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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.

Top Rated

    Another hedge fund manager adding to gold exposure

    Paul Tudor Jones is one of the more outstanding hedge fund managers with a long term track record extending back to at least 1987. He was featured in Jack Schwager’s original book on interviews with top hedge fund managers published in 1989. Tudor Investments is a macro global manager.

    The book highlights Tudor Jones performance in October 1987, the month when global markets crashed. “That same month, the Tudor Futures Fund, managed by Paul Tudor Jones, registered an incredible 62% return.”

    Tudor Jones is an aggressive trader, who started managing in September 1984 with $1,5 million under management and his firm, Tudor Investment, now manages around $11,57 billion – the bulk of the funds ($9,35 billion) are invested in the BVI Global fund.

    His long term track record for the flagship BVI Global fund is fantastic.

    Tudor Investments versus the S&P500

    He highlights some of his thinking in his recent report to investors. He has called finding the best performing assets following the wall of money unleashed by central banks, the “Great Liquidity Race”

    He says at present these appear to be gold, emerging market equities denominated in local currencies and commodity related stocks. He says that liquidity is making its way into bond purchases by banks, into equity markets, capital flows to emerging markets and away from the dollar. He expects this trend over the next quarter or two.

    Like some other well known hedge managers, Tudor Investments has started buying into gold. He notes in his report, “I have never been a gold bug. It is just an asset that, like everything else in life, has its time and place. And now is that time. The economic and political comparisons to the late 1970’s are too numerous to ignore. And as such gold is at the centre of our thinking as a store of value during a period of potentially large and persistent global portfolio shifts. The temptation to directly, or indirectly, monetise rising and persistent fiscal deficits globally means gold could have a bid for the foreseeable future.”

    The report included an appendix on their reasoning for buying into gold. Their economic model which evaluates the impact of inflation, money supply growth and real rates on the price of gold suggest that gold is 20% undervalued over the next 24 months.

    In addition to this supply has remained steady, while demand, especially investment demand has been increasing. Exchange traded funds have been big buyers of gold, having “bought” the equivalent of 25% of new mine production since the beginning of the year and by the end of 2009 will own 3% of global available supplies, making them the sixth largest holder in the world.

    They see a huge scope for the increase in these physically backed securities, saying “The private wealth universe of trillions of dollars is under exposed to gold and now can readily get exposure through exchange traded securities.”

    The official government sector has turned from a net seller to a net buyer. Any incremental new demand cannot be met by supply and must be met from current holders, pushing up the price.

    The fantastic record of the Tudor Investment’s BVI fund from 1987 relative to the US market, merits investors noting what they are saying.

    Have a fantastic weekend and enjoy the Currie Cup finals.

    Kind regards

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

    Permalink2009-10-30, 17:20:33, by ian Email , Leave a comment

    Global markets positive after US GDP figures showed growth

    Local markets

    On Friday at noon, the JSE All Share had edged up 0.02% as the bourse followed optimism on Asian markets. Though gold mining and basic materials shares had slipped into the negative, industrial and oil and gas shares remained positive.

    The rand was trading at R7.67 to the US dollar at 12:00, strengthening slightly against its American counterpart after the announcement of US GDP data.

    Oil cost $76.97 a barrel at midday, stabilizing after recent rallies as investors remembered their concern over the pace of economic recovery, highlighted by lethargic oil demand.

    International markets

    Yesterday, the Dow Jones finished 2.05% higher, while the Nasdaq rose 1.84% after positive GDP data indicated that the US economy had enjoyed growth in the third quarter, and hinted that investors could expect better profits.

    In Japan, the Nikkei average lifted 1.45% this morning after technology shares were boosted by the potential of better earnings, and exporter stocks gained after news of good GDP data came from the US.

    China’s Shanghai index rose 1.20%, led upwards by banking shares after they released positive earnings results. Investor sentiment was also buoyed by reports that China intends to keep its loose monetary policy.

    The British FTSE 100 had risen 0.25% by 12:00 thanks to gains in banking and resource shares, which came on the back of optimistic economic growth data from the United States.

    Share price news

    Building and construction company Mazor Group Limited (share code: MZR) gained 9.43% as 27 deals boosted the share price to R2.90 each at noon. The company announced this morning that earnings and earnings per share were expected to be between 35% and 45% higher than for the comparative period. Also in the building sector, Dawn Limited (share code: DAW) rose 8.21% to R7.25 after more than 20 000 shares were exchanged in nine deals. Dawn announced a rights offer to shareholders this morning.

    Platmin Limited (share code: PLN) fell to R10.25, a loss of 10.87% after three deals.
    Blue Financial Services (share code: BFS) slid 9.48% to trade at R1.05, after sixteen deals saw the exchange of more than 144 000 shares by midday.

    Permalink2009-10-30, 12:22:02, by Natalie Email , Leave a comment

    US officially out of recession

    A basic measure of a country’s economic performance and success is GDP – gross domestic product. The basic definition of GDP is the market value of all final goods and services made within the borders of a country within a year. The official news from the US is that the economy grew in the 3rd quarter, for the first time in a year.

    The GDP rate came in at 3,5% for this period. Year on year it is still running negatively. See graph below.


    Source: Wells Fargo Securities

    This number was boosted by the extent of government spending, initiatives like the cash for clunkers plan and also a pick up in inventory.

    This positive quarter officially ends the recession, but the there is still a question of sustainability.

    When measuring GDP the staticians take into account the following components:

    • Consumption. This is private household spending on durable goods, non durable goods and services.
    • Investment. This will include business investment into plant, equipment and inventory etc.
    • Government spending. This is government expenditure on final goods and services, including salaries.
    • Net exports. This is gross exports less gross imports.

    GDP is typically represented as a real percentage. i.e. the production of goods and services valued at constant prices, stripping out the impact of inflation.

    While GDP may appear to be a good statistic to monitor in order to anticipate possible asset allocation decision, in reality is has been found to be a very poor predictor of stock market returns. US value investor, Brandes performed some research, looking at annual GDP changes from 1929 – 2008 and found that they were a very poor predictor of both concurrent and subsequent stock market returns.

    Brandes conclude their commentary on gross domestic product being a poor predictor of stock market returns by saying:

    “…investors are best served by focusing on the valuation of stocks compared to their long-term profitability and earnings power. Perhaps Warren Buffett said it best: “You pay a very high price in the stock market for a cheery consensus.” Investors who wait for GDP and other economic measures to provide clear signals of economic health may miss robust stock market performance.”

    So while the uptick may appear positive, there is a possibility that much of this good news is already in the price.

    Kind regards

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

    Permalink2009-10-29, 17:24:12, by ian Email , Leave a comment

    JSE edges up 0.42%, despite heavy losses on global markets

    Local markets

    By midday, the JSE All Share had managed to lift 0.42% after a weak start this morning in line with lower Asian markets. Investors tried to shake off risk aversion after gloomy US economic data, leading to small gains in the basic materials and financial sectors.

    The rand weakened to sell at R7.79 to the US dollar at 12:00, though still better than yesterday’s losses.

    Gold was selling at $1034.52 an ounce, recovering 0.73% after sliding to its lowest level in three weeks. Further gains were hampered by a strengthening US dollar.

    International markets

    The Dow Jones fell 1.21% yesterday, while the Nasdaq slumped 2.67% after disappointing home sales data revived investor anxiety about the pace of economic recovery.

    The Nikkei average tumbled 1.83% this morning to hit its lowest close in three weeks. Japanese exporter stocks were hurt by a stronger yen and poor US housing sales data.

    The Shanghai index dived 2.34% as the threat of an interest rate hike and a possible tightening of Chinese monetary policy took a heavy toll on bank shares.

    The FTSE 100 had dipped 0.11% by noon, continuing yesterday’s losses after weaker oil shares and caution before the announcement of GDP figures from the US outweighed gains in bank stocks.

    Share price news

    Top gainer at Thursday lunchtime was computer hardware company Mustek Limited (share code: MST) whose shares rose to R2.60, a gain of 7.88% after three deals. Containers and packaging firm Astrapak Limited (share code: APK) gained 6.50% after a single deal sent the share price up to R10.65.

    IFA Hotels and Resorts (share code: IFH) fell to R1.03 a share after two deals lost the company 17.60% in share price. Jasco Electronics Holdings Limited (share code: JSC) lost 7.57% after one deal sent the share price down to R1.71 at 12:00.

    Permalink2009-10-29, 12:25:23, by Natalie Email , Leave a comment

    Lower inflation... for now

    Inflation came in slightly lower than expected, which helped government bond yields down – i.e. prices up. This despite the fact that government is looking to raise a lot more debt in the next few years to meet its budget deficits. The rand weakened and equity prices fell back.

    While the local inflation is steady, the Australian inflation rate came in slightly ahead of consensus – but at 1,3% it is the smallest gain since the second quarter of 1999. The market is now apparently anticipating a 0,25% increase in interest rates next week. Australian business confidence measured by the National Australia Bank survey rose to a 7 year high.

    Australia became the first G20 country to raise interest rates in the current cycle to 3,25%.

    Locally the official inflation came in slightly lower than anticipated at 6,1% annualized from a previous 6,4%. This was slightly better than consensus and the lowest level since August 2007. Factors that helped inflation down were :

    • Higher base cost for the food price index
    • Declining producer prices
    • Lower imported prices due to stronger rand – although this has weakened sharply in the last few days.
    • Lower prices for durable goods and motor vehicles

    The negatives going forward include:

    • Services costs still high, especially so called administered prices.
    • Further significant increases in electricity costs
    • Higher oil prices

    While the official inflation could well fall below the 6% level in the next few months, the large shock to the sustainability of this is the anticipated electricity price hikes.


    Source : Nedbank

    The rand slipped to R7,76/dollar, R12,69/pound and R11,48/euro.

    The yield on the R157 is trading at 8,63%, that on the R204 at 9,15%.

    On a month by month basis it is a good idea for all investors to track their total exposure to equities, bonds, property, cash and alternatives such as hedge funds or private equity. Don't hesitate to contact us if you would like to discuss your investment planning.

    Kind regards

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

    Permalink2009-10-28, 17:02:20, by ian Email , Leave a comment

    Global markets lower after weak US consumer confidence report

    Local markets

    Weaker Asian markets dented investor confidence on the JSE All Share today, sending the local bourse down by1.63% at midday. The mining and resource indices were down 2.07% and 1.91% respectively.

    The rand had settled at around R7.74 by 12:00 as no news is expected that might affect the local currency. Investors continue to be cautious in light of the Finance Minister’s announcement yesterday that the government intends to lift exchange controls.

    Oil cost $76.72 a barrel at noon, edging down 0.36% but finding support from diminishing US crude oil inventories which suggests the economic recovery may be gaining momentum.

    International markets

    On US markets, the Dow Jones rose 0.14% yesterday after BP earnings pleasantly surprised investors, but poor US consumer confidence results pressured the Nasdaq, which fell 1.2%.

    On Japanese markets, the Nikkei average lost 1.35% this morning, hitting a two-week low. Technology shares dipped after poor consumer confidence data was announced in the US.

    In Hong Kong, the Hang Seng tumbled 1.84% in another session of losses for this week. Gains in airline stocks were not enough to offset losses, most stemming from a negative outlook from the parent company of Wynn Macau, which incited a selloff of the share.

    The British FTSE 100 had slipped 1.17% by 12:00, as the index took direction from weaker Asian markets. Falling commodity prices took their toll on oil and mining stocks, and banking shares also suffered losses.

    Share price news

    Trans Hex Group Limited (share code: TSX) in the diamond industry gained 9.55% after one 243-share deal sent the share price up to R3.90 at midday. Anooraq Resources Corporation (share code: ARQ) rose to R6.92 a share after seven deals, a gain of 6.46%.

    Argent Industrial Limited (share code: ART) fell to R8.10 a share at noon, a loss of 7.74% after three deals exchanged 15000 shares. Builders merchants Winhold Limited (share code: WNH) lost 6.72% after one deal sent the share price down to R1.25.

    Permalink2009-10-28, 12:50:10, by Natalie Email , Leave a comment

    Medium Term Budget Policy Statement

    The Medium Term Budget Policy Statement also known as the mini budget statement was presented today. It sets out the priorities and main budget points over the next 3 years. The 5 strategic priorities for the medium term have been defined as: creating jobs, enhancing education and skills development, improving health services, rural development and agriculture, and intensifying the fight against crime and corruption.

    In the opening statement of the policy document, Minister of Finance Pravin Gordhan said “We have to do things differently, because over the past 14 months, the world has faced the most intense economic crisis since the Great Depression. The crisis is not of our making, yet its impact has been very serious.” He also went on to conclude that “we will not waste this crisis.”

    With lower revenues, the government is looking at a deficit that is projected at 7,6% for 2009/10. This has been one of the biggest swings in the world from a deficit of just 1% in 2008/09.

    Job creation is a major concern. The problem is highlighted – “For more than a century, South Africa’s economic growth has been characterised by heavy reliance on mining exports on the one hand, and a sophisticated but skills-intensive services sector on the other. As a result, too few people work, and too many lack the skills required for the sophisticated services economy.”

    The expectation is that GDP declines by 1,9% in 2009, but recovering to a possible growth of 1,5% in 2010. Real GDP growth came in at 3,1% in 2008.

    Government revenues are expected to decline from R692 billion to R657 billion while expenditure is set to increase by R126 billion to R841 billion.

    The net result is a budget deficit of R183 billion, compared to “just” R23,4 billion for the last year.

    Then when adding in the funding requirements of Eskom and other state enterprises, the borrowing requirement increases to R285 billion – a massive 11,8% of GDP.

    On the projections government debt will rise from the current 23% of GDP, which is a fairly decent level to 41% in March 2013.

    Over the next few years the increased expected debt of R640 billion will push the interest cost from an expected R60 billion in 2010 to almost R100 billion in 2013.

    This is a big step up in borrowing. Government believe this is the correct approach, saying “Higher borrowing is the right thing to do, in these times.” The reality is that unless they dramatically reduce expenditure, they don’t have much choice.

    The market has been both anticipating and indeed absorbing the increase in government borrowing. Yields on longer dated bonds remained steady with the R157 trading at 8,69%.

    The rand weakened against the basket of currencies, trading at R7,65/ dollar and R12,47/pound with the slight relaxation in exchange controls.

    The market was weaker on global weaker markets.

    Kind regards

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

    Permalink2009-10-27, 17:20:11, by ian Email , Leave a comment

    JSE down on weaker Asian markets, investors await Budget announcement

    Local markets

    On Tuesday at midday, the JSE All Share had fallen 1.57% with heavy losses in the gold mining, oil and gas, and basic materials sectors. The local index took a lead from weaker Asian markets, while investors were skittish ahead of today’s budget policy announcement.

    A US dollar cost traders R7.57 at noon after the rand strengthened against the greenback, but again investors were cautious of what may be announced by Finance Minister Pravin Gordhan in his medium-term budget statement later today.

    Oil was selling at $76.31 a barrel at 12:00, rising slightly after three consecutive days of losses. The unstable US dollar continued to make investors wary of committing themselves to big moves.

    International markets

    Yesterday, the Dow Jones lost 1.05% while the Nasdaq dipped 0.59% as investors sold off home building and financial stocks after rumours that a federal home buyer tax credit may be allowed to expire.

    The Japanese Nikkei dropped 1.45% this morning, after lower oil prices hit trading stocks. Exporters were also negatively impacted by news of the possible expiry of the home buyer tax credit in the US, which could disrupt recent stabilization of their main market’s economy.

    The Hang Seng fell 1.86% after investors returned from yesterday’s public holiday to take profits and consolidate their gains, while lower commodity prices hit energy and mining shares.

    The FTSE 100 had edged up 0.13% noon Johannesburg time, overcoming earlier losses in mining and energy shares that came after a higher US dollar and lower commodity prices.

    Share price news

    Fortress Income Fund Limited ( share code: FFB ) soared 22.95% this morning to trade at R1.50 a share, as 60 deals saw the exchange of over 4 million shares. Also gaining was Invicta Holdings Limited (share code: IVT) in the engineering sector. Invicta shares rose 4.78% to sell at R24.10 a share at 12:00 after eight deals.

    Auto parts manufacturer Dorbyl Limited (share code: DLV) fell to R4 a share, a loss of 11.11% after just one deal. Platinum producer Anooraq Resources Corporation (share code: ARQ) slipped 6.67% after three deals to sell at R7 a share at midday.

    Permalink2009-10-27, 12:22:37, by Natalie Email , Leave a comment

    Rates adjustment for 2010

    Dear Client

    Every year, the JSE reviews their pricing and as of 1 January 2010, they will be instituting an increase. Due to these and other rising costs, Sharenet wishes to announce that with effect from 1 January 2010 all our rates will be increasing by 8%.

    At Sharenet, we continually strive to maintain excellence in our service and to enhance our product offerings, adding more data and features where we can. We welcome any and all suggestions which could help us improve our service to our clients. These suggestions can be sent to support@sharenet.co.za

    Thank you for your continued support and business.

    The Sharenet team

    Permalink2009-10-26, 16:02:21, by sharenet Email , 1 comment

    Interim Results for Famous Brands

    Access to listed companies in South Africa that are part of the restaurant business (both fast food and sit down) is restricted to a choice between two companies. Famous Brands is the bigger of the two and has brands such as Steers, Debonairs, Wimpy, and Mugg & Bean. Spur Corporation is just over half the size of Famous Brands and has Spur Steak Ranches, Panarottis Pizza Pasta, and John Dory’s Fish – Grill in its stable. Both companies have successfully grown their franchised business throughout South Africa and are expanding into other global markets.

    This morning saw the release, by Famous Brands, of its interim financial results for the 6 months ended 31 August 2009. The trading environment has naturally been difficult as the country moves through a recession. Consumers are tightening their belts, and this inevitably means that they are cutting down on eating out. It is in periods like this that many businesses will take a closer look at their processes in order to improve efficiencies and cut costs that won’t have a large impact on operations going forward. In this period Famous Brands were able to grow revenue by 14% and profits by 13%, this is a dramatic decrease in the rate of growth achieved in the “Go Go” years of 2004 – 2007.

    The company has been able to keep its profit margin at 17% as a result of low food price inflation over the reporting period and improved efficiencies. Cash flow was strong, increasing 64% to R158.8mn in the period. In a tough environment it is particularly pleasing the cash generation from operations is healthy. Many companies fail during a recession, not because of a lack of a good product or service, but rather as a result of cash flow problems induced from difficulties in getting paid on time.

    There was significant corporate action during the period when Famous Brands bought Mugg & Bean for R104mn. The effective date of the transaction is 1 September and the deal is expected to be completed on 1 November.

    Famous Brands’ share price has performed exceptionally well since the turn of the century. Investors who had been invested since 31 December 1999 would have received a return of 1100% compared to 352% from Spur, 466% from Small Caps, and 331% from the ALSI (assuming that dividends were reinvested).

    Naturally the share price has been a lot more volatile than the ALSI as it is a small cap company, but long term holders would have been handsomely rewarded with their patience. The company now trades at a PE of 14 and a dividend yield of 3.4%. This compares to Spur’s 12.45 PE and 5.2% dividend yield, the market’s PE of 15.6 and dividend yield of 2.4%. Small caps are at a PE of 12.9 and a DY of 3.6%.

    Take care,

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

    Permalink2009-10-26, 14:50:30, by Mike Email , Leave a comment

    JSE down on profit taking

    Local markets

    At 12:00 on Monday the JSE All Share had slipped by 0.31%, led down by companies in the oil and gas index and pressured by losses across the board, as investors took profits. Analysts expect the market to consolidate further as no news is expected today.

    The rand was trading at R7.49 to the US dollar at noon, continuing to sell in last week’s range as the local currency took direction from international markets.

    Gold had risen 0.18% to reach $1055.89 an ounce, after the US dollar weakened against the euro. However, further gains were limited due to poor physical demand for the precious metal.


    International markets


    On US markets, equities dropped on Friday after poor corporate earnings from industrial companies weighed on solid results from major technology companies. The Dow Jones closed 1.08% lower, and the Nasdaq dipped 0.5%.

    This morning, the Nikkei index gained 0.77% to reach a four-week high as a weaker yen boosted exporter stocks. Investor confidence was higher on expectation of a better earnings season for Japan.

    In Hong Kong, the Hang Seng was closed for a public holiday.
    The British FTSE 100 had lifted 0.15% by midday, after stronger oil and mining shares rose on the back of higher commodity prices.

    Share price news

    Paladin Capital Limited (share code: PLD) gained 15.20% this morning as shares rose to R1.44 after 22 deals saw the exchange of 102 671 shares. Afrimat Limited (share code: AFT) in the building and construction materials sector shot up to R3.50 a share, an increase in share price of 7.69% after 6 deals traded 17 000 shares.

    Jasco Electronics Holdings Limited (share code: JSC) in the electrical equipment sector fell to R1.71 a share at midday, a loss of 10% after just one deal. Business support services company Metrofile Holdings Limited (share code: MFL) lost 5.97% after one deal tipped the share price down to R1.26.

    Permalink2009-10-26, 12:42:04, by Natalie Email , Leave a comment

    Time In the Market

    We have in the past looked at how missing out on only a few of the best or worst performing days over a long period can greatly affect your total return. In light of the unprecedented volatility that we’ve seen over the past year or so we decided to revisit the effects that market timing can have on your portfolio.

    Before we look at the data, we believe that it is impossible to successfully time the market over the short term, i.e. be fully invested one day, and completely in cash the next. If an investor was able to do this they would become a multi billionaire in next to no time! While no one can get it completely right there are very few savvy investors who are able to make measured alterations to their portfolios (note not completely in or out) over short periods (less than one month) and get their calls right often enough such that they are able to make returns in excess of the market over the longer term, but even they can go through significant periods of under performance, and only if they have a solid strategy that they stick to will they possibly begin to out perform again.

    More commonly investors who try to time the market under perform by a large margin. The reason that this strategy is more likely to under perform is because it is one that is prone to human emotion. Emotion is a powerful force in investing and most of the time it serves to destroy the capital of those who succumb to it.

    Taking at look at the last seven years of daily ALSI returns I have taken out the top percentile of daily returns (only 18 days) in the one set, the bottom percentile in the next, and then the top and bottom percentile (i.e. 36 days) in the last and compared them to the ALSI’s return over the same period.

    From the chart you will notice that if you were able to know which days would be the most volatile, but not which way they’d go, and decided to stay out of the market you would have ended up pretty much in the same position as if you had stayed invested the whole time (but with slightly lower volatility).

    Missing the best 18 days would see your return plummet from 163% to 5%, while missing the 18 worst days would see your return sky rocket to 547%! It is clear that making the right call can have a large impact not only on your nest egg, but also on your psyche!

    I took a closer look at the pattern of volatile days, and found that 56% of the most volatile days in this period occurred between 19 September 2008 and 10 December 2008 (3% of the trading days). The below chart shows the effect of getting your calls right or wrong in this short period. Ten of the days were among the top percentile over the seven year period and ten were in the bottom, often coming one after another.

    We don’t attempt to time the market, but rather take a look at the underlying fundamentals to make a decision as to whether to increase or decrease exposure to the market. This method removes emotion from the equation and hopefully leads to market beating performance over the longer run.

    Enjoy your weekend.

    Take care,

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

    Permalink2009-10-23, 15:17:23, by Mike Email , Leave a comment

    Upbeat US earnings continue to boost global markets

    Local markets

    Friday midday saw the JSE All Share edge up by 0.37%, as the local bourse took a lead from stronger international markets after positive corporate results boosted equities. The basic materials sector enjoyed the largest gains, rising 0.77% by the same time.

    The rand was trading at R7.43 to the US dollar at noon, retreating slightly as investors became cautious in their concern over reports of an upcoming change in economic policy.

    Brent crude oil was selling at $78.94 a barrel, gaining 2.52% as positive corporate results for the third quarter from the US boosted investor confidence in a continued economic recovery.


    International markets

    The Dow Jones rose 1.33% and the Nasdaq lifted 0.68% yesterday after good quarterly results from a major US insurer and a regional bank served to advance financial shares.

    In Japan, the Nikkei average edged up 0.15% this morning, after gains in construction equipment stocks came on investor hopes for a continued improvement in the Chinese economy.

    In Hong Kong, the Hang Seng index closed 1.71% higher, after financial shares recovered to reach the index’s highest levels in 14 months. Investor sentiment was enhanced by plentiful liquidity in the market.

    The UKs FTSE 100 had risen 1.26% by 12:00, as investor confidence bloomed on positive company earnings results from the US and Asia, and before the announcement of local third quarter GDP data.

    Share price news

    Diamond company Trans Hex Group Limited (share code: TSX) enjoyed 8% gains this morning, as four deals saw the exchange of 5500 shares. At midday, the share price had risen to R4.05. Retailer Clicks Group Limited (share code: CLS) rose 6.54% as 111 deals boosted the share price to R25.25 at noon.

    Afrimat Limited (share code: AFT) in the building and construction materials sector fell to R3.12 a share after three deals forced the price down 9.30%. Oil company Oando PLC (share code: OAO) lost 8.33% as shares tumbled to R5.50 each at noon.

    Permalink2009-10-23, 12:17:06, by Natalie Email , Leave a comment

    MPC Summary: Then and Now

    Today marked the final Monetary Policy Committee (MPC) meeting headed by South African Reserve Bank ( SARB ) Governor Tito Mboweni. It is just over 10 years that Tito Mboweni (on 13 October 1999) addressed the media and country at the end of the inaugural meeting of the MPC. At the time the repo rate was 12.32% and the prime lending rate was 15.5%. Over these 10 years we have seen these rates rise and fall, and they are currently 7% and 10.5% respectively. Below is a chart indicating the move of the repo rate and inflation over this period.

    Highlights of that first meeting included the marked recovery in both economies and markets after the emerging market crisis of 1998, but GDP growth was still fairly anaemic at an annualised 1.7% for Q2 1999. In 1999 banks were facing similar problems to what they have now with high levels of non performing loans (mainly due to the high rates experienced in 1998 with the prime rate peaking at 25.5%) but they were well capitalised, and conservatively run. Y2K got a special mention as a concern at the time with resources being poured in to counter any possible problems that might pop up, and how Y2K problems could affect financial conditions in the new millennium.

    The first statement can be contrasted with the one today where inflation and future inflation was the key focus. As there has been no updated inflation data since the last meeting the MPC updated their inflation projections to see how they had changed over the past month.

    The SARB forecast continues to indicate that inflation will fall below 6%, on a sustained basis, in the second quarter of 2010. Data also shows that the South African economy, which has been a laggard compared to global peers, may exit its recession by the end of this year, but that the recovery will not be a robust one. Credit extension remains weak but, like vehicle sales, may be reaching their lows.

    Key risks to the inflation outlook remain wage increases over the short term, and electricity prices over the longer term should Eskom get its way with the proposed tariff hikes over the next 3 years or so.

    As was expected the MPC didn’t make any changes to the repo rate. Pravin Gordhan, the new Finance Minister, delivers his first Medium Term Budget Policy Statement on Monday, and this will probably give a better indication of how strong/weak the economy currently is, and give some indication as to how the new leadership intends to move things forward.

    Take care,

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

    Permalink2009-10-22, 18:21:09, by Mike Email , Leave a comment

    JSE tracks US, Asian markets down

    Local markets

    Tracking losses in the US and Asia, the JSE All Share had fallen 0.46% by noon on Thursday, led down by weaker stocks across the board. The oil and gas index was particularly hard hit, falling 1.49% by 12:00.

    The rand weakened to trade at R7.51 a US dollar at midday, as investors remain uncertain before hearing the interest rate decision from the central bank due later today.

    Gold was selling at $1055.77, slipping 0.21% though remaining a safe haven investment as the dollar weakens and higher oil prices could bring inflation.


    International markets

    Yesterday, speculation that US interest rates will remain low as well as an analyst’s recommendation of putting Wells Fargo up for sale, caused US stocks to close in the red. The Dow Jones fell 0.92% while the Nasdaq lost 0.59%.

    In Japan, the Nikkei index slid 0.64% this morning as investors became concerned about Japanese corporate earnings after US financial shares fell yesterday.

    The Hang Seng fell 0.48% after property and telecommunications lost ground and weighed on the Hong Kong index. Investors became wary about inflation, despite positive Chinese economic data.

    The FTSE 100 tumbled 1.55% by noon, led down by weaker banks and commodity stocks after poor company earnings figures and Chinese economic data weighed on equity demand.


    Share price news

    Fortress Income Fund (share code: FFB) had gained 10.09% by 12:00 as shares rose to R1.20 after 25000 shares were exchanged in four deals. Fortressa (share code: FFA) rose 10% to trade at R11 after ten deals saw the movement of 31800 shares.

    In the shipping and ports sector, Value Group Limited (share code: VLE) fell to R3.10 a share at midday, after a single deal brought the share price down by 11.43%. Gold mining company Village Main Reef (share code: VIL) lost 9.09% as shares fell to R1 after two deals saw the exchange of 20000 shares.

    Permalink2009-10-22, 12:24:58, by Natalie Email , Leave a comment

    Living beyond Retirement

    In previous articles we’ve talked about adopting a robust investment strategy beyond retirement. In this article we will explore the possible impact on a portfolio if different strategies are followed.

    Very often the most common advice to retired people (or those nearing retirement) is to be conservative. But what does it mean to be conservative? And is being conservative not the downfall to the retired person’s retirement plans?

    Mr Conservative follows the common advice and invests his R5m in a conservative portfolio 5 years before retirement with the following mix of assets:
    - 50% cash
    - 30% bonds
    - 20% listed property

    He requires a 10% drawdown on a yearly basis when he retires.

    These assets generate cash like returns but what happens to the growth of his assets in real terms?

    The graph below illustrates the value of Mr Conservative’s portfolio after retirement.

    One notes how the total portfolio is depleted at age 82.

    Mr Pragmatic follows a more robust investment strategy and invests his portfolio in his personalised lifestage portfolio. This portfolio takes into account the size of his assets, how much income he needs over the short term and how much his income should increase above inflation over the next few years. Ultimately the portfolio should be invested to optimize two things:
    - Reduce the risk of losing capital on a permanent basis
    - Increase the lifespan of the assets to be used to finance the income.

    This portfolio will look something like this:
    - 20% cash
    - 10% bonds
    - 10% hedge funds
    - 30% equities
    - 30% offshore

    The graph below illustrates the value of Mr Pragmatic’s portfolio after retirement.


    One can clearly see that being conservative is not always the correct solution in an unknown environment.

    As always it is important to take each individual investor’s specific circumstances into account before making investment decisions.

    Kind regards,

    Vincent Heys
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2009-10-21, 17:15:03, by Mike Email , Leave a comment

    Global markets down as investors take profits

    Local markets

    By noon on Wednesday, the JSE All Share had edged down 0.28%, led into the negative by losses in the oil and gas sector. The local bourse was taking direction from weaker Asian markets.

    The rand was trading at R7.39 to the US dollar at 12:00, slipping slightly as the dollar steadied after dipping recently.

    Gold had lost 0.04%, selling at $1054.60 an ounce at midday but stabilizing after yesterday’s retreat as the dollar appreciated.

    International markets

    The Dow Jones fell 0.5% yesterday, while the Nasdaq lost 0.59% as US markets continued to retreat. News of poor housing data and falling commodity prices knocked the basic materials and energy sectors, and investors took profits after recent rallies.

    The Nikkei index closed 0.03% down this morning after a quiet day’s trade. Japanese investors engaged in profit taking which pressured the average, but an increase in a key shipping index boosted ocean freight companies.

    The Hang Seng finished 0.3% lower after two days of rallying. Poor corporate outlooks dented telecommunication shares, but further losses were controlled by the demand for assets.

    The FTSE 100 had slipped 0.45% by midday, as gains in oil stocks and supermarket shares were not enough to overcome general selling.

    Share price news

    In the non-ferrous metals sector, Kiwara PLC enjoyed a 20.37% boost as shares rose to R6.50 each at midday, after a single 1000-share deal. Kiwara reported today that the Kalumbila pit in-fill drilling showed good results. Combined Motor Holdings Limited gained 11.43% as shares lifted to R7.80 after eleven deals.

    Shares in Argent Industrial Limited fell to R8.10 each at noon, a loss of 7.95% after just one deal. B&W Instrumentation & Electrical tumbled 6.67% after 3 deals exchanged 47 000 shares. At 12:00, shares were selling at R1.68 each.

    Permalink2009-10-21, 12:12:18, by Natalie Email , Leave a comment

    GMO Asset Class Return Forecast

    GMO is a well respected global asset management company started by Jeremy Grantham, Richard Mayo, and Eyk Van Otterloo in 1977. The firm has grown substantially, and during 2005 their assets under management exceeded $100bn. Of the three founders Grantham is the only one left who is still actively involved in making investment decisions.

    Yesterday we wrote about investment time horizons and that investors generally need to have long term time horizons. GMO are experts at taking long term investment decisions. Their decisions are based on what the various asset class real return outlooks are for the following 7 years. This view gets updated monthly, and implemented in their portfolios according. Their predictions have proved to be remarkably accurate. For instance in June 2000 GMO’s real return outlook for US large cap shares over the following 10 years was -2% pa. This number was scoffed at as a highly bearish forecast by many investment professionals. The S&P 500 ended June 2000 at 1,455, and is now (nine and a quarter years later) at 1,095, an annualised return of -3% (excluding dividends) in nominal terms (excluding the effects of inflation).

    Equally at the height of the recent crisis when asset prices were falling through the floor at the beginning of the year GMO came out at the end of February and said that their outlook for US large cap shares was a real 8.9% per annum over the following seven years. It is important to realise that these returns won’t necessarily come in a straight line, but if you hold your assets over a full cycle you should get a better indication of what your return over the total period should be. The S&P 500 is up almost 50% since this forecast and it is reasonable to believe that GMO’s return expectations going forward have been lowered.

    Here is an extract of the chart of their latest 7 year real return outlook at the end of September. The full copy can be downloaded from their website http://www.gmo.com/Europe/MyHome/.

    From the chart you will notice that apart from high quality US stocks all other asset classes are expected to produce muted returns going forward. Government issued paper in particular is looking expensive. This forecast doesn’t preclude asset prices going higher from here, but it does indicate that the real returns from most asset classes over the longer term will be disappointing.

    Enjoy your evening.

    Take care,

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

    Permalink2009-10-20, 17:29:54, by Mike Email , 2 comments

    Global markets rally on positive US corporate results

    Local markets

    The JSE All Share was moving up on Tuesday, tracking international markets, and had edged up 0.38% by midday. Gold mining shares led the upward trend, though further gains were limited by losses in the financial sectors.

    The rand had slipped to R7.35 to the US dollar at 12:00 after gaining last night on the back of positive world markets and a weaker dollar.

    Crude oil was selling at $77.02 a barrel, rising 1.34% after a significant dip in the US dollar and stronger US equities reached their highest levels in a year.

    International markets

    Yesterday, positive corporate results for the third quarter boosted US markets. The Dow Jones finished 0.96% higher, while the Nasdaq lifted 0.91% and the S&P 500 rose 0.94%.

    The Nikkei closed 0.98% up this morning, reaching a three-week high after Japanese technology shares rallied on positive US corporate results, which signals economic recovery is set to continue.

    In Hong Kong, the Hang Seng gained 0.83% as investors displayed optimism ahead of Chinese economic data to be released later this week. Analysts expect China to exhibit strong growth in line with forecasts.

    England’s FTSE 100 had lost 0.26% by midday, losing steam after yesterday’s gains. The slide was led by weaker bank shares, after Qatar sold off stock in Barclay’s, sending the major bank lower.

    Share price news

    In the construction sector, ELB Group Limited gained 4.76% after three deals of 10600 shares sent stock up to R11 at midday. Grindrod Limited in the marine transportation sector rose 3.95% to sell at R17.36 a share, after 358 deals saw the exchange of more than 1.4 million shares.

    Diamondcorp PLC fell to R1.80 a share, after 10 000 shares were sold in one deal, bringing the share price down by 10% by 12:00. Mining exploration and development company Sephaku Holdings Limited lost 6.19% as shares dropped to R3.94 after three deals.

    Permalink2009-10-20, 12:10:50, by Natalie Email , Leave a comment

    Investment Time Horizon

    A critical detail when deciding on the composition of your portfolio is your investment time horizon. Many studies have shown that your asset allocation decision (i.e. the proportion that you allocate to equities, bonds, property, cash, and offshore) determines almost all of your return – in excess of 90% - while your selection within each asset class contributes the remaining amount.

    It therefore makes sense that you spend the majority of your time deciding on what level of risk you are able to take across your portfolio rather than spending the time deciding which investments, in the various asset classes, you would like to invest into. One of the key inputs into your asset allocation decision is your investment time horizon, which therefore makes this factor an important one to consider when looking at your overall investment portfolio. I.e. it is more important to decide whether you’ll use Fund Manager A’s Equity fund or Fund Manager A’s Bond fund than deciding on whether you’ll use Fund Manager A’s Equity fund or Fund Manager B’s Equity fund.

    Knowing that asset prices moves in cycles and how long these cycles can last is also an important element of the investment process. Clearly assets that provide higher levels of real growth over the long term will have higher levels of short term risk of capital loss, while those that give a more certain nominal return profile will typically provide lower levels of return over the long term. Getting the allocation right between assets that will provide growth and protect capital is a key decision. Also realising that the underlying asset manager’s performance will be cyclical is key to ensuring that you don’t sell out of an underlying fund manager just at their cyclical low.

    If you have done a thorough analysis and allocated your investments to the correct asset classes at the outset of this process you won’t need to track your returns every day, week, or even month for that matter. Over monitoring can actually be counterproductive as short term market gyrations can tempt even the most rational investors to react irrationally. Broad sweeping changes should be kept to a minimum.

    Changes in personal circumstances, changes in asset class return outlooks (over the relevant time horizons), and changes at the fund managers are periods when you should re-evaluate your position. Focusing on what is required from your investments, and what can reasonably be expected from the various asset classes is a better way of making investments decisions than by purely looking at price movements.

    A rule of thumb is that the longer your investment time horizon, the longer your investment evaluation period should be. This does not mean that you should just invest in long term assets and forget about them, but you should realise that over shorter periods you won’t have a full picture.

    A key factor that we look for in a fund manager is the alignment of his interests with those of his clients’. At the same time we need to ensure that there is an alignment in the goals between the investors and the fund manager. Checking both of these boxes goes a long way to ensuring that both investor and manager have a successful relationship.

    For a closer look at our investment beliefs please click here now.

    Take care,

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

    Permalink2009-10-19, 17:39:39, by Mike Email , Leave a comment

    JSE gains after a “technical bounce”

    Local markets

    At 12:00 on Monday, the JSE All Share had gained 1.21% as the oil & gas and basic materials sectors rose 1.97% and 1.79% respectively, in what analysts describe as a “technical bounce”.

    The rand was flat at midday, trading at R7.33 to the US dollar. Traders expect range-bound trade for the local currency for the rest of the session.

    Gold was selling at $1055 a fine ounce after a 0.29% increase, though limited from further gains by a stronger US dollar.


    International markets

    On Friday, the Dow Jones slid 0.67%, joined by the Nasdaq which lost 0.76%. Investor sentiment took a blow after General Electric and Bank of America released poor corporate results.

    In Japan, the Nikkei closed down 0.21% this morning, after investors responded to gloomy US company earnings and the recent rally faltered. Exporter shares such as Kyocera took a hit.

    The Hang Seng gained 1.23% to reach its highest close in 14 months, as investors were optimistic that China will meet forecasted growth levels.

    In Britain, the FTSE 100 had risen 1.13% by noon, after commodity and bank shares gained. Investors seemed positive about third quarter corporate earnings despite disappointing results from the US last week.

    Share price news

    In the farming and fishing sector, Afrocentric Investment Corporation Limited was the top mover up at midday. Shares gained 13.33% to trade at R1.70 after three deals.

    IPSA Group was also amongst the top movers up, gaining 5.13% after two deals to trade at R2.05 a share.

    Moving down at lunchtime was Diamondcorp PLC, whose shares lost 7.04% to trade at R1.85 a share.

    Argent Industrial Limited fell to R8.10 a share after 31 700 shares were exchanged over five deals, resulting in a loss of 6.90%.

    Permalink2009-10-19, 12:23:13, by Natalie Email , Leave a comment

    Pension Crises

    The Washington Post published an article on Monday 11th October under the name “Huge losses throw public pension funds into crises”. The article mentions … “An analysis by PricewaterhouseCoopers concludes that within an average of 15 years, public pension funds will have less than half of the money needed to pay promised benefits.” … and also … “They must either try to boost returns by taking on even riskier investments or start cutting benefits.”

    These are very important decisions to make in the light of the low funding levels.

    Trustees of defined benefit retirement schemes have the following options available if the scheme is in financial trouble
    - Reduce the agreed benefits to the members
    - Increase the level of contributions
    - Increase the retirement age
    - Take on a more riskier investment strategy

    Individuals, not belonging to a defined benefit retirement scheme, may also be in a position where their assets will not be able to finance their required income after retirement. In this case individuals have pretty much the same options available to trustees.

    Let’s consider the impact if the investment strategy is changed.

    If an investor estimated that his portfolio had to target a return of inflation + 2% (to finance the future income requirements) but now estimates that the portfolio needs inflation + 6%, then he needs to make sure what the impact of the risk is on his retirement outlook. The graph below illustrates that the investor will need to change from a low risk portfolio (Red) and adopt an investment strategy that carries quite a bit more risk (Green). We define risk not as volatility but rather “the risk of losing capital”.

    If the investor is not prepared to take on the additional risk then he will be forced to make one of the following decisions:
    - Retire later
    - Reduce the income draw down

    The important point is not what route is taken but more to understand the likely impact of one’s decisions in order to sustain the capital throughout one’s life.

    Enjoy your weekend.

    Kind regards,

    Vincent Heys
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2009-10-16, 16:38:05, by Mike Email , Leave a comment

    Global markets flat before weekend

    Local markets

    Stocks in the oil and gas sector and in the gold mining sector gained this morning, helping to keep the JSE All Share in the positive despite losses in financial and industrial shares. The All Share had inched up 0.28% by midday.

    The rand fell slightly to trade at R7.35 to the US dollar at 12:00, as a falling gold price weighed on the local currency.

    Gold edged up 0.08% to settle at $1048.83 an ounce after the strengthening dollar led the precious metal to consolidate recent gains.


    International markets

    Yesterday, US markets closed flat after quarterly results from Goldman Sachs and Citigroup were not as high as JPMorgan Chase, though still better than anticipated. Further losses were prevented as energy stocks rose on news of positive oil stockpile data. The Dow Jones finished up by 0.47% and the Nasdaq clung on to a 0.05% gain.

    The Nikkei index edged up 0.18% this morning to reach its highest close in three weeks. Gains in retail and pharmaceutical stocks were just able to overcome losses in banking shares.

    The Hang Seng slid 0.31% after investors took profits once again after recent gains that came on the back of higher oil prices and a tamer US dollar.

    Britain’s FTSE 100 had risen 0.59% by midday SA time, recovering after yesterday’s losses thanks to gains in commodity-related shares and bank stocks. Commodities were boosted by higher raw material prices.


    Share price news

    Platmin Limited was the top gainer at midday, as shares rose 11.86% to sell at R10.85 after 2431 shares were exchanges in five deals. Fairvest Property Holdings Limited gained 10% to trade at R1.10 a share at noon after just one deal.

    IFA Hotels and Resorts fell 14.17% to trade at R1.03 a share, also after a single deal. In the shipping and ports sector, Value Group Limited lost 11.43% as shares fell to R3.10 each after 780 shares were traded in one deal.

    Permalink2009-10-16, 12:09:05, by Natalie Email , Leave a comment

    Xstrata Lets Another Bid Fail

    Just over a year ago Xstrata dropped their bid on locally listed platinum company, Lonmin, after initiating a hostile takeover bid at GBP33 a share. Today an announcement came through SENS that they had dropped their bid for Anglo American. Both companies are large global diversified miners with market caps of over GBP 30bn each, and Xstrata wanted to consolidate the merged entity into a global heavyweight.

    In June of this year Anglo rejected the merger approach made by Xstrata and requested that the UK Takeover Panel invoke a “put up, or shut up” ruling, which they duly granted. This ruling effectively forced Xstrata to come up with an offer that Anglo agreed to or drop the merger plan. They had until 20 October to make a decision, and with a few days to the deadline decided against the merge. While they have had to drop their plans for now, this doesn’t mean that they won’t bid for Anglo again in the future. They aren’t allowed to make another approach for 6 months unless another company makes an offer, or if Anglo agrees to an approach.

    Anglo has had a difficult last 12 months, dropping its dividend earlier this year and announcing that it plans to shed 19 000 jobs this year. The share price crashed from around R550 a share in June last year, to trade as low as R135 at the end of February this year (a fall of over 75%) after all the bad news, but has been able to recover to R265 (still down over 50% from its high). It is therefore understandable that competitors would be using this opportunity to attempt to pick up a large opponent for a price that is significantly lower than where it was just over 12 months ago.

    With the Anglo deal off the table there is always the chance that Xstrata decides to pursue Lonmin again. Xstrata has over the years been a highly acquisitive company, completing over USD 33bn in acquisitions since 2003 (which was the start of the commodity bull), and it doesn’t look like they’re going to slow down until they are the heavyweight that they feel they deserve to be.

    The news of Xstrata’s withdrawal at 11am saw Anglo’s share falling by around 2.5% until just after 2pm, but from there the price moved up sharply to finish the day at the same level as which it closed.

    We have uploaded our latest Market Overview onto our website. If you would like to download it please click here now.

    Take care,

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

    Permalink2009-10-15, 18:31:39, by Mike Email , Leave a comment

    Investor caution sets in on JSE despite positive US, Asian markets

    Local markets

    Thursday midday saw the JSE All Share edge down 0.25% despite positive closes on international markets. Leading the slide was the gold mining sector, which had lost 1.59% by 12:00.

    The rand weakened fractionally against the US dollar, trading at R7.25 after reaching its highest level in 14 months earlier today as the dollar weakened.

    Oil cost $73.09 a barrel at noon, rising 1.51% though off its earlier 1-year high of nearly $76. Commodity traders grew confident after US data showed falling crude oil inventories, which points to increasing consumer demand and economic recovery.


    International markets

    Unexpectedly positive company results and retail sales boosted US markets yesterday, with the Dow Jones closing 1.47% up and the Nasdaq 1.51% higher. Stocks were also supported by a weakening US dollar as large multinationals are likely to enjoy higher profits from overseas sales.

    Japan’s Nikkei index closed 1.77% higher this morning, as exporter and technology stocks were boosted by positive corporate results from the US, increasing investor confidence.

    Hong Kong’s Hang Seng lifted 0.51%, extending its rally to a third day. Further gains were hampered by investors taking profits.

    In England, the FTSE 100 had slipped 0.21% as investor caution set in before the release of US bank results. The FTSE enjoyed its highest close in 56 weeks yesterday.

    Share price news

    Computer services company Datacentrix Holdings Limited gained 6.82% this morning as shares rose to R4.70 at 12:00, after just two deals. Shares in Foneworx Holdings Limited in the telecommunication equipment sector rose to R1.06 each at midday, an increase of 6% after four deals.

    Sliding down was IPSA Group, whose shares fell 12.77% to trade at R2.05 at noon after 13 000 shares were traded in three deals. Telemaster Holdings Limited lost 9.52% as shares slipped to R1.90 after a 10 000-share deal.

    Permalink2009-10-15, 12:14:58, by Natalie Email , Leave a comment

    Old Mutual Look to Swallow Mutual and Federal

    Big news out this morning on the local market was Old Mutual’s (OM) firm undertaking to make an offer for the remaining shares in subsidiary Mutual and Federal (M&F). OM is one of the largest listed companies in South Africa and is also listed on the FTSE in the UK. M&F is a short term insurance company that is listed on the JSE.

    OM currently own approximately 73.5% of M&F and they have made the offer in order to simplify the Group’s structure and create value through optimising their ability to cross sell product between the three main companies in the OM stable (Old Mutual, Nedbank, and Mutual and Federal). M&F is a quality asset having been one of the best performing shares on the JSE since its listing in 1970, and OM is no doubt looking to increase the quality of the assets on their balance sheet.

    The offer to minorities has been made at a premium of 19.7% to the closing price of M&F on Tuesday before the deal was announced. OM has offered R21.25 a share which will be funded through the issue of more OM shares. The current offer is slightly higher than the R21 offered by the Royal Bafokeng last year that OM turned down, but as OM already has control of the asset they don’t need to pay a control premium which the Royal Bafokeng would have needed to pay to acquire the company. At current prices M&F shareholders will get 1.79 OM shares for every M&F share held.

    OM already has irrevocable undertakings from shareholders holding 22.5% of the outstanding shares (namely WIPHOLD and Mtha Financial Services).

    The M&F board has appointed JP Morgan to form an opinion on the financial terms of the offer. With M&F being majority owned by OM there needs to be an independent valuator to act in the minorities’ best interests.

    Understandably the share price of Mutual and Federal jumped up on the news of the offer, as investors have placed a high probability of the offer going through. The share price closed at R21.06, only 0.89% below the deal price. The price is very close to what could be calculated as the present value of the R21.25 offer. Old Mutual shares also ended the day in the green, up 1.54%.

    We have uploaded our latest Market Overview onto our website. If you would like to download it please click here now.

    Take care,

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

    Permalink2009-10-14, 18:08:47, by Mike Email , Leave a comment

    Stronger resources, oil & gas stocks lift JSE

    Local markets

    At midday on Wednesday, the JSE All Share had gained 1.36%, ignoring direction from lower US markets as it was led upwards by stronger resources and oil & gas stocks.

    The rand was selling at R7.25 to the US dollar at 12:00, strengthening to reach its highest rate in 14 months. Adding to currency confidence was Tito Mboweni’s remarks that interest rates would remain steady next week.

    Oil cost $72.91 a barrel at noon, rising 2.69% but still off its earlier high of $75 a barrel. The commodity was lifted by a falling US dollar value and better-than-expected trade data from China that suggested a recovery is on the way for the Asian giant.

    International markets

    Yesterday, the Dow Jones lost 0.15% while the Nasdaq managed to cling on to a 0.04% rise after poor earnings results from Johnson & Johnson dented investor hopes for other corporate earnings still due this week.

    In Japan, the Nikkei average fell 0.16% after investors took profits following the last five days of gains. Exporter stocks felt the pressure of a stronger yen, while banking stocks lost ground after their US counterparts fell ahead of earnings announcements.

    In Hong Kong, the Hang Seng rose 1.95% thanks to improved liquidity flows from investments leaving the US dollar and sinking into commodity and export shares. Investor sentiment remained positive ahead of earnings results and economic data.

    In Britain, the FTSE 100 had risen 1.72% after the mining sector was boosted by reports of higher output growth from Rio Tinto.

    Share price news

    Mutual & Federal Insurance Company Limited enjoyed a 17.75% increase in share prices as shares traded at R20.90 each at midday, after more than 120 deals. Spurring on the gains was Mutual & Federal’s announcement earlier today that the company was offering to acquire all the ordinary shares in Mutual & Federal that it or its subsidiaries do not currently beneficially own. Also gaining was investment bank Barnard Jacobs Mellet Holdings Limited, whose shares rose 14.52% to trade at R3.55 at 12:00 after four deals.

    In the shipping and ports sector, Value Group Limited lost 12% as shares fell to R3.08 after two deals. Jubilee Platinum PLC fell to R4.09 a share at noon, a loss of 3.54% after nine deals.

    Permalink2009-10-14, 12:11:43, by Natalie Email , Leave a comment

    Lifestyle Products

    We have previously briefly mentioned the use of lifestage products as a means to invest for retirement and beyond retirement.

    What is a lifestage investment product?

    This product matches your investment strategy to your life cycle. The general thinking is that if you are young you can afford to invest the majority of your assets in equities because you have enough time to make up any potential negative returns along the way. As you get closer to retirement you have less time to make up any potential losses and therefore require a portfolio with greater exposure to cash and bonds and to a lesser degree equities. As you move beyond retirement you need to have a very small allocation to equities and most of your assets in cash and bonds.

    The graph below illustrates the likely lifestage product model in a retirement fund.

    What is the main benefit of a lifestage product?
    • It is a simplistic method whereby members of a retirement fund are advised how much they need to invest in the different asset classes over time. This will assist members not to be too exposed to volatile assets like equities when they need to drawdown an income.

    What is the downfall of it?
    • Most of the time investors have money outside of a retirement fund as well. This means that a lifestage product needs to be created for the investor’s total assets.
    • Each investor is different. Each one has a different net worth, income requirement after retirement, and life expectancy (based on age and health). As a result there is not one lifestage product suitable for everyone.

    Two examples follow:

    Investor A has a large net worth relative to his income requirement and life expectancy, and expects to have money left in his estate. Investor A only needs a small portion of his total portfolio to be invested in cash and bonds during retirement because of the relatively small income requirement. As a result, Investor A’s asset allocation to the different asset classes over time will look some thinking like this:

    However Investor B has a lower net worth compared to his income requirements and life expectancy, and does not expect any assets left in his estate. This investor needs to make sure that the portfolio sustains his income for life and should fight wars on two fronts:
    1. Ensure that the capital grows with inflation
    2. Ensure that the capital does not suffer a capital loss and is not depleted prematurely.

    This is obviously a balancing act.

    The graph below illustrates Investor B’s likely asset allocation over time:

    From the above two examples it is clear that each person effectively needs a customized lifestage product which depends on his or her own requirements and circumstances. While generic lifestage products are designed with the average investor in mind we know from experience that very few investors actually are ‘average’.

    If you like to view some more information on how we consult then please refer to www.seedinvestments.co.za. We offer clients a once-off assessment on their personalised lifestage strategy.

    Kind regards

    Vincent Heys
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2009-10-13, 16:27:18, by Mike Email , Leave a comment

    Positive US, Asian markets help JSE edge up

    Local markets

    The oil and gas and the gold mining sectors were leading the JSE’s inch upwards this morning, rising 1.06 and 1.01% respectively by 12:00. The All Share had edged up by 0.24% at noon as investors continue to await US corporate results.

    The rand was trading at R7.35, weakening against the US dollar.

    Oil was trading at $71.71 a barrel at midday, losing steam after reaching its highest level in seven weeks yesterday.

    International markets

    The Dow Jones closed 0.21% higher yesterday while the S&P 500 rose 0.44%, but the Nasdaq lost 0.01%. Energy stocks gained as oil prices rose, and some broker upgrades added to the general optimism.

    Japan’s Nikkei index rose 0.6% this morning, boosted by exporter stocks as they tracked gains on the S&P 500. Further gains were limited by investor caution ahead of key U.S. and Japanese corporate results.

    The Shanghai index gained 1.44% as investors bought on hopes for positive corporate earnings results as well as the subtext of a weaker US dollar.

    In the UK, the FTSE 100 was 0.3% down at midday after reaching its highest level in a year yesterday. Investors regained caution as they await local inflation data and US corporate earnings.

    Share price news

    Blue Financial Services gained 9.63% at noon as shares shot up to R1.48 after 26 deals. Hulamin Limited in the steel sector rose 6.15% to trade at R13.80 a share after nine deals.

    Village Main Reef Gold Mining Company fell to R1.15 a share after three deals, a loss of 13.53%. Also on the downward march was Famous Brands Limited in the restaurant and pubs sector, whose shares slid 8.21% to sell at R20.01 after six deals.

    Permalink2009-10-13, 12:54:16, by Natalie Email , Leave a comment

    Petrol to Come Down on Wednesday

    The price of petrol can understandably be a very emotive subject as it is a fairly large part of ones living expenses and the demand for it is relatively inelastic. The monthly change in petrol price can be pretty volatile. This has a direct impact on consumers’ pockets and price hikes are therefore routinely chastised.

    The elasticity of demand is a measurement that seeks to determine whether goods and services are price sensitive or not. Goods that aren’t that sensitive to price have inelastic demand curves (generally necessities) while luxury items are usually more elastic. For example if the price of bread doubles you will probably buy a similar amount, but if the price of speedboats goes up by 50% you will probably think twice about making the purchase. The demand to bread is inelastic (at least over the short term) while the demand for speedboats is relatively elastic – except for those people who require one for their livelihood.

    In South Africa, the price of petrol is adjusted each month on the first Wednesday of the month. The main determinant of the price is the Basic Fuel Price (BFP) which is calculated as the cost of importing one litre of petrol. This figure will be largely influenced by the oil price, and is calculated as 50% of the Mediterranean spot price for Premium unleaded petrol and 50% of the Singapore spot price for 95 Octane unleaded petrol. Other more stable taxes and levies are added to the BFP to come to the price that one pays at the pump.

    Taking a step back I questioned why there is such an uproar every time the petrol price increases, while increases in other goods that have similarly volatile prices don’t evoke the same reaction. By taking a look at the change in the petrol price since the beginning of 2001 (Source: Sasol) and comparing to the change in the price of a representative basket of goods (as measured by CPI) one can see that the petrol price has grown far quicker than CPI. The petrol price has increased at 8.9% per annum, while inflation over this period has been 6.2% per annum, a difference of 2.7% per annum!

    2008 will go down as a year when the petrol price really hurt consumers, with the price increasing by nearly 50% year on year. This price increase was enough to see some consumers changing their spending habits. With the oil price falling back dramatically petrol is now a major deflationary force.

    The petrol price is falling by 40c a litre on Wednesday. This fuel pump relief will hopefully be reflected in improved domestic demand for other goods to help the economy out of the recession.

    Take care,

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

    Permalink2009-10-12, 18:11:15, by Mike Email , Leave a comment

    Markets up as investors expect positive US corporate results

    Local markets

    Financial stocks led gains on the JSE as the sector lifted 1.78% by midday on Monday. The JSE All Share had risen 0.92% by the same time, missing direction from US markets which are closed today, and awaiting US corporate results due later this week.

    A US dollar cost currency traders R7.42 at 12:00, as the rand weakened on the back of a weaker euro-dollar exchange rate. Trading was quiet as US investors enjoyed a break on Columbus Day today.

    Gold was selling at $1052.98 a fine ounce, edging up 1.98% towards last week’s record price highs. Further gains were limited by the strengthening dollar and concern over possible falling demand in India, the biggest consumer of gold.

    International markets

    On Friday, the Dow Jones closed 0.8% higher while the Nasdaq lifted 0.72% after positive broker remarks gave technology shares a boost. Investors were confident ahead of key earning reports due this week.

    The Nikkei average was closed on Monday for a Japanese public holiday.

    In Hong Kong, the Hang Seng fell 0.93% after investors began to discount positive economic data for China expected this week, and focused their attention on corporate earnings for the third quarter.

    At midday, Britain’s FTSE 100 had gained 1.14% after oil stocks rose strongly and telecommunications company Vodafone enjoyed a rally. As on international markets, investors awaited US corporate results before taking further positions.

    Share price news

    Sentula Mining Limited in the coal industry was the top mover upwards at midday. Share prices rose to R3.35 after about 250 deals, an increase of 17.54%. Sentula announced rights offer terms as well as the conditional sale of its shares in Siyanda Coal. Also moving up strongly was Mobile Industries in the shipping and ports sector, as shares traded at R1.70 after one deal boosted the price by 6.25%.

    Anooraq Resources Corporation in the platinum industry fell to R6 a share, a loss of 7.69% in share price after two deals. Witwatersrand Consolidated Gold lost 5.56% as share tumbled to R76.50 at noon after a single deal.

    Permalink2009-10-12, 12:41:28, by Natalie Email , Leave a comment

    US analyst forecasts

    Most investors understand that the value of a company is based not on yesterday’s profitability, but on the value that investors are willing to pay on expected future profits. Analysts therefore spend a lot of time trying to anticipate future profits or a range of future profits.

    Once they have this they can apply a normalised valuation to these future earnings.

    The US broad market indicator is the S&P500 index, which has moved up in strong anticipation of company profits rebounding from their lows.

    Overall operating earnings of the aggregate companies in this index fell sharply from $91,47 to an expected $38 this quarter. Operating profits exclude write downs and restructurings. On reported earnings per share Standard and Poor calculated an annualised figure of $6,86, but this is estimated to jump up to $39,35 by end of December.

    So reported EPS for the aggregate companies listed on the S&P500 slumped from $85 to $6,86, pushing the price to earnings ratio using these earnings to a massive 155 times at the current index level of 1067.

    This is exceptionally expensive in anyone’s books. But we know that companies came under immense pressure in the earnings and banks especially had large write downs, resulting in the massive decline in the aggregate earnings. For the 4th quarter of 2008 all S&P 500 companies reported a loss of $23,25/share.

    Hence the talk about the V recovery is very evident in how analysts are pricing in a recovery of earnings for the aggregate of S&P500 companies.

    According to US based Hussman funds, analysts are pencilling in earnings growth rebounding up 40% and then another 22% between 2010 and 2011. The growth is not necessarily being predicted in sales, but in margins expanding back again to pre crash levels.

    There is a lot of debate as to just what is the normal earnings level that the S&P500 should be generating. Is it $60, $70 or $80.

    The graph below is the profit margin of all S&P50 companies from 1955. The red plots in the expected by Wall Street analysts over the next couple of years. This data was compiled by www.hussmanfunds.com

    The long run average is around 6%, but it does appear that given the current valuations, the expectation is for margins to expand back to around 8%

    If analysts have been too conservative in how quickly profitability can rebound, the market will still have some way to go. Conversely, if they are too optimistic then the index level may be nearing a short term peak.

    Have a wonderful weekend

    Kind regards

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

    Permalink2009-10-09, 17:24:44, by ian Email , Leave a comment

    Profit taking pressures down JSE

    Local markets

    By midday on Friday, the JSE All Share had lost 0.8% after investors cashed in on profits after this week’s gains, spurred by a fall in commodity prices. Resource and gold mining stocks took the biggest hit, losing 1.54% and 1.98% respectively.

    The rand lost ground to trade at R7.38 to the US dollar at 12:00, after the American currency recovered some of its recent losses on the back of weak factory data which dented economic recovery hopes.

    Oil was selling at $69.07 a barrel, edging up 0.1% despite the stronger dollar and the US Federal Reserve’s comments that suggested a tightening of monetary policy.

    International markets

    Yesterday, the Dow Jones recovered 0.63% while the Nasdaq inched up 0.64% as investors gained confidence on good quarterly profits from Alcoa. Adding to positive sentiment were US retailers who published upbeat sales figures.

    In Japan, the Nikkei average closed 1.87% higher, thanks to a weaker yen and a record profit forecast for this year from Fast Retailing.

    In Hong Kong, the Hang Seng managed to scrape a 0.03% gain after investors took profits from shares that fared well recently, such as HSBC.

    In England, the FTSE 100 had lost 0.04% by midday SA time as weak mining shares offset gains in oil and pharmaceutical stocks.

    Share price news

    Once again making share price news, the IPSA Group enjoyed a 33% increase in share price after two deals boosted it to R2 at midday. No doubt some of the excitement came from the company’s announcement of its clean coal project launch.
    In the shipping and ports sector, Super Group Limited gained 5.26% as shares rose to R1 each after 22 deals.

    Also in shipping and ports, Mobile Industries fell to R1.60 a share after five deals, a loss of 5.88%. Gold miner Simmer and Jack Mines Limited lost 4.59% to trade at R2.08 a share at 12:00.

    Permalink2009-10-09, 12:19:09, by Natalie Email , Leave a comment

    comparison to 3 major bears

    Because stockmarkets are constantly generating prices, statisticians love to dissect the historical data produced. There is a saying that while history does not repeat it does tend to rhyme and therefore comparisons with past events may have some validity.

    Looking back to the great crash of 1929, 2 other major market crashed have occurred. The current market decline from the peak exactly 2 years back in October 2007 is put into perspective when compared.

    The first mega bear was the crash of the New York listed shares and measured by the Dow Jones Industrial average (which commenced in 1896). This index peaked in 1929 and over a period of almost 3 years had fallen just shy of 90% from this peak. Recovery from a 90% decline requires a subsequent 1000% return just to break even again.

    From this low the Dow shares rallied up, but 10 year later the index was still 60% off its peak in March 1929.

    In the 1980’s the Japanese market was pushed up to exceptionally expensive levels, with the Nikkei 225 index peaking at the end of 1989 at 38 915 on the 29 December. It then fell and 2 years later was off 60%. Bouncing around for the next 10 years it was still off 50%.

    Now almost 20 years later the same index is at 9832 – having fallen even further is trading 75% lower at 38915.

    Technology shares went into bubble territory in the late 1990, peaking in March 2000. The Nasdaq index was the best indicator of US technology shares. The index peaked at just over the 5000 level. Over the next 2 ½ years it fell almost 80%. Nine years later the index is at 2100 a decline of 58% from the peak.

    Source: dshort.com

    The peak in the S&P500 was 2 years back at 1565. The market declined sharply, especially from September 2008 post the banking and Lehman crash to a peak to trough decline of 56%. It has recovered sharply to a point where it’s currently 32% off its peak

    For one thing this history tells us that index tracking is not risk free. Remember that an index is made up of many underlying shares, some reflecting value, others at expensive levels.

    Only time will tell us where the current market as indicated by the S&P500 index will end up. Within any market and indeed within asset classes investors must seek out value.

    Kind regards

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

    Permalink2009-10-08, 17:52:51, by ian Email , Leave a comment

    Positive US corporate earnings improve investor sentiment

    Local markets

    The JSE had gained 1.19% by noon on Thursday after resource stocks continued to enjoy higher commodity prices. Investor confidence was also on the rise after US corporate earnings results were better than expected.

    The rand was trading at R7.31 to the US dollar at midday, as the local currency gained ground in the face of a weakening dollar.

    The gold price rose 0.89% to reach $1053.25 an ounce, beating a record high for the third straight day. Investors were seeing the precious metal as a safe haven in light of the falling US dollar.

    International markets

    Yesterday, better than expected corporate earnings just managed to lift the Nasdaq and the S&P 500 which closed at 0.32% and 0.27% respectively. The Dow Jones however was not as fortunate, closing slightly down by 0.06%.

    The Nikkei index rose 0.34% this morning after short-covering resulted in gains for Japanese exporter stocks. Nikon Corporation gained after a brokerage upgraded the firm’s status.

    The Hang Seng closed 1.18% higher to end its fourth straight day of gains. Banking stocks rose, as did property stocks as investors expect property prices to rise, and new market entrants performed admirably on their first day.

    The FTSE 100 had edged up 0.64% by 12:00 thanks to gains in financial stocks, which were stirred by news of a potential capital raising for Lloyds Banking Group that would allow it to completely withdraw from the government’s asset protection programme.

    Share price news

    Good news for Jubilee Platinum PLC whose shares rose 12.10% to sell at R4.54 at midday after 25 deals. Also amongst the biggest movers upwards was retailer Italtile Limited, whose shares lifted 11.43% to trade at R3.90 after just one deal.

    On the downward slide was IPSA Group, whose share price fell to R1.50 at midday, losing 16.67%. After two deals, auto parts manufacturer Dorbyl Limited lost 10% to trade at R4.05 a share.

    Permalink2009-10-08, 12:29:04, by Natalie Email , Leave a comment

    Global Divergence

    The synchrony with which the various countries around the world experienced a drop in GDP (with most going into recession) and a fall in asset prices was something to behold, and will no doubt be examined in the future. The contagion experienced with the fall was remarkable in historic standards. One can’t help but wonder whether this was an anomaly in the system, or whether the increased inter-connectivity that we currently experience will result in this form of contagion happening more frequently in the future.

    While we all fell together we have already seen signs that not all economies and assets will rise in unison. Further evidence of this was seen yesterday with Australia becoming the first G20 country to raise their main interest rate. It was raised by 0.25% to 3.25%, and you can be sure that the Australian Reserve Bank wasn’t concerned about the inflationary pressure that the $1m brought home by the Australian cricket team, for winning the recent ICC Champions Trophy, would have on the economy.

    Australia were able to avoid falling into a recession on the back of a rapid response to their weakening economy (see how quickly they dropped rates in the chart below), their close proximity to China and China’s reliance on their commodity exports, and a strong banking system that wasn’t as geared as the US and Europe. Despite inflation remaining below their targeted range, the Reserve Bank have clearly seen enough ‘green shoots’ taking root to decide to begin the tightening phase.

    The movement by the Australians is completely out of synch with the rest of the developed world. They have just started to tighten in Australia while in the US, UK, and Eurozone interest rates are still at record lows and quantitative easing is still taking place. This is potentially dangerous for some countries in a fragile global economy as any move to shift the status quo can have significant effects.

    Raising rates in Australia, for instance, increases the incentive to investors to move their cash to Aussie dollars to benefit from the carry trade (i.e. benefit from higher interest rates) this move in cash has the knock on effect of strengthening the Aussie dollar and thereby weakens the other currencies on a relative basis which has further consequences.

    At the same time that Australia are starting to tighten policy again the British economy looks like it may remain in recession until the end of the year on the back of poor industrial production (manufacturing production is now back at 1992 levels). This will in all likelihood result in the UK keeping interest rates lower for longer and also increase the possibility of increasing their quantitative easing program.

    The European Central Bank ( ECB ) meets tomorrow (Thursday) to discuss, among other things, whether they’ll be changing interest rates. Indications are that rates will remain unchanged (despite Australia raising rates) but the ECB have been known to aggressively target inflation, and will in all likelihood be one of the earlier regions out of the blocks when it comes to reducing liquidity.

    Take care,

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

    Permalink2009-10-07, 17:17:14, by Mike Email , Leave a comment

    Gold miners, resources continue to rally on JSE

    Local markets

    By midday Wednesday, the JSE All Share had risen 1.27%, led by stronger gold mining and oil & gas sectors. The local bourse found inspiration from positive Asian markets.

    The rand lost ground against the US dollar after initially strengthening as a result of a higher gold price. A dollar cost R7.44 at noon.

    Gold slipped off earlier highs after profit taking by investors, but still managed to gain 0.49% to sell at $1047.08 an ounce at 12:00 thanks to dollar weakness and concern over possible inflation.

    International markets

    US markets rallied yesterday, with the Dow Jones closing 1.37% higher and the Nasdaq up by 1.71%. The S & P 500 was not to be left out, rising 1.37% at close of trade.

    The Japanese Nikkei lifted 1.11% this morning, led by gains in commodity-linked companies after commodity prices increased. Banking shares continued to rise after investors continued to be positive about the US financial sector.

    In Hong Kong, the Hang Seng rose 2.07% as resources were boosted by the increase in commodity prices. Banking shares also rose on rumours that China may lift interest rates sooner than was anticipated.

    The British FTSE 100 edged up 0.07% as investors steadied after yesterday’s rally, and await third quarter results from the US. Losses in energy stocks were overcome by gains in mining shares.

    Share price news

    IPSA Group on the ALTX soared by 20% as shares traded at R1.80 at noon. Also on the upswing was Paladin Capital Limited, whose shares rose 7.69% to sell at R1.40 after four deals.

    Shares in Mobile Industries fell 14.29% after 14 deals knocked the share price down to R1.50 at 12:00. Retailer Rex Trueform Clothing Company Limited lost 12% as shares tumbled to R8.80 after just one deal.

    Permalink2009-10-07, 12:15:06, by Natalie Email , Leave a comment

    Gold in dollars at new highs

    The price of spot gold in US dollar terms has moved up to fresh highs, through the $1040/ oz level. The psychological barrier is the $1000 level, but having broken through past highs, the longer term uptrend remains intact. For some years now the price has been moving up in a regular and reasonably steady pattern.

    So far gold has had a very strong decade. This was not the case in the previous 10 years. In 1990 the price of bullion averaged $384 and remained flat to down for the decade falling to a low of around $250 at the beginning of 2001.

    Thereafter it moved up, reasonably steadily, and even if measured from the closing price of $290 at the end of 1999, it has had a very respectable 10 year performance of approximately 13,9% per annum in US dollar terms.

    The ride has not been without volatility. The price peaked at $725 in May 2006 and fell to a subsequent low of $560 in Oct 2006 - a decline of 22%. But as with any real asset, an investor needs to have the ability to remain patient in order to benefit from the longer term cycle. For example an investor may have bought in at a peak in May 2006 only to watch the price decline and have to wait until October 2007 in order for the price to recover to the starting point again in dollar terms.

    In some respects the current price increase can be attributed to dollar weakness. When priced in rand, gold is still off its highs.

    It peaked above $1000 in March 2008 and then fell to around $712 by October 2008 – a decline of around 30%.

    source : Kitco.com

    The price of crude oil has also been firmer, rising to $70 per barrel.

    Longer term there has been a relationship between oil and gold, but this is not consistently the case.

    Bank of America Merrill Lynch apparently reported on Monday that gold prices will hit $1,500 an ounce in 2011 when oil prices move back above $100 a barrel as emerging market growth creates shortages.

    There is a growing view that gold is starting to act as the ultimate currency and generally with paper being inflated, the natural move is for the physical to re-rate upwards.

    If this is indeed the case it is also portending inflationary pressure which is bullish for real assets relative to cash type assets.


    Kind regards

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

    Permalink2009-10-06, 17:22:46, by ian Email , Leave a comment

    Global markets up after Goldman Sachs upgrades US banking sector

    Local markets

    By midday, the JSE All Share had climbed 0.7% led by gains in the gold mining and basic materials sectors. Boosting the local bourse were a stronger gold price and weaker US dollar.

    The rand stabilized after rallying last night, and was trading at R7.44 to the US dollar at 12:00.

    Oil was selling at $68.55 a barrel, soaring 3.86% on the back of dollar weakness as well as rumours that a plan was afoot amongst the Gulf Arab states to switch from the dollar to a basket of currencies for oil trading.

    International markets

    The Dow Jones closed 1.18% up yesterday, while the Nasdaq finished 0.98% higher after investor confidence rose on expectation of better-than-expected corporate earnings and on positive service sector data.

    Japan’s Nikkei closed 0.18% up this morning after a volatile day’s trading. Goldman Sachs upgraded the US banking sector, which led to gains in Japanese bank shares.

    The Hang Seng rose 1.87% after the Hong Kong index tracked gains on US markets and commodity stocks rallied after gold and copper prices lifted.

    The FTSE 100 was 1.15% higher at noon as British shares took direction from US and Asian markets. Weaker telecommunication and pharmaceutical stocks were offset by stronger banking and mining shares.

    Share price news

    Afrocentric Investment Corporation Limited in the farming and fishing sector enjoyed a 12.58% gain by midday after the share price rose to R1.70 after two deals. Putprop Limited in the real estate holdings and development sector rose 11.70% as shares traded at R5.25 after a single deal.

    On the downward slide was Mobile Industries in the shipping and ports sector, whose shares fell 9.09% after two deals pressured the share price to R1.50 at midday. Meanwhile, Afrimat Limited in the building and construction materials sector lost 6.15% as the share price fell to R3.05 after one deal.

    Permalink2009-10-06, 12:21:08, by Natalie Email , Leave a comment

    Daily Equity Report Tuesday 05 October 2009

    Asset prices climb a wall of worry and the last 7 months has been no
    different. The higher prices go, the more concerned investors become. New York University professor, who predicted the financial crisis, Nouriel
    Roubini was quoted by Bloomberg as saying, "Markets have gone up too much,
    too soon, too fast".

    Along with technical analysts and also hedge fund managers like George Soros
    they were quoted as saying that prices have moved ahead of what is likely to
    be a very slow economic recovery.

    With some investors becoming nervous of the gains made, they have moved back
    into safer government bonds. The yield on the US 10 year government bond
    reached 4% in June, but has fallen back - i.e. an increase in the price of
    bonds - to 3,2% and now trading at 3,18%.

    The massive monetary stimulus and low to zero yields on cash appears to have
    done the job of avoiding deflation. Roubini is concerned that the easy money
    has already created asset bubbles in equities, commodities, credit and
    emerging markets.

    At the same time in the US, new levels of debt are being established. The
    state of California is leading the rest of the country in poor fiscal
    management. The projection of its deficit over the next 3 years is around
    $38 billion. Despite suffering from unemployment at over 12,2%, and the
    lowest credit rating of any state, they plan to raise more debt in the order
    of $4,5 billion.

    They can do this because there is demand for instruments that pay a yield
    above cash. The state is set to sell $3,2 billion in taxable Build America
    Bonds and $1,3 billion in tax exempt debt.

    Build America Bonds (BAB) were signed into US law by Obama in February this
    year. They are a new form of government bond, effectively issued by a state
    or municipality to finance its capital expenditure. They are subsidized by
    the US government in two ways.

    Firstly the BAB issuer, for example state of California, receives a subsidy
    from the federal government of 35% of the interest paid to investors for
    purchasing the bond. This allows weaker states, like California, to pay up
    higher rates of interest and make the yields attractive.

    The second version, the BAB holder receives a tax credit from the federal
    government equal to 35% of the bond each year.

    Pimco's Bill Gross waxed lyrical about California's woes, saying "But
    California's problems, while somewhat unique and self-inflicted, are really
    America's problems, and not just because the California economy is 15% of
    national GDP."

    He questions whether the US government down to California "Governator" has
    the capital, vision, and discipline of citizens to turn things around.

    He concludes by suggesting where investors should focus. ". high quality
    bonds and steady dividend paying stocks that can survive, if not thrive, in
    our journey to a "new normal" economy of slower growth, muted profit gains,
    and potential capital destruction via default, abrogation of property
    rights, and dollar devaluation."

    Increasingly investors should question not just the risk premium, but the
    ability of the issuer to sustain payment in the years to come.

    Kind regards

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

    Permalink2009-10-05, 20:41:08, by admin Email , Leave a comment

    Debt issuance in an overleveraged world

    Asset prices climb a wall of worry and the last 7 months has been no different. The higher prices go, the more concerned investors become. New York University professor, who predicted the financial crisis, Nouriel Roubini was quoted by Bloomberg as saying, “Markets have gone up too much, too soon, too fast”.

    Along with technical analysts and also hedge fund managers like George Soros they were quoted as saying that prices have moved ahead of what is likely to be a very slow economic recovery.

    With some investors becoming nervous of the gains made, they have moved back into safer government bonds. The yield on the US 10 year government bond reached 4% in June, but has fallen back – i.e. an increase in the price of bonds – to 3,2% and now trading at 3,18%.

    The massive monetary stimulus and low to zero yields on cash appears to have done the job of avoiding deflation. Roubini is concerned that the easy money has already created asset bubbles in equities, commodities, credit and emerging markets.

    At the same time in the US, new levels of debt are being established. The state of California is leading the rest of the country in poor fiscal management. The projection of its deficit over the next 3 years is around $38 billion. Despite suffering from unemployment at over 12,2%, and the lowest credit rating of any state, they plan to raise more debt in the order of $4,5 billion.

    They can do this because there is demand for instruments that pay a yield above cash. The state is set to sell $3,2 billion in taxable Build America Bonds and $1,3 billion in tax exempt debt.

    Build America Bonds (BAB) were signed into US law by Obama in February this year. They are a new form of government bond, effectively issued by a state or municipality to finance its capital expenditure. They are subsidized by the US government in two ways.

    Firstly the BAB issuer, for example state of California, receives a subsidy from the federal government of 35% of the interest paid to investors for purchasing the bond. This allows weaker states, like California, to pay up higher rates of interest and make the yields attractive.

    The second version, the BAB holder receives a tax credit from the federal government equal to 35% of the bond each year.

    Pimco’s Bill Gross waxed lyrical about California’s woes, saying “But California’s problems, while somewhat unique and self-inflicted, are really America’s problems, and not just because the California economy is 15% of national GDP.”

    He questions whether the US government down to California “Governator” has the capital, vision, and discipline of citizens to turn things around.

    He concludes by suggesting where investors should focus. “… high quality bonds and steady dividend paying stocks that can survive, if not thrive, in our journey to a “new normal” economy of slower growth, muted profit gains, and potential capital destruction via default, abrogation of property rights, and dollar devaluation.”

    Increasingly investors should question not just the risk premium, but the ability of the issuer to sustain payment in the years to come.

    Kind regards

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

    Permalink2009-10-05, 18:05:01, by ian Email , Leave a comment

    Gloomy US jobs and factory data continue to haunt global markets

    Local markets

    On Monday morning, the JSE All Share had inched up 0.56% after a flat start as the local bourse took direction from weaker US and Asian markets. The oil and gas sector rose 2.64% by midday, while gold miners fell 1.55%.

    The rand was trading at R7.63 to the US dollar, after stronger metal prices and a weaker dollar boosted the local currency.

    Gold was selling at $1004.07 an ounce, rising 0.21% as the dollar remained lower after poor US employment figures dented investor confidence.

    International markets

    On Friday, the Dow Jones slid 0.23% and the Nasdaq fell by 0.46% as US markets continued to take a hit after weak jobs data and a drop in factory orders. The industrial sector and the energy sector took the brunt of the punishment.

    The Japanese Nikkei average fell 0.59% this morning to reach its lowest close in eleven weeks. Exporters dropped after the gloomy news from the US last week and the yen strengthened against the dollar.

    In Hong Kong, the Hang Seng edged up 0.26% to overcome losses earlier in the day as investors sought bargains after stocks fell to a three-week low during Friday’s trading.

    In the UK, the FTSE 100 had risen 0.12% by midday SA time, stabilizing somewhat after Friday’s selloff. Gains in major mining and banking stocks just managed to offset losses in oil stocks.

    Share price news

    The top mover up at midday was Transpaco Limited in the containers and packaging sector, who gained 8.97% to sell at R8.50 a share at midday. Also gaining strength was Simmers and Jack Mines Limited, whose shares rose 7.56% to trade at R1.85.

    Slipping 12.63% was Blue Financial Services, whose shares were trading at R1.66 at noon after 31 deals. Afrocentric Investment Corporation Limited in the farming and fishing sector lost 11.43% as shares fell to R1.55 after just one deal.

    Permalink2009-10-05, 12:23:16, by Natalie Email , Leave a comment

    Economic data impacts global share prices

    The first couple of days into the fourth quarter have seen some pullback in prices. Economic data remains weak. In the US the Dow and the S&P 500 suffered their worst one day fall in 3 months. The Friday opening was no better and share prices are down as investors have turned a bit more pessimistic.

    The big indicator that many look to is the US unemployment rate. Job losses in the US accelerated last month and the unemployment rate has climbed to 9,8%, the highest since 1983.

    The US is shedding jobs and in September reports indicated that payrolls were down 263 000, exceeding the average forecast of 175 000 on Bloomberg. In addition to these losses, the previous stats were revised down, with the September losses bringing the total jobs lost since the recession began in December 2007 to a massive 7,2 million. This is the biggest decline since the Great Depression.

    As expected sales of cars and light trucks plunged in September following the $3 billion cash for clunkers plan, which ended in late August and which forced a surge of new car sales. In August the annualised figure in the US was pushed up to 14,1 million units.

    In September this plunged to an annualised 9,2 million units.

    GM reported the biggest decline with sales dropping 45% from a year earlier.

    Local car sales

    Locally car sales increased in September to 31726 units up from 29675 in August - a 6,9% month on month gain. Passenger sales were up 7,9%.

    In total the year on year decline has reduced to 22,4%.

    It does appear that we have reached a trough – but sales are far off the peak of late 2006.


    Source : Nedbank

    The JSE is down across the board. The rand is firmer and gold is up slightly staying above the $1000 dollar level

    Have a great weekend

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

    Permalink2009-10-02, 17:07:03, by ian Email , Leave a comment

    Red across the board as poor US economic data prompts profit-taking

    Local Markets

    The JSE opened weaker this morning, tracking losses on Wall St and across Asian markets overnight. Equity markets are bearish after the US released worrying economic data yesterday. There’s profit-taking across most markets but with the MTN deal out of the picture locally and the rand weakening, the falls are being cushioned on the JSE. By midday, the All Share was 1.92% down.

    The rand lost ground against the dollar in the early session this morning, tracking losses across the board. This loss comes on the back of generally bad economic news released in the US yesterday. Central bank governor Tito Mboweni revealed yesterday that the SARB had been purchasing foreign exchange to curb recent rand strength, which also saw the local currency give up some strength. By midday, a dollar cost R7.73.

    With the volatility in equity markets, commodities are relatively stable today. The oil price is hovering at $67.73 whilst the gold price is sitting at $997.46.

    International Markets

    Stocks in the US fell on Thursday over concerns over the true likelihood of an economic recovery. Economic reports released recently indicate that activity across nearly all sectors has declined. The Institute for Supply Management released its index for national factory activity, which was well below analysts’ forecasts. The market is prone to a lot of profit-taking as the traditionally volatile 4th quarter takes shape. By close, the Dow Jones was 2.09% down whilst the Nasdaq lost 3.06%.

    The Nikkei average lost ground overnight as US economic data sent waves of concern through related supplier markets abroad. The momentum of the recovery seems to be slowing and the rapidly improving yen isn’t helping matters as exporters suffer with each gain. The index reached its lowest close since July 22. This morning, it finished 2.47% down.

    Shares in Hong Kong started the 4th quarter on a poor note as equities hit a 3 week low overnight. The US manufacturing and jobless claims data saw investors begin to worry over the strength of a possible economic recovery. This saw the way for much profit-taking after a 1-year high reached in September. By close this morning, the Hang Seng had lost 2.77%.

    Shares in London were depressed on open this morning as financial and commodity stocks dragged the index lower. Demand seems to have been lowered ahead of US non-farm payroll data due out later today. The losses are in line with poor Wall St performances yesterday and consequent losses n Asian markets overnight. Traders booked profits from recent sessions, which saw miners and commodity-related stocks suffer losses. By midday, the FTSE 100 was 0.67% down.

    Share Price News

    Allied Electronics Corporation Ltd of the Electrical Equipment sector was among the morning’s most voluminous gainers. This is a good achievement in a session marred by selling. It gained 3.82% to sell for R27.40 per share at midday. Also performing well was Rare Holdings Ltd of the AltX sector. It improved by 3.33% to trade for R1.50 per share at noon.

    Among many of the losing resources was Wesizwe Platinum Ltd of the Platinum sector. At midday, a share traded for R1.74 (a 7.94% loss). Of the Metals and Minerals sector, African Rainbow Minerals also lost ground. At midday, it had shed 5.42% to sell for R143.61 per share.

    Permalink2009-10-02, 12:36:31, by Grant Leyland Email , Leave a comment

    Going into the final quarter of 2009

    We are now into the fourth quarter of 2009. The rally in prices from the mid first quarter held up in September, but values are now not as attractive and there are some signs that the momentum is slowing.

    The JSE All Share index ended 2008 at 21509. It promptly fell for the first few months to the end of February to a low of 18120 before starting its rally up to the end of September where it closed at 24911 off its peak of 25920.

    Despite this volatility, for the 9 months of 2009 and across the main sectors of the JSE, the returns have been very reasonable. Clearly within the main sectors the performance varied a lot more dramatically, but it is interesting to see how similar the return has been for the 3 main components to the local market.

    The sharp rally in prices has moved the valuation of the overall market from a price to earnings ratio of a mean of 10,1 over the last 12 months to a current 14,6 times.

    While the offshore equities on various markets have also performed strongly for the last 9 months a rand investor has not necessarily benefited, given the strong rand. From the end of 2009, the rand has gained some 20%.

    The returns across global markets in US dollar terms have been attractive, but again a large dose of this has come from dollar weakness against other global currencies.

    The weak dollar also helped assist the price of an ounce of gold. It moved up from $875/oz at the end of 2008 to close at $1008 yesterday – a gain of 15,1%

    No one knows what the final quarter of 2009 will hold. Should asset prices remain flat for the full year, the gains already achieved will be very acceptable. In fact merely looking at these percentages, one would be forgiven in thinking that markets displayed no volatility in 2009.

    Kind regards

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

    Permalink2009-10-01, 17:36:13, by ian Email , Leave a comment

    Equities choppy as 4th quarter begins; commodities buoy JSE

    Local Markets

    The JSE appears to be trading firmer today. With improved metals prices and a slightly weaker rand, resources and commodities profited during the morning session. The disappointing collapse of the MTN-Bharti deal saw the local currency lose ground, giving resources and commodities comparative appeal. However, the poor performances of international markets are suggesting that any downbeat economic data is still breaching confidence in investing circles. By midday the All Share was 0.95% up.

    The rand lost ground in the early session this morning on the back of collapsed merger-talks between MTN and Bharti Airtel. The end of negotiations removed hopes of large capital inflows and whilst losses were pared somewhat overnight, analysts expect the rand to remain on the backfoot. At midday, a dollar cost R7.66.

    The oil price fell just below $70 per barrel in eastern markets overnight. Data indicating a rise in US crude oil supplies and distillate stocks signals weak demand, especially when viewed concurrently with economic data such as the fall in Midwestern business activity. The price correction was moderated though by the weaker dollar, which left oil comparatively cheaper for buyers using other currencies. By midday, a barrel of Brent Crude traded for $68.13 locally.

    International Markets

    Stocks in the US slid further on Wednesday after an unexpected decline in Midwest business activity, as measured by the index Chicago PMI. Some of the biggest losers were the previous quarter’s best performers, including industrials, banks and materials. The figures which point towards a contraction in the regional economy sent waves of caution through the market although losses were mitigated by the buying of technology bellwether stocks like Cisco Systems Inc. By close, the Dow Jones had given up 0.31% whilst the Nasdaq fell 0.08%.

    The stock index in Japan hit its lowest close in two months this morning. A stronger yen impaired exporters’ appeal whilst uncertainty over the new government’s policies dampened investor confidence. Banking stocks suffered again under the renewed suggestion from financial services minister that a moratorium was being introduced on the repayment of the principal on mortgages and bank loans to smaller businesses. The Nikkei began the second half of Japan’s fiscal year on a weak note. By close, it had lost 1.53%.

    The Hang Seng was closed overnight as China and Hong Kong enjoyed a national holiday.
    Shares in London climbed higher during the early session today. Energy stocks countered weakness from banks and miners as crude oil prices hovered around $70 per barrel. Traders remain fairly upbeat following a solid quarterly performance that ended on Wednesday. Miners reflected volatile trade interest as some traders booked profits from previous sessions whilst others rose on the back of firmer metals prices and strong data from China, the largest commodities consumer. By midday, the FTSE 100 was trading 0.15% up.

    Share Price News

    After releasing encouraging interim results, York Timber Organisation Ltd of the Forestry sector was among the morning’s most voluminous gainers. This is a good achievement in a session buoyed by resources and commodities. It gained 8.05% to sell for R4.70 per share at midday. Also performing well was Protech Khuthele Holdings Ltd of the Other Construction sector. It improved by 6.80% to trade for R1.10 per share at noon.

    Among the losing stocks was Eqstra Holdings Ltd of the Diversified Industrials sector. At midday, a share traded for R7.00 (a 3.98% loss). Of the Farming and Fishing sector, Astral Foods also lost ground. At midday, it had shed 3.17% to sell for R100.69 per share.

    Permalink2009-10-01, 12:51:04, by Grant Leyland Email , Leave a comment