talks between mobile telecoms service provider MTN and India’s Bharti Airtel. The impending deal could potentially lead to a full merger, creating a leading global wireless group with combined revenue in excess of $20 billion. The success of such a deal would almost certainly strengthen the rand, with such a large cash influx into the country. By midday, the rand traded for R7.77 to the dollar.

    International Markets

    US equities gained on Tuesday as Caterpillar Inc reported solid profits, assuaging worries over the company’s outlook for the current quarter. However most investors remain cautious following the recent earnings-fuelled ascent. The market remains conservative after Ben Bernanke’s statements to a congressional panel on Tuesday that rising unemployment, decreasing home values and tight credit would prove testing in the months to follow. The Dow Jones closed 0.77% up whilst the Nasdaq managed to squeeze a small 0.36% gain before the bell.

    The Nikkei average made slight gains overnight as technical buying boosted the price of futures. The index reached its highest level in nearly two weeks, but gains were capped by the strength of the yen affecting exporters such as Canon Inc. The market received a boost as futures dealers bought back short positions but these gains were subdued by concerns over exporters’ profits. The Nikkie closed 0.74% up this morning.

    Shares in Hong Kong lost ground overnight, falling off a ten-month high reached earlier in the session. In particular, blue chip equities succumbed to profit-taking following the sharp gains. The benchmark Hang Seng closed 1.30% under.

    Equities in London slumped slightly this morning after seven consecutive sessions of gains. The gains had left the market vulnerable to profit-taking. Wall Street’s subdued overnight performance also contributed to the open in London. Mining giant BHP Billiton also left the mining sector flat after it warned of unpredictable demand trends. At noon, the FTSE 100 was trading 0.35% down.

    Share Price News

    Tiger Brands Ltd of the Food Processors sector has fared well this morning. Volumes of incoming trade managed to prop its share price up to R154.49 by midday, a 1.91% improvement. Also managing to lock in gains after three consecutive sessions of losses was Lewis Group Ltd of the Retailers (Hardline) sector. By noon, a share traded for R52.30 each (3.77% increase).

    Among the morning’s losers was Hulamin Ltd of the Steel sector. The company posted a disappointing interim report this morning, attributing its slowdown in growth and operating profit reductions to weak demand. By midday, a share traded for R10.05, marking a 6.94% slump. After posting a fairly stable production report for its financial year ended, BHP BiIliton of the Metals and Minerals sector has suffered losses this morning as investors remain cautious ahead of the release of its annual report. By noon, a share cost R189.00 (a 4.30% decrease).

    Permalink2009-07-22, 12:45:34, by Grant Leyland Email , Leave a comment

    A Look at Hedge Funds

    We often find that people that aren’t involved in the investment industry immediately think of the word “risk” when you mention hedge funds. This thought is often associated in bear markets with emotions such as fear and apprehension. On delving further into why these thoughts and emotions occur, it is apparent that the main sources of these thoughts and feelings are a lack of knowledge on how they operate and “information” provided by main stream media.

    Alfred Jones is credited with creating the first hedge fund 60 years ago in 1949 with the intention of reducing the risk of the portfolio which he achieved by buying those shares that he believed that would perform better than the market, and selling short those shares that he believed would do worse than the market (i.e. borrowing shares and selling them on, before buying them back later at the market price and returning them to their owners). By doing this he was able to remove the risk of the movement in the market.

    Two scenarios below give a simple illustration as to how a hedge fund manager is able to remove a certain level of market risk.

    In scenario 1 the manager purchases share A (which returns -20%) and sells share B short (which returns -35%) on the belief that share A will outperform share B. He is proven correct, and the hedge fund returns 15% to its clients ([-20%] – [-35%]). By hedging out market risk the manager is able to make profits in a downward trending market. Had the hedge fund manager just bought share A as a result of his research indicating that A was a superior company to the market, he would have made a negative return (-20%) even though the company outperformed the market.

    Scenario 2 depicts a fund manager getting his research incorrect. Here he buys share A (which returns 50%). Here share A underperforms share B (which was shorted and returned 60%) with the result being a return 0f -10% for the clients ([+50%] – [+60%]) despite both shares outperforming the market (return of 30%). If the manager had used the market as the short (i.e. he believed that share A would outperform the market, but not share B ) he would have returned 20% to his investors ([+50%] – [+30%]).

    This illustration is merely an extreme simplification of an equity market neutral strategy with no gearing. While it is a simplification it is able to illustrate that hedging results in a manager showing his true skills. The above chart also shows that a hedge fund, run in the above manner, isn’t affected by the level of the market, but purely on the relative performance of the securities on the long side compared to the securities on the short side.

    Many of the hedge fund blow outs experienced in the past 2 years (especially overseas) have been as a result of excessive leverage, or of managers investing into illiquid assets. Those managers that stuck to simple strategies have generally been able to weather the storm much better.

    Complicated strategies can produce exceptional returns, but they also run the risk of things going wrong, which in a geared strategy can spell the death knell for a fund. Simple strategies will generally not give as spectacular returns on the upside, but should be more robust when times become testing.

    I trust that this has given a little bit more insight into the basic mechanics of how hedge funds were originally set up to be managed.

    Take care,

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

    Disclaimer: While hedge fund managers are regulated in South Africa, hedge funds (as a product) remain unregulated. Hedge funds typically make use of strategies that result in them only being suitable for sophisticated investors.

    Permalink2009-07-21, 18:11:18, by Mike Email , Leave a comment

    International markets rally on positive liquidity signs from US private sector

    Local Markets

    The JSE was fairly flat this morning after investors began to book profits from previous sessions’ rallies. However, these retreats were assuaged by a renewal of confidence prompted by encouraging US corporate earnings and other indications from the US private sector that consumer confidence is returning to the corporate playing field. The steady rand also helped to buoy equity movements and by midday, the All Share was relatively flat at 0.69% up.

    The gold price stabilized near $950 per ounce in overnight markets. This comes after reaching a six-week high the previous session. Many investors abroad utilized bullion as a hedge against inflation risk given the continued reductions in the dollar and improved corporate earnings outlooks. By midday locally, the gold price was at the $948.15 level.
    The rand retreated slightly against the dollar during the morning session. This comes after rallying to a near three-week high overnight. The market has absorbed the weekend appointment of Gill marcus as Reserve Bank governor and focus now remains on her intentions regarding monetary policy. At noon, a dollar traded for R7.86.

    International Markets

    Equities in the US climbed yesterday after lending institution CIT Group Inc was thrown a refinancing lifeline by the private sector and investors signalled expectations that the corporate arena would render further positive earnings this week. CIT, a lender to nearly a million small- to medium-sized firms, reached a deal with bondholders $3 billion in emergency financing. This sent encouraging signs of liquidity in the private sector to investors who also upgraded their outlook. The Dow Jones closed 1.19% up whilst the Nasdaq finished 1.20% up.

    Japan’s Nikkei rose nearly 3% to its highest close in nearly two weeks. The market was following gains made in the US and took optimism from the CIT rescue deal. Construction machinery stocks also boomed in consequence of a general feeling that the construction sector bottomed at the end of the second quarter. The Nikkei closed 2.73% up.

    Equities in Hong Kong steadied at the ten-month zenith scaled in the previous session. However, Chinese insurers and technology stocks managed to lock in gains on strong interim earnings forecasts. The benchmark Hang Seng closed 0.62% up this morning.

    Shares in London began to appear inflated this morning, following six consecutive sessions of gains. Investors began booking profits but focus remains fixed on the US markets where corporate earnings are expected to improve this quarter. By miiday, the FTSE 100 was trading fairly flat at 0.61% up.

    Share Price News

    Sun International Ltd of the Gaming sector has profited significantly this morning, seeing large volumes of incoming trade. By midday, the share price had risen by 2.29% to trade for R83.17 per share. Also, performing well under much profit taking is Gold One International Ltd of the Gold Mining sector. The firm’s equities have been valued favourably in line with gold price increases over the past few weeks. Its shares cost R1.90 each by noon, a 2.70% gain.

    Zeder Investments Ltd of the Other Financial sector suffered voluminous reductions this morning as investors sought to take profits from previous sessions’ gains. By noon, a share traded for R1.65 (a 2.37% decrease). Also performing poorly for the second consecutive session is Lewis Group Ltd of the Retailers (Hardlines) sector. By midday, a share cost R52.00, marking a 1.61% fall.

    Permalink2009-07-21, 12:33:12, by Grant Leyland Email , Leave a comment

    US investment strategists are more upbeat

    The firmer a price rally, the greater the enthusiasm. From their recent lows in March, share prices have rallied very quickly and very strongly. The US index the S&P500 is now up over 40% from its low and many investment strategists believe that it has more to go this year.

    Some factors that have added to investor enthusiasm over the last few months:

    • Federal chairman Ben Bernanke started talking about green shoots
    • Increasingly it looked as if a major credit crisis was being averted
    • Central banks continued to reduce and hold interest rates at very low levels.
    • Company result announcements started surprising on the upside.
    • Commodity prices have moved up on dollar weakness
    • The volatility index is down, an indication that risk appetite has increased.
    • China growth at 7,9% for quarter 2 annualised and foreign reserves over $2 trillion for the first time.
    • A composite of leading economic indicator improved in June

    Goldman Sachs, itself having boosted the market with its profit announcement last week, is now looking for improving earnings across corporate US and hence a further boost to equity markets into the second half. The S&P500 index to end the year at 1060, up 13% from its current level.

    They base this on operating earnings of $52 in 2009 and $75 in 2010. These estimates were raised from April of $40 and $63.

    Their preferred valuation model is the dividend discount model, which is how they arrive at their value for the overall index at over 1000.

    On a simple one year forward PE basis, the US index is trading at 12,5 times or an earnings yield of 7,9%.

    These earnings for US companies are not only very volatile, but there are so many nuances, which can distort dramatically. i.e. pre provision earnings, pre write downs.

    Looking back over a longer term perspective – 80 years –the one year forward estimate of the index earnings, the average has been 20 time. Now it’s down to 12,5 times.

    But averages can distort. At market lows, the one year forward has at times come as low as 8 and 10 times, which on this value metric would pull the index down to between 600 and 750.

    The investment strategists from both Deutsche Bank and JP Morgan are also very bullish for the balance of the year.

    The typical bias for these large house strategists is firmer markets and in some respects it becomes a self fulfilling prognosis.

    The local JSE ended up 0,5%. Gold shares bounced up 3% on the day. The rand firmed against the weaker US dollar. It was also firm against sterling and the euro.

    Kind regards

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

    Permalink2009-07-20, 17:10:34, by ian Email , Leave a comment

    Equity markets continue to gain whilst the dollar weakens further: JSE follows suit

    Local Markets

    The JSE has opened slightly higher this morning as the rand continues to make gains against the dollar and Asian equity markets rallied overnight. The gains being seen in global equity markets is prompting growing confidence that an economic turnaround is drawing ever nearer. Commodity equities were volatile this morning though as investors sought to take many of the profits made last week.

    The All Share was 0.98% up by noon. Oil stocks rallied this morning, extending last session’s 2.5% gain. Propped up by improved Asian equity markets and another weakening of the US dollar, oil reaped the benefits of a slight return of risk appetite as commodities moved in line with equities. By noon, a barrel of Brent Crude traded for $65.42.

    The rand made resolved improvements this morning n the back of a positive market reaction to the weekend appointment of Gill Marcus as new Reserve Bank governor. The dollar also continued to slump giving the rand an extra boost. Marcus’s credentials as a former chairwoman of SA’s largest banking retail group and former central bank deputy governor has assured the market that she is an able successor. By midday, the rand traded at R7.96 to the dollar.

    International Markets

    Stocks in the US finished relatively flat on Friday after experiencing the best week of gains in over four months. Disappointing results from energy giant General Electric Co were assuaged by strong earnings releases from IBM. The technology services provider made significant gains, also bolstered by the posting of strong quarterly results from two other bellwether names Goldman Sachs Group and Intel Corp. The Dow closed 0.37% up whilst the Nasdaq finished 0.08% in the green.

    The Nikkei was closed overnight as Japan was on holiday for Marine Day.
    Equities in Hong Kong rose 3.7% overnight, marking the fifth consecutive winning session. This signals confidence in a turnaround in China’s ailing economy as the markets move consistently (though in the opposite direction) to levels last seen with the collapse of Lehman Brothers.

    London equities gained this morning on the back of improvements in the insurance sector. These gains managed to stave off pressure from investors keen to take profits after last week’s bumper returns. Focus remains on take-over negotiations between Friends Provident and insurer-based investment group Resolution, where the latter has sweetened its original offer with a further cash injection. By noon, the FTSE 100 was trading 1.39% up.

    Share Price News

    Commodity-linked equities have seen most of the trade this morning as recent rallies in equity markets have prompted a return of risk appetite. BHP Billiton of the metals and Minerals sector has performed well during the morning’s trade. The mining giant’s equities gained 2.42% by midday to sell for R196.50 per share. Simmer and Jack Mines Ltd of the Gold Mining sector also managed to secure aggregate gains this morning after a session of relative volatility as gold stocks continue to experience instability. The share traded for R2.43 by noon, a 4.29% improvement from open.

    Petmin Ltd of the Metals and Minerals sector has lost volumes this morning. Its equities traded for R1.99 each by midday, marking a 2.93% loss. Also performing poorly was Lewis Group Ltd of the Retailers- Hardlines sector which suffered the brunt of the investors’ return to commodity trading. By noon, a share traded for R52.95 (a 1.94% decrease).

    Permalink2009-07-20, 12:53:20, by Grant Leyland Email , Leave a comment

    Peter Peterson

    The Blackstone Group, listed at the top of the global markets in 2007 on the New York stock Exchange, in a very successful $4 billion initial public offering, made instant billionaires out of its 2 founders. In 2008, following the footsteps of other billionaires, he established a foundation with $1 billion.

    I listened to an FT interview with Peter Peterson, who according to Wikipedia was born 5 June1926, is an American businessman, investment banker, fiscal conservative, author, and politician whose most prominent political position was as United States Secretary of Commerce from February 29, 1972, to February 1, 1973 under Richard Nixon. He is the Senior Chairman of the private equity firm, the Blackstone Group. In 2008, he was ranked 149th on the "Forbes 400 Richest Americans" with a net worth of $2.8 Billion.
    Peterson was Chairman and CEO of Lehman Brothers (1973–1977) and Lehman Brothers, Kuhn, Loeb Inc. (1977–1984).

    In 1985 he and Stephen Schwarzman co founded the Blackstone Group as a mergers and acquisitions boutique and over two decades built it into one of the largest private equity investment firms in the world.

    The name is a cryptogram derived from the two founders’ names, with Schwarz German for black and Peter or Petra in Greek meaning stone or rock.

    The listing at the peak of the market was exceptionally well timed and they trumped competitors, private equity firm KKR.

    When asked by a FT interviewer on whether he would be long or short the following assets, these were his views.

    • US dollar - short
    • Oil - short over the long term
    • Gold - long
    • Goldman Sachs - long
    • China - long
    • US Treasury Bills - short
    • Print newspapers - short
    • State of California IOU - short
    • Manhattan Real Estate - neutral because he has conflict of interest

    In his memoir, Peterson outlined why he gave away $1 billion. This except from his autobiography, The Education of an American Dreamer, quoted by Newsweek.

    “In 2007 the company I cofounded, the Blackstone Group, held a most successful public offering. I found myself, at 81, an instant billionaire. I wish I could've called my father, a Greek immigrant who had spent most of his life running a 24-hour diner in Kearney, Neb. The news might have pleased him as much as my being the first Greek cabinet officer, which he never hesitated to tell perfect strangers. In the 1930s, when I was growing up, there was all this talk about millionaires like John D. Rockefeller and Andrew Carnegie. Now I was a millionaire 1,000 times over.

    But immediately I began wondering: what do I do with $1 billion? The idea of trying to make the money grow felt empty to me. For my father, who saved or gave away so much of his modest income, the ultimate pejorative was "big spender." So buying a yacht was out of the question. I was also struggling over what to do with myself. I would be retiring from Blackstone, but my mind was still sharp and my energy was good. As my work commitments diminished, the phones gradually stopped ringing. The e-mails slowed. My schedule had too many blank spots. I was liberated. I was free. But I was joyless. I found my new life to be a kind of metaphor for my declining years—one might say a slow dying. I missed the frequent interactions with people I respected and enjoyed. I missed being needed. So I started looking at the lives of other billionaires. Almost all the ones I most admired were major philanthropists: Warren Buffett, Bill Gates, Mike Bloomberg, George Soros, Eli Broad—each with a passion to do good, each getting so much pleasure from giving their money away. I decided that's what I wanted to do. But to which worthy cause would I direct my money?

    For the first time in my memory, the majority of the American people join me in believing that, on our current course, our children will not do as well as we have. For years, I have been saying that the American government, and America itself, has to change its spending and borrowing policies: the tens of trillions of dollars in unfunded entitlements and promises, the dangerous dependence on foreign capital, our pitiful level of savings, the metastasizing health-care costs, our energy gluttony. These structural deficits are unsustainable. Herb Stein, who served alongside me in the Nixon White House as chairman of the Council of Economic Advisers, once drily observed, "If your horse dies, I suggest you dismount." And yet, we keep trying to ride this horse.

    Underlying these challenges is our broken political system. Our representatives, unlike our Founding Fathers, see politics as a career. As a result, they are focused not on the next generation, but on the next election. When the long-term problems are large and real, they anesthetize us, mislead us, divert us—anything to keep us from giving up something or having to pay for it. Too often, our political leaders are just enablers, co-conspirators in a disingenuous and greedy silence. Our children are unrepresented.

    The future is unrepresented. The moment is long overdue for us to become moral and worthy ancestors. So I decided to set up a different kind of foundation, one that would focus on America's key fiscal-sustainability challenges. The fact is, for most of these challenges, there are workable solutions. Our problem is not a lack of such options. It is a lack of will to do something about them.

    Ultimately, I decided to commit $1 billion to the Peter G. Peterson foundation—the vast majority of my net proceeds from Blackstone. Why so much? Kurt Vonnegut once told a story about seeing Joseph Heller at a wealthy hedge-fund manager's party at a beach house in the Hamptons. Casting his eye around the luxurious setting, Vonnegut said, "Joe, doesn't it bother you that this guy makes more in a day than you ever made from Catch-22?" "No, not really," Heller said. "I have something that he doesn't have: I know the meaning of enough." I have far more than enough.”

    These are some good points to consider from this 83 year old.

    Have a fantastic weekend

    Regards

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

    Permalink2009-07-17, 17:45:55, by ian Email , Leave a comment

    JSE edges up as positive US results continue to buoy markets

    Local markets

    The JSE All Share had edged up 0.31% by midday on Friday, with gains from gold mining and the oil and gas sector leading the positive move as the local bourse experienced a delayed response to gains in global markets over the last two days.

    A US dollar cost buyers R8.07 at noon as the rand hovered around the R8 mark, as emerging market currencies began to lose their appeal as global appetite for risk declined.

    Gold was selling 0.1% lower at $936.02 an ounce as the dollar continued to be the preferred investment after poor manufacturing statistics from the US dampened risk appetite.

    International markets

    US stocks closed positively yesterday after good results from JP Morgan boosted hopes about this quarter’s corporate earnings. The Dow Jones rose 1.11% while the Nasdaq enjoyed a 1.19% gain after a buy-up of technology shares.

    The Nikkei average edged up 0.55% this morning on the back of positive corporate results from the US, though further gains were limited due to the uncertainty surrounding next month’s elections.

    The Hang Seng climbed 2.42%, extending its three-day rally as investor hopes were buoyed by US corporate results as well as positive data from China, leading to gains in banking and property shares.

    By midday Johannesburg time, the FTSE 100 had risen 0.77% thanks to gains in oil, mining and banking stocks, which also took heart from the US results.

    Share price news

    After three deals, shares in Aquarius Platinum Limited rose 6.89% to become the biggest mover up as shares traded at R28.85 at midday. Blue Label Telecoms Limited, a wireless telecom service provider, gained 5.58% in share price to sell at R5.49 after seven deals.

    Grand Parade Investments Limited fell 3.20% after six deals this morning took the share price down to R2.12 by 12:00. Mobile Industries in the shipping and ports sector was down again today, losing 3.13% to trade at R1.55 a share after one deal.

    Permalink2009-07-17, 12:25:49, by Natalie Email , Leave a comment

    Company pricing power

    While reading through the fact sheet and portfolio manager comments of a global fund, in which we have recommended our clients to invest, I was struck by one of their comments on company pricing power and the importance for sustainable returns.

    A key criterion that this global fund manager assesses when distinguishing good from poor earnings structures is pricing power. They said, “Nothing enhances the value of a company like gaining pricing power and nothing damages it as much as its loss”

    What is pricing power?

    It is the effect that a change in a firm’s product price has on the quantity demanded. Companies with high pricing power can steadily move up their prices with little to no impact on demand.

    Warren Buffett describes the importance of investing in businesses that can raise their prices “rather easily without fear of significant loss of either market share or unit volume.”

    In his 1981 shareholder report when inflation was running high in the US, Buffett mentioned that “… inflation acts as a giant corporate tapeworm, which pre-emptively consumes its requisite daily diet of investment dollars regardless of the health of the host organism.”

    He went on to say that under those conditions a business earning 8% or 10% on equity often has no leftover for expansion, debt reduction or “real” dividends. I.e. inflation itself reduces real pricing power.

    The global environment

    Through the concerted efforts of central banks, a financial meltdown may have been averted but with the destruction of trillions of dollars of wealth, many industries have and will find themselves with little to no pricing power.

    There has been a massive shift in the imbalance between supply and demand, especially in the providers of capital goods over the last 2 years. China continues to expand its production capacity creating further supply increases.

    See the chart below on US capacity utilization, which is far below the lows of the previous 4 recessions and indicates that there will continue to be a lot of strain on pricing power for certain industries.

    In this type of environment with demand down and so much production freed up, many companies will struggle to enhance their pricing and margins.

    The portfolio manager in question tries to identify companies that have better than market pricing ability and those that will continue to be able to push up pricing. Many of these are being found in the international tobacco, food and drugs companies.


    Source: Wells Fargo Economics Group

    Relatively very attractive

    They go on to mention that in relative terms, the earnings yield of these consumer staple companies as a whole, compared to the yield on the 10 year bond, reflects these equities trading at a 30 year relative low.

    In the last few reports we have also mentioned this substantial relative value between earnings yields on equities and the yield on bonds.

    It is important that your funds have a higher weighting to stable earnings with some pricing power.

    Kind regards

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

    Permalink2009-07-16, 17:01:53, by ian Email , Leave a comment

    JSE bucks global market gains, down 0.6% at midday

    Local markets

    The JSE All Share had slipped 0.63% by midday on Thursday, pressured downwards by losses in gold mining and basic materials stocks.

    The rand was trading at R8.14 to the US dollar at noon, weakening initially though analysts expect a turnaround later today in light of strengthening risk appetites for other emerging market currencies.

    Oil cost $62.08 a barrel, losing 1.46% after investor caution about the speed of economic recovery prevailed, despite upbeat economic growth figures from China.

    International markets

    Yesterday, the Dow Jones gained 3.07% while the Nasdaq rose 3.51% after Intel Corporation released positive corporate results and inspired investors to embark on a buying spree.

    The Japanese Nikkei lifted 0.81% this morning after a weaker yen boosted exporters, and positive Intel results led to hopes of an increase in technology spending. Further gains were limited by investor caution and political uncertainty.

    The Hang Seng rose 0.51% ending its third straight day of gains as investors saw reason to hope for a quicker economic recovery, though gains were hampered by profit taking later in the session.

    The FTSE 100 inched down 0.15% after a volatile morning’s trade, as investors regained caution after taking heart from positive US corporate results in the previous session.

    Share price news

    Oando PLC in the oil sector was the top mover upwards, reaching R5.50 at midday after one deal, a gain of 10%. Trans Hex Group Limited in the diamond sector rose 5.77% to trade at R2.75 a share after two deals.

    In the shipping and ports sector, Mobile Industries fell 9.68% to sell at R1.40 a share at 12:00 after a single deal. Kap International Holdings lost 7.41% as shares fell to R1.25 each after one deal.

    Permalink2009-07-16, 12:24:31, by Natalie Email , Leave a comment

    More on the Yale Endowment

    Last week we took a look at how the Yale fund has done post the release of the results to 30 June 2008, and at the asset allocation of the endowment and how it has changed over the past 5 years. Today we’ll have a closer look at the specific asset classes that make up the endowment fund.

    Superior performance has been achieved over time through allocating capital to cheap assets and selling assets that become overpriced. By looking at asset class expected returns, covariance’s of the various asset classes (a measure of the extent to which the returns on the various asset classes move together), and other techniques the committee come up with an ideal asset allocation, the will both protect capital to a certain extent but also grow in real terms over time.

    Over the last few days Ian has been looking at the pricing of various asset classes, in attempt to find where the value lies. Yale will employ a similar process across a broad spread of asset classes.

    While the committee’s asset allocation abilities are well known they also have been able to consistently beat their respective asset class benchmarks (i.e. their stock portfolio outperforming the benchmark index). In the management of the portfolio both qualitative and quantitative methods are used in an attempt to produce enhanced returns. Some techniques used for the various asset classes include.

    Absolute Return Funds
    Aligning interests between managers and Yale through implementing performance fees, with hurdles and claw-back provisions. They also ensure that the manager invests significantly alongside Yale.

    US Equity
    The University favours managers with strong bottom up fundamental research capabilities, and prefer those managers that follow a value approach to investing. Integrity, stable corporate environments, and sound philosophies are some of the qualitative aspects that are required.

    Fixed Income
    This is an asset class that Yale isn’t very attracted to due to its low expected real return (2%pa). Owing to the highly efficient nature of the bond market, Yale manages this asset class in house.

    Foreign Equity
    Here managers with similar traits to US equity managers are selected. Yale actively manages the allocation between developed and emerging markets, and also between the various countries, sectors, and styles.

    Private Equity
    Yale has been able to grow a stable of managers that are able to exploit market inefficiencies. Key traits of these managers are that they work closely with the companies in their portfolios in order to create fundamentally more value. Of secondary importance is financial engineering to enhance returns.

    Real Assets
    High transaction costs and the illiquid nature of real assets enable astute managers the opportunity to add significant value to the portfolios that they manage. Yale has created strong long term relationships with these managers to enhance value further.

    The result of these methods can be seen in the graphic below:

    At Seed we take notice of the methods used by successful managers. These methods are adapted to suit our clients’ needs. The process constantly evolves and is refined as improved techniques become recognised.

    Take care,

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

    Permalink2009-07-15, 18:36:03, by Mike Email , Leave a comment

    Gains all round after encouraging US corporate results

    Local markets

    Gains in gold mining and oil & gas stocks had led the JSE All Share upwards by 1.82 at midday. Investors were seeking bargains, inspired by firmer overseas markets.

    The rand was trading at R8.16 to the US dollar at noon, remaining range bound for the moment as the local currency looks for direction.

    Oil was selling at $61.25 a barrel this morning, rising 2.08% on news that inventory levels had fallen last week, though concerns about a shaky economic recovery prevented further gains.

    International markets

    Yesterday the Dow Jones edged up 0.33% while the Nasdaq gained 0.36% as better-than-expected corporate earnings managed to offset investor worries about weak consumer demand.

    In Japan, the Nikkei average inched up only fractionally by 0.08% this morning, despite positive results from Goldman Sachs. Investors became cautious as they awaited more corporate results from the US and Japan.

    In Hong Kong, the Hang Seng lifted 2.09%, continuing to rally after positive corporate results from the US fanned hopes for global economic recovery.

    Britain’s FTSE 100 rose 1.48% by midday SA time as stronger US earnings boosted the manufacturing sector, resulting in gains for energy, mining and banking shares.

    Share price news

    One of the top movers upwards at midday was African Dawn Capital, whose 22 deals sent shares up by 6% to sell at R1.59 each. Also amongst them was Merafe Resources Limited, after 80 deals took the share price up 4.90% to R1.07 a share at noon.

    Eastern Platinum Limited fell 5.03% after 13 deals pressured the price down to R3.59 a share at 12:00. Also losing ground was Sappi Limited in the paper sector, whose 147 deals sent the price tumbling 3.54% to sell at R23.73 a share.

    Permalink2009-07-15, 12:09:13, by Natalie Email , Leave a comment

    Long run dividend expansion

    Yesterday we discussed the concept of assessing all assets in terms of yield. Assets can be compared to one another on the basis of their yield, but there are differences. While some assets produce the same flat yield year after year, others grow their yield over time.

    All investors understand that an investment of R100 000 in a money market investment will provide a current yield of around 8% or R8000 in interest per annum. Assuming a withdrawal of interest at the end of year one, but a continuation of the investment, then, barring a change in interest rates, second and ensuing year’s income will be the same.

    Compare this to a property or equity investment

    Instead of investing at a fixed rate, a company will typically pay out a rate, which while not guaranteed, steadily rises each year. Over the longer run it’s this growth in a company’s earnings and dividends that drives the share prices up.

    In a similar way the rentals for commercial property are upward reverting. Contractually lease escalations tend to be set at 8% - upon expiry of lease agreements there will be some reversion to the spot market, which may be up or down.

    If we look back at the growth in earnings of all companies listed on the JSE we find the following.

    Across the JSE index the dividend level of 421 has grown over the 49 year to a level of 85160. This is an average compounded rate of some 11,3%.


    Over the last 40 years dividends have compounded by 13,8% and inflation has compounded at an average 9,8% per annum. Therefore average company dividends have grown by a real 4% over the last 40 years.

    On average an investor that starts with a company paying out a dividend on a yield of say 5% and potentially growing at a real rate of 4% into future years, should therefore expect a real return of 9% (5% plus 4%). This does assume a 10 years plus investment horizon.

    We can say that the average real return for listed equities on the JSE has been in the order of 8%, and therefore current values appear to be in line with long run averages.

    If you have any questions, please don’t hesitate to contact to contact us.

    For a copy of Seed’s latest market report, please click here.

    Kind regards

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

    Permalink2009-07-14, 17:59:40, by ian Email , Leave a comment

    Positive sentiment boosts global markets after US banking sector upgrade

    Local markets

    Positive global markets lifted investor sentiment this morning, sending the JSE All Share upwards by 2.09%. In front were gold mining and basic materials stocks, which recovered 4.55% and 2.88% by midday.

    At 12:00 a US dollar cost R8.18 as the rand strengthened after upgraded bank stocks led to a rally on US markets.

    Gold was selling at $921.32 an ounce at midday in flat trade, relaxing after yesterday’s rally that came on the expectation of positive US corporate results.

    International markets

    The Dow Jones rose 2.27% and the Nasdaq lifted by 2.12% yesterday, boosted by optimistic comments about the performance of the banking sector from analyst Meredith Whitney, that may suggest better-than-expected corporate earnings for the quarter.

    The Japanese Nikkei average climbed 2.34% this morning, ending a nine-day losing streak. Banking stocks gained on cheerful remarks on the US sector, and a weaker yen buoyed exporters.

    The Hang Seng finished 3.66% higher after investors covered their short positions in financial stocks, inspired by positive comments from the US regarding bank earnings.

    This morning, the FTSE 100 had risen 0.7% thanks to gains in mining shares on the back of firmer metals prices, and banking shares improved as investors waited in hope for quarterly results from Goldman Sachs.

    Share price news

    Amecor in the electronic equipment sector was the top mover upwards at midday after just one deal. The share rose 10% to trade at R1.10. Lonmin PLC in the platinum sector rose 7.93% after 296 deals boosted the share up to R142.20.

    Astral Foods in the farming and fishing sector lost 5.04% as shares tumbled to R94.01 after three deals. Electrical equipment company Jasco Electronics Holdings Limited fell 4.91% to trade at R1.55 after a single deal.

    Permalink2009-07-14, 12:12:43, by Natalie Email , Leave a comment

    Comparing earnings yields

    A very useful exercise is to compare all asset classes in terms of the yield that they have or are likely to produce. By reducing all assets to their yield, comparison of one asset class to the next becomes a lot easier.

    An investment into equities is volatile over the shorter period, not so much because company earnings are volatile, but largely because investors at times pay R20 for R1 of earnings and at other times for the same R1, are only willing to pay R5.

    Risk appetite is one factor that drives investors from pessimism to exuberance.

    Another factor is competing investments. Here the core competing investment and the one that all other investments are priced off is the interest rate on shorter dated money market to longer dated bonds.

    If we correctly view a holding in a company as an investment that will produce an income stream in the form of dividends plus reinvestment to produce higher future dividends, then we must assess the earnings yield.

    Earnings Yield at the company level

    A company such as Pick n Pay for example has a current price per share of R35. Over the last 12 months to February, the company produced headline earnings per share of R2,08. Shareholders benefited from these earnings by way of a dividend, with the surplus being reinvested for future growth. In the last year shareholders received a dividend of R1,70 from total earnings.

    The earnings yield for Pick n Pay is therefore running at an historical 5,9% - i.e. R2,08 / R35. An investor paying R35 is buying on a 5,9% historical yield and because earnings should move up, a slightly higher future yield.

    The average historical earnings yield across all companies from 1960 to date has been 9,6%. But at times investors have been very exuberant and prepared to accept a yield of as low as 5,5% (1994) while at other times been very pessimistic and demanding a yield as high as 20% (1982)

    Relative valuation

    At any point in time an investor should look at the earnings yield in absolute terms and in relative terms.

    If an investment into money market or a government bond can provide an investor with a yield of say 16%, then he should have a very good reason to accept a low yield on equities of say only 3 - 5%.

    If we go back and plot the relative chart of yields on equities, versus the yield on the 10 year bond, we can see that the times when the earnings yield trades at parity to the yield on the 10 year bond, has been indicative of good value for real assets.

    JSE yield / 10 year SA government bond


    Prior to 2003, the last time this occurred was in 1983. Earnings are coming off a high base though and the market is pricing in some fallback from this higher base.

    Don't hesitate to contact us if you would like Seed to provide holistic investment and retirement planning.

    Kind regards

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144966

    Permalink2009-07-13, 17:21:52, by ian Email , Leave a comment

    JSE lower, takes lead from weaker US, Asian markets

    Local markets

    By 12:00, the JSE All Share had fallen 1.27%, taking direction from weaker US and Asian markets. Weighing on the local bourse was the gold mining and oil & gas sectors, which had lost 3.40% and 3.07% respectively.

    The rand had slipped 1.41% by noon as risk aversion took its toll on emerging market currencies, selling at R8.33 to the US dollar.

    Gold was selling at $909.40 an ounce, losing 0.18% as the dollar strengthened and oil prices weakened, highlighting the delay in economic recovery.

    International markets

    On Friday, US markets fell after a report was released that indicated that consumer confidence in early July had slid to March lows. The Dow Jones lost 0.45% while the Nasdaq eroded earlier gains, but finishing up 0.2%.

    The Japanese Nikkei fell 2.55% this morning, its lowest level in two months, after political uncertainty dampened investor sentiment. It was announced that Prime Minister Taro Aso is to hold general elections next month.

    The Hang Seng lost 2.56%, reaching its lowest level in seven weeks after investors were concerned that Beijing may tighten up on its lending policies after lending increased dramatically over the last six months.

    The British FTSE 100 had inched down 0.03% by midday SA time as gains in energy stocks were only just overcome by weaker banking and mining stocks.

    Share price news

    Eastern Platinum Limited soared 15.52% as one deal took the price up to R3.87 a share at midday. Eastplats reported today that the illegal sit-in strike at the Crocodile River Mine had ended, and that the hostages had been released. Shares in Blue Financial Services rose 9.76% to sell at R2.25 a share after 16 deals.

    African and Overseas Enterprises Limited dived 48.20% after just one deal sent the share price down to R5.31 at 12:00. Meanwhile, Telkom SA Limited fell to R39.60 a share, a loss of 8.42%.

    Permalink2009-07-13, 12:20:36, by Natalie Email , Leave a comment

    Corporate bonds

    Companies raise capital by issuing either equity or debt or a combination. Unlike in South Africa, globally the primary and secondary markets in corporate debt are very well developed. We all know what happened in 2008, especially into the second half as credit markets froze but into 2009 buyers of corporate debt have done well.

    In 2008 as the credit crunch hit, all forms of debt from supposedly AAA rated to junk status debt fell sharply as investors sold and yields moved up.

    But buyers of that same debt in 2009 at the far more attractive yields have seen fantastic returns as the yields came back. Returns for high yield bonds for the 6 months have been in the order of 28,6%.

    Over the same period investors favouring the safe haven US government bonds have seen losses of 4,4%.

    A hedge fund manager that has moved from being negative to positive on debt markets is the very successful John Paulson. Nervous in 2006 and 2007 on the debt markets where yields were at levels where investors were not being compensated for the risks, he went short. i.e. he sold financial shares and subprime mortgages etc.

    After the crash corporate bonds but especially higher risk junk bonds traded at say 40c or less in the dollar, which means that the potential returns jumped enormously. Risks were and remain high – many companies will default on their debt.

    General Motors was a prime example of a how debt holders have taken a bath as the company had to restructure its obligations via the bankruptcy route.

    Debt markets are ranked from investment grade to high yield or junk debt. Most institutions such as insurance companies and pension funds etc not allowed to hold the latter, which means that they become forced sellers where a corporate debt is downrated to junk status, putting further pressure on the price.

    The chart below reflects how these spreads widened out. In June 2007 yields on AAA bonds were trading at less than 1% above that of US treasuries. Junk bonds were trading at a spread of around 3%. These widened to 2% and 14% respectively, providing investors with opportunity to buy in at far more attractive prices.


    Source: econompicdata

    This year when allocating a portion of offshore portfolios to bond exposure, where possible we have tried to avoid allocating to pure sovereign (i.e. government bond) funds preferring funds with a wider mandate to invest into corporate bonds.

    If you would like Seed Investments to provide initial and ongoing investment advice on your total investment portfolio, please don't hesitate to contact us.

    Have a fantastic weekend

    Kind regards

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

    Permalink2009-07-10, 17:52:31, by ian Email , Leave a comment

    Global markets flat ahead of weekend

    Local markets

    At midday on Friday, the JSE All Share had slipped 0.14% lower after a lack of direction from economic data and company results. Traders expect flat trade and little volume to continue before the weekend.

    The rand was trading at R8.21 to the US dollar, weakening slightly as the euro weakened against the dollar last night.

    Oil was selling at $59.50 a barrel at noon, recovering 0.85% after falling yesterday on investor pessimism about the delay in economic recovery, and suspicion surrounding possible new rules to limit futures speculation.

    International markets

    Yesterday, US markets rose slightly after gains in technology and commodity stocks. The Dow Jones edged up 0.06% and the Nasdaq lifted 0.31%.

    The Japanese Nikkei slid 0.04% this morning, adding an eighth day to its decline and reaching its lowest level in seven weeks. Investors were anxious ahead of corporate earnings results and economic data.

    The Hang Seng dropped 0.46% as investors acted conservatively in light of worries about the speed of economic recovery.

    The FTSE 100 had slipped 0.39% as the British markets took direction from poor company results from the US, and energy stocks took further blows from weaker commodity prices.

    Share price news

    After 14 deals this morning, Jubilee Platinum PLC had gained 9.52% as shares rose to R5.75 at midday. Also moving upwards was Famous Brands Limited in the restaurants and pubs sector, who gained 6.82% to trade at R18 a share.

    MST Shares in Mustek Limited, a computer hardware company fell to R1.55 a share, a loss of 9.88% after three deals. Comair Limited slid 7.89% to sell at R1.75 a share at noon, after three deals.

    Permalink2009-07-10, 12:19:41, by Natalie Email , Leave a comment

    Global listed property

    Property is an investment class that many people considered very stable, and because prices only ever went up – a fantastic investment. The property enthusiastic would say, “Can’t go wrong with bricks and mortar”. But, as with most things in live when the crowd is leaning in one direction, its time to re-evaluate.

    There are many aspects to property including developing and selling property – which can be considered more akin to a typical business. Investors will typically look at buying commercial or residential property.

    Commercial property.

    In many respects commercial property in the form of either retail, office or industrial is a fantastic investment because:

    • the asset produces a steady monthly rental income.
    • the income is contractual in nature with leases running from 3, 5, 10, 15 and sometimes 20 years.
    • Landlords are often large stable companies providing security of the rental income.
    • Rental income in future years accounts for inflation either by way of contracted escalations or upward only revisions to leases.
    • Because of the steady and contracted nature of the income, it is generally advantageous to supplement owners equity with external bank debt and in this way enhance the return on equity.

    But the reality is that even with all these excellent underlying characteristics, property prices don’t and have not only moved upwards.

    A magnificent company or a wonderful asset class like property does not necessarily make a wonderful investment – it all comes back to the value.

    Prices for global property became expensive with investors prepared to sacrifice yield in the hope of making future capital gains. Given the higher values, property companies were encouraged to take on more debt and so when the global credit crunch hit, there was a rapid and severe reversal to the point where prices are now a lot more attractive.

    The chart below gives an indication of the severity of the decline – on average around 75% from its peak.

    Global property companies have, in many cases, been forced to raise equity through rights issues, lower dividend payout ratios, sell properties, and renegotiate long term debt, etc in order to maintain adequate cash flows and debt to equity ratios.

    These steps, especially the raising of fresh capital to shore up balance sheets has and will have a dilutative effect on existing shareholders equity.

    The reversal in price has now brought the yields back to levels which perhaps reflect the risk for investing into property and should be attractive enough to attract new capital to this equity class.

    We are looking at strategically increasing the allocation to global property.

    Kind regards

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

    Permalink2009-07-09, 17:21:22, by ian Email , Leave a comment

    Tentative trade across world markets

    Local markets

    At 12:00, the JSE All Share had inched up 0.69% after a weak start this morning in line with lower Asian markets. Supporting the local bourse were gains in oil and gas and basic material stocks.

    The rand was selling at R8.12 to the US dollar at noon, steadying above the R8 mark in the morning’s trade.

    Oil cost $60.77 a barrel, gaining 1.28% as the commodity continues to ascend after losing ground over six sessions recently, which sent the price down 15%.

    International markets

    Yesterday, US markets were mixed as the Dow Jones gained 0.18% and the Nasdaq edged up 0.06% while the S&P 500 lost 0.17%. Trade was volatile as investors were caught between hoping for better corporate results for last quarter and worrying about the delay in economic recovery.

    The Nikkei lost 1.38% this morning, its lowest level in seven weeks, as the high yen continued to hurt exporters and fueled fears of a slow recovery for the global economy.

    The Hang Seng edged up 0.39% and the Shanghai index gained 1.37% to offset earlier losses, thanks to gains in carmakers which came after Chinese sales figures for June were better than expected.

    The FTSE 100 had risen 0.84% after gains in mining and bank shares boosted the index, taking direction from a rally in US markets.

    Share price news

    Fairvest Property Holdings Limited gained 13.86% after one deal drove the share price up to R1.15 at midday. Thirteen deals boosted Jubilee Platinum’s share price to R5.15 at 12:00, a gain of 9.57%.

    Rainbow Chicken Limited in the farming and fishing sector lost 8.97% as shares fell to R14.10 each at noon, also after thirteen deals. Shares in ELB Group Limited in the construction sector dropped 6.98% to trade at R6 after three deals.

    Permalink2009-07-09, 13:05:30, by Natalie Email , Leave a comment

    The Yale Endowment Fund

    I recently downloaded the latest copy of the Yale Endowment, which reports on its performance for the year ending 30 June 2008. This endowment has produced consistently good absolute returns over the last few decades, the excellent growth and stability in returns can partly be attributed to strong market returns, but more importantly to the approach that their investment committee takes in investing in a wide range of uncorrelated growth assets. Further to this, they have been able to consistently outperform the relevant asset class benchmark returns through superior manager selection.

    For the period under review, the endowment returned 4.5% in USD, growing its asset base to some $22.9bn! The endowment now forms a critical part in the operations of the university, as it contributed 37.3% of Yale’s operating budget, up from 33% in the previous year, and 18% in fiscal year 1998.

    While the return to 30 June 2008 was excellent, Yale did announce that the return for the 6 months ended 31 December 2008 was approximately -25%! The global financial crisis that has spread to a global economic downturn didn’t spare the endowment as correlations of all growth assets moved closer to 1 (i.e. they all fell in unison). This negative return should be seen in comparison to global equity markets that were down over 35% (in USD) and currency weakness compared to the US dollar (sterling down 28% and euro weakening 12%). It will be interesting to see what the full year returns are when Yale releases their 2009 report (most likely in March 2010).

    As you can see from the chart below, the endowment has been slowly decreasing its reliance on the US equity market, as the committee realises that there are many other investment classes and regions throughout the world that offer better opportunities. You will also notice that their allocation to non ‘growth assets’ i.e. fixed income and cash has been reduced over the period of review.

    Also contrast the chart below to Yale’s endowment in 1988 which had an allocation of nearly 75% in US equities, bonds, and cash!


    This multi asset approach to investing is something that gets easier as the assets available for investments grow and the income requirement decreases, as many of these strategies require large initial investments and have poor liquidity (long lock-up periods). By being able to exploit these inefficiencies the Yale Endowment has been able to provide superior performance over time.

    Where possible we look to invest our clients into multiple growth asset classes. As mentioned above investment size and time horizon can restrict the implementation of the ideal investment allocation.

    We will take a closer look at the Yale Endowment in future reports.

    Take care,

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

    Permalink2009-07-08, 17:49:47, by Mike Email , Leave a comment

    Global markets down as recession not easing as expected

    Local markets

    By midday, the JSE All Share had lifted 0.11% in a mostly-flat morning’s trade. Analysts were surprised that the local bourse was not weaker, but the weaker rand seemed to be preventing further losses.

    The rand was trading lower at R8.11 to the US dollar at midday, as the American currency continued to firm as risk aversion pulled investors out of equity markets.

    Gold was selling at $922 an ounce, falling slightly as the dollar remained firm and stole some of the limelight from the precious metal’s allure as a hedge against inflation.

    International markets

    After rumours of a second government stimulus package, US markets dived to a 10-week low yesterday. The Dow Jones lost 1.94% and the Nasdaq gave up 2.31% as investors fear that corporate earnings this season will be poor.

    The Japanese Nikkei slid 2.35% this morning, reaching its lowest close in six weeks as the yen strengthened against the dollar and fewer-than-expected orders for domestic machinery were recorded.

    China’s Shanghai index edged down 0.28% while Hong Kong’s Hang Seng slid 0.79% after investor concern that China may toughen its easy monetary policies due to the surge in lending in the first half of the year.

    The FTSE 100 had slipped 0.08% by noon as energy and financial stocks lost ground on lower commodity prices and anxiety regarding the global economy.

    Share price news

    Merafe Resources Limited in the metals in minerals sector gained 7.53% as share prices rose to R1 at midday. Merafe announced today that the Xstrata-Merafe Chrome Venture has increased ferrochrome production capacity to 60% in response to strengthening demand. Mazor Group Limited in the building and construction materials sector gained 5.38% as shares lifted to R2.35 each after four deals.

    Investment company Eureka Industrial Limited fell 27.15% to R69.35 a share after one deal. Gold One International Limited in the gold mining sector lost 13.16% after five deals as shares tumbled to R1.65 at 12:00.

    Permalink2009-07-08, 12:15:47, by Natalie Email , Leave a comment

    Constructing an investment plan

    In the last 18 months with global economies coming under so much pressure, there have been numerous accounts of outright investment scams, ponzi schemes, debentures in default, property investment lock ups, private equity failures, etc, all of which have caused immense pain for the many “investors” in these schemes.

    I say “investors” because in most of these cases they have not made investments, but rather been attracted to various get-rich-quick schemes.

    An investor on the other hand will less likely be swayed by glossy brochures and promises of fantastic returns with little to no risk.

    An investor is the type of person that would rather spend the time assessing his total investment plan and construct what is known as an Investment Policy Statement. In essence such a plan is nothing more than a framework for all investment decisions and need not be that complex.

    Because an investment policy statement will set out your starting capital position, potential savings, target investment values at retirement, ideal asset allocation etc, investors who have gone to this trouble will not easily find themselves in the untenable position of having allocated half or more of their available capital to some scheme with a low possibility of return of capital, let alone a return on capital.

    A typical investment plan will set out along the following lines:

    • The long term required return and risk objectives. Example based on your total investments and expected capital at retirement you may only need to generate a long term real return of say 3% per annum.

    • From the analysis work performed above, the investment guidelines or longer term strategic asset allocation can be defined. I.e. knowing that you need a real 3% per annum, means that a 100% weighting to cash won’t work. On the other hand a 100% weighting to a start-up business in the form of unlisted, illiquid debentures is far too risky for the required return.

    • The broader investment policy including acceptable and unacceptable asset classes and investment vehicles, investment benchmarks, investment strategy, funding strategy etc. This will also extend to the specific implementation plan.

    • Portfolio monitoring, reporting and ongoing evaluation. It’s important to obtain clear, concise and aggregate information, which is compared back to the agreed investment strategy on a regular basis, ideally monthly.


    Because it is difficult enough to generate long run sustainable real returns, no investor can afford to put capital at unnecessary risk. One of the simplest antidotes is to spend some hours with an investment advisor that can structure a holistic plan of action.

    In the next week I will spend some time covering some of these points in a bit more detail.

    If you are perhaps one such investor that needs to take the time to consider a total investment plan, then please don’t hesitate to contact Vincent Heys on Vincent@seedinvestments.co.za

    Kind regards

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

    Permalink2009-07-07, 17:08:04, by ian Email , Leave a comment

    Global markets mixed as investors seek direction

    Local markets

    The JSE All Share had recovered 1.48% by midday Tuesday, with oil and gas shares and basic materials stocks leading the index upwards. Due to the lack of data to influence it, the All Share is expected to shadow European and US markets this afternoon.

    The rand was trading below the R8 level at noon, costing R7.95 a US dollar as the American currency weakened on the back of positive developments on US equity markets.

    Oil was selling at $63.65 a barrel, remaining low as investors continue to be pessimistic about the likelihood of a speedy recovery for the global economy.

    International markets

    US markets were mixed yesterday as the Dow Jones closed 0.53% higher while the Nasdaq slipped 0.51%. Weaker oil prices and energy shares were the result of gloomy investor sentiment, as last week’s jobs data is likely to discourage consumer spending and hamper economic stabilization.

    The Japanese Nikkei slid 0.34% after exporters suffered under a stronger yen, and a deal between Isuzu and Toyota was scrapped.

    Hong Kong’s Hang Seng fell 0.65% amidst thin trade this morning as investors engaged in profit taking to sweep up some of the gains from the four-month long rally.

    The British FTSE 100 had risen 0.86% by noon as losses in weak oil shares were overcome by gains in mining and defensive shares.

    Share price news

    Soft goods retailers African and Overseas Enterprises Limited gained 6.67% by midday, as shares shot up to R8 a share after only one deal. Shares in pharmaceutical company Cipla Medpro SA Limited rose 5.04% to sell at R3.75 a share after 58 deals.

    Losing ground was computer hardware firm Pinnacle Technology Holdings Limited, whose shares fell to R2.10 each at midday, a loss of 7.49% after nine deals.
    Wesizwe Platinum Limited lost 6.82% as shares fell to R2.05 after 28 deals.

    Permalink2009-07-07, 12:14:54, by Natalie Email , Leave a comment

    Some global ETF's cause investor confusion

    Globally exchange traded funds (ETF’s) have become very popular. But as with so many financial products, these start off relatively simple, but then move to become more and more complex. While they have not reached this country, globally more and more geared and short ETF are being launched.

    Locally investors have a range of funds including the Satrix 40, Zshares Rand play, Deutsche Bank World, Japan, Euro etc, Rafi etc. But these are all long only funds, i.e. they track the upward and downward movement of a selected index or portfolio of shares.

    The first exchange traded fund was the SPDR S&P500 ETF, which tracks the total performance of the S&P500 index. Its symbol is SPY and it trades on the American Stock Exchange. In recent years there has been tremendous growth into leveraged and short ETF with this growth reflected in the total value in these products escalating from $4,7 billion in April 2007 to $30 billion in April 2009.

    What are geared and short funds?

    While we don’t have access to such funds in South Africa, internationally a company called Pro Shares has recently filed to launch leveraged funds on the S&P500. It has recently filed to launch a fund that will provide a 300% exposure, i.e. 3 times exposure to the daily returns on the S&P500 index.

    In addition to launching long geared index tracking funds, it is also looking to launch a short version that will give investors 300% short exposure to the index.

    There are already 1,5 and 2 times geared products available in ETF form.

    While supposed cheap relative to traditionally managed funds, this is not always the case. These new ProShares will have an expense ratio of 0,95% and will trade on the New York Stock Exchange.

    Unlike a long only ETF, the geared and short funds access exposure to the underlying indices by way of derivatives, tracking is not always perfect and the return that the investor receives is not always what they expect, which has caused a lot of confusion. In addition to tracking, the compounded return over a longer period of time may not always be what the investor envisaged.

    Example: An investor in a short twice geared product, where the underlying index, say the S&P500 moves down 1% in a two days, would expect to make a positive return of 2% – being trice short the index. But this may not necessarily be the case – it depends on the compounding effect.

    The example below reflects that even though the investor was short the market, he made a loss greater than the index, which is clearly not what he expected. This is where the confusion is coming into for many unsophisticated investors into these products.


    Source: indexuniverse.com

    It is only a matter of time before these products are launched locally. As with all investments it is extremely important to make sure that one understands the detail. This is where even with supposedly simple products like ETF, an investment advisor is paramount.

    Kind regards

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

    Permalink2009-07-06, 17:42:57, by ian Email , Leave a comment

    Global markets down as hopes of economic recovery dim

    Local markets

    All sectors were in the red at noon on Monday following losses on US and Asian markets, pressuring the JSE All Share down by 2.11%. Leading the downward slide were shares in the oil and gas, gold mining and basic materials sectors.

    The rand was trading at R8.02 to the US dollar at 12:00, after the US dollar strengthened as a response to rising risk aversion, as investors were discouraged by poor employment data from the US last week.

    Oil cost $63.21 a barrel, falling 2.75% in the wake of negative investor sentiment about economic recovery and the subsequent strengthening of the US dollar.

    International markets

    US markets were down on Friday as risk aversion increased, sending government debt prices down and strengthening the US dollar. The Dow Jones finished lower by 2.63% and the Nasdaq lost 2.67%.

    The Japanese Nikkei closed 1.38% lower this morning, as investor moods were downbeat in the face of poor US jobs statistics. The lack of evidence of an imminent global economic recovery weighed on resource stocks.

    The Hang Seng slid 1.23% this morning as lower energy and commodity prices stifled the movement of the Hong Kong index. Further losses were limited by the prospect of gains in Chinese toll road operator Sichuan Expressway, which is set to list on the Shanghai index.
    By midday, the FTSE 100 had fallen 1.21% as mining and banking stocks lost ground, under the influence of a gloomy economic outlook amongst analysts and investors.

    Share price news

    In the building and construction materials sector, Ceramic Industries Limited gained 5.33% as share prices rose to R79 after two deals. Diamond company Trans Hex Group Limited rose 2.94% after a midmorning dive to trade at R2.45 a share after four deals.

    Jubilee Platinum slid 16.8% to sell at R5.20 a share at midday, pressured down after 22 deals. Also amongst the biggest movers downward was Highveld Steel and Vanadium Corporation Limited, who fell 10.39% after 18 deals to trade at R57.26 a share.

    Permalink2009-07-06, 12:25:13, by Natalie Email , Leave a comment

    Adcock Releases Interim Results

    Yesterday saw the release of Adcock Ingram’s interim results for the 6 months ending 31 March 2009. Adcock has been around for a long time, having been founded in Krugersdorp some 116 years ago! It is now a major local player in the prescription, generic, and OTC market and provides other products and services. From humble beginnings the company has grown considerably, and is currently valued at R 7.7bn.

    Adcock was unbundled from the Tigerbrands stable last year in August, and since then the share price has performed strongly, moving up over 30% during the same time that the ALSI is down over 14%!

    In the period of review Adcock was able to increase turnover by 23% and declare a maiden dividend of 70c a share. Investors will be hopeful that another dividend will be declared at year end. A year end dividend declaration of 70c would result in the company trading at a dividend yield of 3.15%, which is lower than the market, but to be expected of a pharmaceutical company. Pharmaceuticals are typically considered growth shares and therefore trade at a premium to the market.

    Adcock has been able to grow turnover and profits (7%) over the period, but the company has also felt the pinch of the recession, as margins declined by 8% to 49%. This is still a good margin when compared to other industries. Adcock is able to retain a high margin owing to the large barriers to entry that companies in this sector enjoy, and also partially explains why it trades at a premium to the market.

    In addition to the results released yesterday, Adcock this morning announced that the DTI has approved certain capital expenditure to qualify as strategic industry project expenditure. This program has been rolled out by government to encourage capital expenditure in strategic industries in an attempt to stimulate the economy. Companies are incentivised to participate in this program by being granted tax relief. In Adcock’s case the tax relief will amount to approximately R128million over four years, but the company aims to fully utilize this allowance in three years.

    Despite being a sizeable company, Adcock is still much smaller than Aspen, which has a market cap north of R 20bn. The other listed pharmaceutical company on the JSE is Cipla, but it only accounts for approximately 5% of the pharmaceutical index. Adcock previously attempted to purchase Cipla, and made a firm offer as recently as 9 April of this year, but problems arose with Cipla’s principal supplier, and Adcock subsequently withdrew their offer. Adcock’s board believed the offer was beneficial to both parties.

    Enjoy your weekend. Good luck to the Springboks tomorrow!

    Take care,

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

    Permalink2009-07-03, 17:36:27, by Mike Email , Leave a comment

    Poor US jobs data stifles global markets

    Local markets

    After a firm start to the day followed by a steady slide, the JSE All Share had managed to recover 0.2% by noon as losses in oil and gas stocks threatened to offset gains in the gold mining sector.

    With the US enjoying a public holiday and no economic data expected, analysts expect a quiet trading session for the rand. At midday, a US dollar cost investors R7.95.

    Gold was selling at $932.25 an ounce, recovering 0.55% after poor US employment data enhanced the dollar’s appeal as a safe haven investment, hurting gold sales.

    International markets

    The Dow Jones fell 2.63% and the Nasdaq lost 2.67% yesterday after worse-than-expected results for non-farm payrolls revived fears of a protracted recession.

    The Nikkei drew back 0.61% to close the week on a negative note, after US employment statistics dented hopes of economic recovery, and pressured retail stocks. Energy shares also fell on lower oil prices.

    The Shanghai index rose 0.92% this morning to reach its best gain in eight weeks. Increased lending and power output promoted investor optimism, and supported a gain in coal and property shares.

    The Hang Seng edged up 0.14% as the Hong Kong index followed gains on the mainland via climbing insurance shares, and managed to overcome earlier losses due to the gloomy US employment report.

    Share price news

    Putprop Limited in the real estate holdings and development sector gained 10% after a single deal boosted the price to R5.50 a share at midday. Comair Limited in the airlines and airports sector rose to R1.99 a share, a gain of 4.74% after one deal.

    The IPSA Group, involved in the construction, development and operation of electricity generation assets and the supply of electricity, fell 12.12% to sell at R1.45 a share after two deals. Jubilee Platinum lost 9.84% as shares tumbled to R5.50 each at noon, after 37 deals. The move comes after Jubilee announced this morning that it was entering into an agreement to acquire Braemore Resources PLC.

    Permalink2009-07-03, 12:16:44, by Natalie Email , Leave a comment

    Valuing a company

    We spent some time with a fund manager that concentrates on listed property today. With prices of listed commercial property across the globe having fallen dramatically from their peaks, it does now appear that value is reasserting itself. For many investors there remains a big question mark as to how values for listed securities are derived.

    A price of a listed company or listed property fund may be a function of supply and demand in the shorter term, but ultimately the fundamentals will rule price.

    Unlike a technical analyst who is not really concerned with the underlying value, a fundamental analyst will want to try and independently establish a value for a particular security and then compare this derived value to the traded price. In this way he can try and make an assessment of whether the traded price appears cheap or not.

    Because there are so many variables, such as interest rates, levels of debt, fluctuations of future income streams, margins etc, the true or fundamental value of an asset is not necessarily one specific price, but more than likely falls into an upper and lower range.

    At its most basic, the value of an asset today can be determined by making an assessment of future cash flows that the asset will generate and then discounting these future income streams at the required rate of return to obtain a net present value.

    Investment professionals doing the analysis will typically make use of multiple valuation metrics to try and understand the values that they are buying into. These may include:

    • Absolute value models will look at a specific company or property for example, make an assessment of future returns and discount these back to a present value. A simple, but well known model is the Gordon Growth model – see below.

    • Relative value models will look at one asset class relative to another. Example the value of local listed property versus offshore listed property.

    • Composite models. Some companies may have an aggregate of excess cash on the balance sheet, different industry trading entities as well as stakes in other listed local or offshore businesses. In these cases it will be best to first isolate the cash and value the traded price of the listed stake before separately valuing the trading operation.

    The Gordon growth model is ideal for a business that pays out steadily increasing dividends. On the assumption that such a business with pay out a steadily increasing dividend into perpetuity, an indicative value can be derived as follows:

    The model is quick and easy before delving into aspects such as gearing, management, quality of earnings, cyclicality of earnings etc

    An example may be Pick n Pay with an expected 210c in dividends and assuming a required rate of 15% and dividends growing at say 10% per annum from here on out (3% ahead of inflation of 7%). Using this formula the indicative value for the shares is R42. The price trades at 3460c.

    Kind regards

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

    Permalink2009-07-02, 17:43:57, by ian Email , Leave a comment

    Global markets cautious ahead of US jobs data

    Local markets

    Losses in basic materials and gold mining stocks had led the JSE All Share down by 0.89% by midday, as investors engaged in profit taking after yesterday’s rally.

    The rand was trading at R7.80 to the US dollar at noon, continuing to weaken as investors booked profits and the dollar gained before June’s employment data is released.

    Oil was selling lower at $67.22 a barrel at 12:00, as the commodity’s long rally stagnated on investor worries that the economy was not recovering as quickly as expected to rationalize higher oil prices.


    International markets

    Thanks to reassuring manufacturing statistics from China and Europe, US markets gained on the first day of the new quarter. The Dow Jones rose 0.68%, the S&P 500 lifted 0.44% and the Nasdaq took home 0.58%, though investor caution ahead of US employment data limited further gains.

    There were mixed results on Asian markets. The Nikkei fell 0.64% this morning as investors sold off blue-chip shares in anticipation of negative US jobs data. China’s Shanghai index rose 1.73% on high trade volumes after energy and metals stocks gained on hopes of economic recovery. Hong Kong shares dropped 1.09% after gaining initially on renewed hopes for economic recovery, but losing later as investor anxiety set in over US employment data.

    The FTSE 100 had fallen 0.55% by midday SA time, as lower commodity prices once again punished energy and mining stocks.


    Share price news

    Shares in Astral Foods in the farming and fishing sector rose 5.13% to sell at R104.03 each at midday after nine deals. Platinum corporate Anooraq Resources Corporation gained 5% after three deals sent the share price up to R7.35. Anooraq announced this morning that director Philip Kotze had bought 28000 ordinary shares.

    Coal producer Hwange Colliery Company Limited fell to R3.75 a share after two deals sent the share down 16.67%. Also losing was Clientele Limited in the life assurance sector, whose shares fell 10.71% to trade at R5 at midday.

    Permalink2009-07-02, 12:54:43, by Natalie Email , Leave a comment

    Asset Class Returns – Year to Date

    When making strategic investment calls, the performance of asset classes over short periods shouldn’t have much impact on your decision making process. The more important factor on a strategic level is ensuring that you get your long term asset allocation correct. But while short term movements aren’t important for strategic purposes, they certainly can impact tactical decisions.

    The returns at the end of June do mask the extreme volatility that we have seen so far this year, and it is therefore probably better to include a graph of the four main South African asset class returns for the 6 months to 30 June 2009 as opposed to just their returns over this period. They are equities (proxy’d through the ALSI Total Return, property (SA Listed Property Total Return), bonds (ALBI Total Return), and cash (STEFI Call Deposit).

    Most striking is the extreme volatility that we have seen in the equity market. Bonds have struggled so far this year on the back of inflation not falling as quickly as expected towards the end of last year. Remember, this time last year we had the report coming out from Investec to say that inflation would be much lower than was stated if Stats SA used the methods and weightings that came into use at the beginning of this year. Bonds then enjoyed a significant rally over the second half of 2008, but have faced some headwinds this year as inflation has remained stubbornly high, and the threat of increased issuance has increased due to a drastically weakening economy.

    Property has performed in between that of equities and bonds, and this should come as no surprise. Property takes on characteristics of both bonds (high income stream) and equities (growing income stream), and is often referred to as a hybrid between the two. Cash has been the top performing asset class of the four, but with rates coming down we have already seen, and will continue to see the returns from cash becoming more muted moving into the future.

    Perhaps the biggest move in these 6 months has been the rand which has strengthened against the US dollar, euro, and sterling in this period, and its appreciation against the dollar and euro has been particularly strong. The chart below shows how the rand has appreciated by almost 20% against both the dollar and euro since the beginning of the year.

    As investment managers we need to sit down, and not focus so much on the price action that has just occurred (although we will look at it in order to perform our attribution, and may offer us better entry/exit points), but rather focus on what the current prices are telling us about asset class valuations. We’ll then look to buy those assets that are cheap, and sell those that are expensive. It may sound straight forward, but we can assure you that it’s anything but.

    Take care,

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

    Permalink2009-07-01, 17:50:15, by Mike Email , Leave a comment

    Global markets mixed at start of 3rd quarter

    Local markets

    By 12:09, positive Asian markets had led the JSE All Share upwards by 2%. Analysts suggest it is likely the local bourse will experience a further rally later this afternoon, thanks to better-than-expected PMI figures.

    The rand was trading at R7.73 to the US dollar at around midday, keeping its strength, while some traders think it might drop further to about R7.50, though whether this can be sustained remains to be seen.

    Gold was selling at $930.90 an ounce, creeping upwards by 0.64% after yesterday’s losses which came after broad-based selling across the commodities sector as a result of the dollar’s strength.

    International markets

    The Dow Jones fell 0.97% yesterday, while the Nasdaq lost 0.49% as consumer confidence in economic recovery was unexpectedly low. Nevertheless, US markets managed to finish at their highest quarterly levels in ten years.

    The Nikkei slid 0.19% this morning on news of large public share offerings from Orix Corp and All Nippon Airways, though further losses were limited by gains in construction equipment manufacturers.

    The Hang Seng was closed today for a public holiday, in remembrance of the British handover to China.

    The FTSE 100 had lifted 1.39% by lunchtime, as firmer commodity prices strengthened energy and mining shares, leading to a rally across the board.

    Share price news

    After one deal, Silverbridge Holdings Limited shot up 20.69% to sell at R1.75 a share at 12:09. 27 deals took Mvelaphanda Resources Limited, in the metals and minerals sector, up 9.47% to trade at R33.40 a share.

    Investment bank Iquad Group Limited was trading at R2.51 a share, a loss of 8.73% after three deals. Losing 8.59% was Jubilee Platinum Limited, whose shares fell to R6.17 after 20 deals this morning.

    Permalink2009-07-01, 12:49:21, by Natalie Email , Leave a comment