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

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    Sell in May - an update

    On the 3 May I penned an article titled Sell in May and go away – it’s a long standing adage, which while not always holding true, unfortunately held very true this May.

    US shares tumbled on Friday and with Monday a holiday in the US, the negative performance is the worst in 70 years for the Dow Jones Industrial average index –

    The Dow Jones – an index of 30 of the top US companies – lost 7,9% for the month, which is its worst month since February 2009 and its worst May since 1940, when it fell 21,7%.

    The technology laden Nasdaq index lost 8,3%

    The broader based S&P500 fell 8,2%

    As investors panicked in May, once again we saw the standard “risk aversion” trade of selling equities and buying bonds. As money demanded US government bonds, especially in the Euro bond and currency crisis, the yield on the 10 year government bond fell from 3,7% to 3,07%

    Falling yields on bonds are positive for owners of bonds. In many respects then, while there is little absolute value in global sovereign bonds, they have acted as a type of insurance policy in times of risk aversion.

    Bloomberg reports that concerns surrounding the European debt crisis may have wiped off a total of $4 trillion from global equity markets in May.

    Dow Jones

    The chart above indicates the increase in market volatility of the Dow in May compared to the previous month.
    Some global markets have fallen sharply now, especially when calculated in US dollar terms. The Paris CAC index is off 23,2%, the FTSE100 index is down 14% and the Frankfurt Dax is down 14,2%

    Even the Australia All Ordinaries is down 13,5% in US dollar terms to end of Friday.

    Local Market

    In relative terms, the JSE has held up well, but still in absolute terms after the fall out in May, it is down around 1,9% for the year to date.

    The JSE fell 0,2% on the last day of the month, bringing the loss for the JSE All Share index to just over 5%.

    Gold in US dollar terms was also somewhat of an insurance policy against volatile currency and global equities. It is up 3% in dollar terms.

    The rand fell in the month to over R8 to the dollar at one stage before recovering to its current R7,66/dollar level from around 7,37 at the beginning of May.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-31, 17:31:02, by ian Email , Leave a comment

    JSE edges lower at midday

    Local markets

    The JSE was 0.06% lower at noon on the last Monday of May, overcoming earlier gains in oil and gas shares, which rose on higher commodity prices.

    The rand had stabilized at around R7.67 to the US dollar at 12:00, with not much more action expected due to the closure of UK and US markets for public holidays.

    Gold was selling higher by 0.48% at $1 212.85 an ounce, as concern over Europe's debt problems increased on news of Spain's credit rating downgrade, sending investors to seek safe haven assets.

    International markets

    On Friday, the Dow Jones closed 1.19% lower, and the Nasdaq lost 0.91%, ending their worst month in more than a year, after a downgrade of Spain's credit rating revived concern about euro-zone debt problems.

    Japan’s Nikkei edged up 0.06% this morning, as losses were offset by gains in exporter shares, which were supported by a falling yen-dollar exchange rate.

    Hong Kong’s Hang Seng dipped 0.01%, to publish its biggest monthly loss since January. Losses were led by property stocks as a government move to tighten up on real estate speculation worried investors.

    Britain’s FTSE 100 was closed today for a public holiday.

    Share price news

    In the computer hardware sector, Pinnacle Technology Holdings Limited (share code: PNC) rose 2.66% to R4.25 a share at midday, after 129 490 shares were traded in 11 deals.

    Compagnie Fin Richemont (CFR) in the clothing and footwear sector gained 1.24% to trade at R25.35 a share, after investors exchanged 1 589 224 shares in 258 deals.

    Losing 5.98% to sell at R1.10 a share was Rolfes Technology Holdings (RLF), after investors traded 24 010 shares in 1 deal.

    Raubex Group Limited (RBX) in the construction sector fell 2.50% to R21.05 a share, after 25 deals traded 48 141 shares by midday.

    Permalink2010-05-31, 12:22:58, by Natalie Email , Leave a comment

    Presentation of data

    Often after a strong market performance, like we saw to the end of April – one starts to see mutual funds promoting their strong recent performances. Promotion of selective data may be historically accurate, but it’s the selectivity of the presentation that investors should look out for.

    Often the way information is presented essentially amounts to a lie, lulling gullible investors with implied promises that superior performance will continue. Institutional marketing teams know that the required “risk warning” that past performance is not necessarily indicative of future results, is generally ignored – much like the health warnings on a packet of cigarettes.

    An article in the Skilled Investor, set out some common deceptions used in an article titled, “How to lie with statistics”

    • A common one is to promote only the winners. Many institutions that advertise their fund performance have the luxury (or design) of being able to select from multiple funds. The more funds they manage, the greater the probability of winners.

    • Easy index benchmarking. When presenting historical data, many times the benchmarks are changed. Investors should spend some time understanding and assessing the appropriateness of the benchmark.

    • Cumulative performance charts. Visually, a cumulative historical chart is difficult to interpret, especially when going back more than say 3 years. Where the latest value is higher than the benchmark, investors will often mistake this for consistent part outperformance.

    Just as we understand that when investing into a company, past performance is not a good indicator of future performance, when it comes to investing into funds it is important to dig deeper than just the historical numbers.

    Some of the important aspects that we look at when selecting funds and fund managers include:

    • Stability and history of the asset management company.
    • Shareholding of the fund managers in the asset management company.
    • The investment philosophy adopted and proof of this philosophy flowing through to security selection
    • The investment process followed by the fund manager.
    • The quality of the asset management company’s investment professionals.
    • Quantitative factors, including
    o Past performance
    o Rolling 3, 12 month performance
    o Drawdown analysis
    o Etc

    With that I wish you a fantastic weekend – and may the Stormers bring back the trophy!


    Ian de Lange
    021 9144 966

    Permalink2010-05-28, 16:44:33, by ian Email , Leave a comment

    JSE down after rand strength weighs on gold miners

    Local markets

    Just before 2.30pm on Friday, the JSE All Share had lost 0.22% as a stronger rand weighed on gold mining shares.

    The rand was trading at R7.60, stabilizing into a range against the dollar as the euro consolidated recent moves.

    Oil had risen 2.47% to $74.80 at noon, after global stock markets rallied and news that analysts expect increasing demand for oil in the US.

    International markets

    Yesterday the Dow Jones rose 2.85% and the Nasdaq gained 3.73% after strong earnings were announced, which saw investors shrug off disappointing economic data.

    In Japan, the Nikkei average climbed 1.28% as exporter shares rose on a weakening yen, but further gains were limited by profit taking.

    The Hang Seng lifted 1.73% in line with US markets, boosting financial and exporter stocks, while energy shares gained on higher crude prices.

    Britain's FTSE 100 was 0.73% higher, though gains in retailers were somewhat offset by losses in oil major BP, whose oil leak in the Gulf of Mexico is costing almost $1 billion.

    Share price news

    Once again in the news, Simmer and Jack Mines (SIM) had gained 3.33% to sell at R1.24 a share, after 172 deals saw the trade of 22 729 770 shares.

    Old Mutual PLC (OML) rose 0.79% to R12.73, after 3 107 174 shares were exchanged in 583 deals.

    Losing 1.33%, Compagnie Fin Richemont (CFR) fell to R25.31 after 1 434 deals totaling 8 898 969 shares.

    Firstrand Limited (FSR) fell 0.61% to R19.58, after investors exchanged 5 718 646 shares in 1 568 deals.

    Permalink2010-05-28, 15:46:59, by Natalie Email , Leave a comment

    The R3,5 million estate duty abatement

    The 2009 Taxation Laws Amendment bill introduced an amendment to the once off estate duty abatement of R3,5 million per person. For some who have set up structures to take into account the older legislation it will mean revisiting and if necessary simplifying.

    Until the change, the law provided an abatement of R3,5 million per person, but if not used was forfeited. What this meant was that where a husband bequeathed his estate to his wife (and vice versa), making use of the estate duty exemption between spouses, only on the death of the “second dying spouse” would the R3,5 million be available as offset against the now combined estate.

    In order to avoid forfeiting, many wills were structured so that each spouse first bequeathed an amount equal to this abatement to a trust and the balance to the spouse. This ensured that the tax free R3,5 million was captured for each spouse. The creation and administration of a trust can be costly especially where a total estate is valued less than say R10m.

    The changes to the estate duty now obviate this and simplify the planning that is necessary.

    The section 4A of the estate Duty Act now caters for “portability” of the abatement between spouses. With effect from 1 January, where the first dying spouse does not utilise any or the full R3,5 million, the unutilised portion rolls over to the second spouse and his added to that persons R3,5 to a maximum of the R7 million.

    Therefore where the first dying spouse, merely bequeaths the entire estate to the surviving spouse, then the full R7 million is available as an abatement for the second dying.

    While the changes make things simpler, this does not necessarily mean throwing out the use of trusts. Consider these 2 considerations.

    • The second dying spouse may still live many years after the death of the first and so while the R3,5m is now not forfeited, the growth on this value will be. Bequeathing to a trust will capture the growth in a trust and avoid the 20% estate duty.

    • A trust has other advantages including asset protection and the holding of assets for minor children.

    There is no doubt that this change is advantageous. It may be the first step in the process of overhauling the Estate Duty Act.

    This recent change should prompt everyone that has not looked at their wills and trusts for some time, to do so. This must be done in conjunction with investment planning and appropriate levels of risk cover.

    Note to Financial Advisors

    For those financial advisors that would like to forge a close and mutually beneficial link up with Seed Investments, with regard to the management of client portfolios, contact us for further discussions. Phone or mail Vincent on vincent@seedinvestments.co.za or 021 9144 966

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-27, 18:48:33, by ian Email , Leave a comment

    Rising metal prices boost commodity shares, JSE gains

    Local markets

    At midday on Thursday, the JSE All Share had risen 0.97% after strong gains in the basic materials sector on higher metal prices, which served to offset losses in gold mining shares.

    The rand was selling at R7.64 per US dollar at noon, initially following the euro which gained against the dollar.

    Brent crude oil cost $72.30 a barrel at 12:00, up 3.29% in line gains on Asian and European markets, and supported by yesterday’s official oil data from the US which indicated an increase in fuel demand.

    International markets

    US markets fell yesterday, with the Dow Jones closing 0.69% lower and the Nasdaq losing 0.68%. Investors became cautious near the end of the session as reports suggested China was re-evaluating its euro-zone debt holdings.

    Japan’s Nikkei rose 1.23% this morning, recovering after the average hit a six-month low as exporters were hurt by a stronger yen and falls on Wall Street.

    Hong Kong’s Hang Seng finished 1.22% higher on bargain hunting as investors bought up battered technology and bank shares.

    The FTSE 100 was 1.63% up at midday, after gains in commodity and bank shares lifted the British bourse, and investors momentarily forgot their euro zone debt worries.

    Share price news

    Gaining for a second consecutive day, Northam Platinum Limited (NHM) rose to R46.95 a share, up 6.10% as 299 035 shares were traded in 368 deals by noon.

    BHP Billiton PLC (BIL) climbed 3.57% to R215.25, after 2 167 167 shares were exchanged in 1 510 deals.

    After 48 deals that exchanged 535 252 shares, Simmer and Jack Mines Limited (SIM) fell 4% to R1.20 a share.

    MTN Group Limited (MTN) lost 2.50% as investors traded 3 420 292 shares in 2 135 deals, sending the share price sliding to R107.25.

    Permalink2010-05-27, 12:28:40, by Natalie Email , Leave a comment

    Administered Price Pressure

    The latest CPI figures were released today by Stats SA, for the period ended 30 April 2010. Headline inflation came in at 4.8%, which is the lowest in around 4 years, and lower than the forecasted 5.0%. The data released by Stats SA contains a wealth of information, not just the headline inflation number that gets widely reported. There are therefore many ways to slice and dice this data depending on what you are looking for.

    This month we will take a closer look at the inflation rate of administered prices, and how it has changed when compared to the overall inflation rate. Administered prices are defined on the Stats SA website as, “An administered price is defined as the price of a product which is set consciously by an individual producer or group of producers and/or any price which can be determined or influenced by government, either directly or through a government agency/institution without reference to market forces. Products and services included are assessment rates, sanitary fees, refuse removal, water, electricity, paraffin, petrol, public transport – trains, motor licences, motor registration, telephone fees, postage, cell calls, television licence, school fees, university/technicons/colleges and university boarding fees.”

    This definition essentially encompasses those prices regulated by government, whether the good/service is provided by government – like refuse removal or water – or by other entities in which the government exercises pricing control to a greater or lesser extent – like petrol or university fees.

    Below is a chart comparing the inflation rate for administered prices (both regulated and unregulated goods and services) over 3 years, taken at 6 month intervals, compared to the headline CPI rate. As at the end of April 2010, administered prices accounted for nearly 15% of the total inflation basket.

    It is interesting to note that over this period the regulated CPI has been higher than overall inflation in all periods accept for 2009. Much of this can be attributed to the high petrol and energy costs over this period, in particular the petrol price raced up in 2008 as the price of a barrel of oil neared $150 in June 2008. The subsequent crash of the price into the $30 - $40 range is reflected in the 2009 numbers.

    While the price of fuel gets a large part of the blame, other items in this basket have been growing at rates higher than the average rate of inflation including items like rates, water, electricity, and motor licensing and registration. The income from these goods and services falls into various government coffers, and is one way for government to increase revenue in tough economic times without having to raise tax rates on more headline items like income or VAT.

    In a country that has an element of inflation targeting in monetary policy, government needs to be wary that they don’t inadvertently fuel the inflation rate further by consistently increasing prices at a rate that is higher than the maximum targeted inflation rate (6%). They need to delicately balance the conflicting needs of income maximisation and price stability.

    With headline inflation approaching the midpoint of its target range there is potentially scope for the MPC to drop rates further at their next meeting. With the committee setting policy on 12 – 18 month forecasts, it is unlikely that they will drop rates again.

    Take care,

    Mike Browne
    021 9144 966

    Permalink2010-05-26, 17:19:39, by Mike Email , Leave a comment

    JSE tracks Asian markets higher

    Local markets

    At midday on Wednesday, the JSE All Share had risen 1.99%, with gains across the board, led by basic materials shares.

    The local bourse followed positive closes on Asian markets.

    The rand was trading lower at R7.82 to the US dollar, following a weakening euro amid rising global risk aversion.

    Gold climbed 0.87% to sell at $1 212.48 an ounce at noon, as investors continued to seek safe havens from growing European debt concerns and increasing conflict on the Korean peninsula.

    International markets

    US markets fell yesterday, with the Dow Jones sliding 0.23% and the Nasdaq losing 0.12%.

    The effect of euro zone debt worries was limited by some bargain hunting as investors saw stocks drop to six-month lows.

    The Nikkei closed 0.66% higher this morning, as Japanese exporter stocks rose on bargain hunting, after the index fell to a six-month closing low on Tuesday.

    Hong Kong shares gained 1.11%, despite predictions that investors would sell off riskier assets on concern over Europe’s financial system.

    Britain's FTSE 100 had risen 1.68% by midday, rebounding on bargain hunting by investors, which saw gains in beaten-down banks and mining shares.

    Share price news

    Engineering firm Invicta Holdings Limited (IVT) rose 4.73% to R28.80 a share at noon, with traders exchanging 182 869 shares in 24 deals.

    Gaining 4.82% was Northam Platinum Limited (NHM), whose shares climbed to R45.20 each after 550 deals traded 580 200 shares.

    In the insurance brokers sector, Glenrand MIB Limited (GMB) fell 6.36% to R1.03 a share, after 3 deals saw the exchange of 145 625 shares by noon.

    After 39 deals of 520 101 shares, Allied Electronics Corporation Limited (ATN) dropped 0.59% to trade at R25.25 a share.

    Permalink2010-05-26, 12:59:12, by Natalie Email , Leave a comment

    More on living annuities

    The Association of Savings and Investments (ASISA) recently issued a new standard on living annuities with an objective to try and ensure that living annuities are responsibly marketed and administered by the various life companies. Ultimately they want the investors into these products to be made fully aware of the risks.

    Yesterday we looked at the most important issue, which is the level of drawdown.

    Investors must also remember the following 2 facts about living annuities:

    The fact that living annuities whether issued in the form of a long term insurance policy or by a retirement annuity fund, can be transferred from one insurer to another at the request of the client.

    The fact that a living annuity (or sometimes a portion of the living annuity) can be converted to a conventional life annuity. This will always be a once off decision because once funds are fixed in a conventional life annuity then this cannot be reversed. The time to fix would be when interest rates are running high in nominal and real terms.

    The 3 other points that Asisa wants insurance companies to highlight are the following:

    • Investors should be notified at inception and regularly as to the appropriateness of their investment strategy within the living annuity. Investors should be reminded that if there is too high a proportion of risky assets then there is a risk of losing capital while too low a proportion of risky assets means that the returns may be too low to sustain income into the future.

    • Insurance companies are being requested to communicate the actual asset composition of the living annuity on an annual basis in order for the client and financial advisor to assess and make necessary changes.

    • Insurance members of Asisa are required to provide a report back to Asisa on an annual basis. The report will be a summary of all living annuities underwritten detailing age profiles and drawdown bands. In addition to this information Asisa is looking for the size of living annuity funds, number of policies, gross flows average income drawdown across all funds under administration etc.

    While Asisa is an industry body, there is a risk that regulators tighten up in future on the issuing of living annuities, which provide an excellent vehicle for retirement capital, especially when used in conjunction with discretionary investments.

    For Seed clients, we provide a monthly summarised report back of all investments including living annuity investments. This includes a detailed and accurate summary of the exact asset allocation of funds and overall investment performance across various time periods. If this is the type of report that you are looking for from your investment advisor and manager, please don’t hesitate to contact Vincent on Vincent@seedinvestments.co.za or telephone number below.

    If you have any other questions on your living annuity or would like to have a comprehensive retirement plan drawn up, please don’t hesitate to contact us.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-25, 17:35:52, by ian Email , Leave a comment

    Renewed euro zone jitters see global markets slide

    Local markets

    Just after midday, the JSE All Share had fallen 3.05%, with losses in the industrial sector leading the local bourse downwards.

    The rand was selling at R7.98, losing ground against the US dollar as traders opted to remain cautious in light of unsolved debt problems in the euro zone.

    Gold cost $1 186.78 an ounce, losing 0.4% around midday, while platinum fell 2.84% to sell at $1480.70, as the precious metals retreated on revived European debt concerns.

    International markets

    Yesterday on US markets, the Dow Jones lost 1.24% while the Nasdaq slipped 0.69% as European banks looked worse for wear, weighing on sentiment.

    The Japanese Nikkei index tumbled 3.06% to hit a five-month closing low, on worries that Europe's debt problems now extended to include the health of some banks.

    Hong Kong’s Hang Seng dropped 3.47% as investors sold off risky assets on fears for the health of the European financial system.

    Britain's FTSE 100 had lost 2.79% by noon SA time, with losses in commodity and bank shares on increasing concern over the fiscal state of the euro zone.

    Share price news

    At 12:20, ABE Construction Chemicals Limited (ABE) was selling at R1.85 a share, up 12.12% after investors traded 2 020 000 shares in 79 deals.

    Wesizwe Platnum Limited (WEZ) rose 2.73% to R2.26, after 94 deals exchanged 880 250 shares.

    After 1 074 deals of 8 487 149 shares, Compagnie Fin Richemont (CFR) fell 5.89% to R24.46.

    Standard Bank Group Limited (SBK) lost 4.06% after 1 288 deals traded 1 430 916 shares, sending the share price down to R104.80.

    Permalink2010-05-25, 12:44:30, by Natalie Email , Leave a comment

    Living Annuities

    The Association of Savings and Investments (ASISA) recently issued a new standard on living annuities with an objective to try and ensure that living annuities are responsibly marketed and administered by the various life companies. Ultimately they want the investors into these products to be made fully aware of the risks.

    A living annuity is a type of annuity purchased from a life insurance company, where the income (or annuity) is not guaranteed as with a typical annuity, but is dependent both on the absolute size and performance of the underlying investments.

    Prior to the introduction of living annuities, some 22 years ago, monies held in pension and provident funds had to be invested in compulsory life annuities at retirement. With these annuities both the investment and mortality risk was assumed by the life company in return for a predefined annuity for life.

    Living annuities differ dramatically from these old style annuities in that the investor at retirement continues to assume the investment and mortality risk in full. In return he controls the underlying investment selection, annuity level and the ownership of the remaining balance on death forms part of his estate. An income level is fixed annually, so that income over the annuitant’s lifetime is dependent on the length of that lifespan, the drawdown rates and the actual investment performance.

    Because the investor or annuitant takes on the risks, there is no guarantee from the life company that funds will be available to provide an income for life. In many instances because of selecting a drawdown level that is too high and because of sustained poor performance, the capital value can be depleted, reducing the annuity in real terms.

    Because of this risk, Asisa wants to ensure that participating insurers act in a responsible way when selling and structuring these living annuities so as to mitigate the risk of the capital value of living annuities being exhausted during the lifetime of the annuitant.

    They have put forward 4 standards. I will cover the first and most important one today and the others in the week.

    Running various scenario numbers through a model over and over again gives a clear indication that the critical determinant of the sustainability of a lump sum is the draw down level. While performance is naturally also very important, because of the compounding effect working in reverse when it comes to drawing down on a lump sum, setting the annual percentage drawdown for the living annuity is crucial.

    Currently living annuities allow the annuitant to annually select a drawdown level of between 2,5% and 17,5%.

    Asisa wants life companies to send out annual information to investors in these annuities setting out the importance of selecting the appropriate income level.

    They have also recommended including a table similar to below highlighting the relation between the drawdown and the investment performance on the sustainability of the portfolio.

    A few points to note

    • Tax is an important consideration especially where investors have a combination of living annuities and investments directly in their own names. It is important to optimise the tax planning across all investments. Income received into the annuity is tax free, but the annuity itself is taxable as income.

    • Drawdown analysis must not only be done on the living annuities, but a comprehensive plan down on an investor’s total investment base, where again often a living annuity is but just one component.

    • Asset allocation modelling is also important to consider across an investors total portfolio.

    If you have any questions on your living annuity or would like to have a comprehensive retirement plan drawn up, please don’t hesitate to contact us.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-24, 17:06:04, by ian Email , Leave a comment

    JSE rises, tracking gains on global markets

    Local markets

    Just before midday on Monday, the JSE All Share had risen 1.13%, led by gains in industrial and financial stocks, and following movements on global markets.

    The rand strengthened slightly against the US dollar, trading at R7.85 as a result of growing risk appetite.

    Brent crude was selling at $70.76 a barrel at noon, rising 1.09% to recover some of last week's losses. However, investor sentiment continues to be fairly pessimistic, which could affect prices.

    International markets

    The Dow Jones climbed 1.25% on Friday, while the Nasdaq rose 1.14% as investors bought up bargains such as bank shares, after talk that the financial regulation bill won't burden the US economy as much as feared.

    Japan's Nikkei fell 0.27% this morning, continuing last week’s losses after the yen strengthened and investors were pessimistic about world economic growth.

    China’s Shanghai index soared 3.48% on hopes that Beijing may ease on future tightening measures, which sent Chinese property developers higher.

    Britain's FTSE 100 had lifted 0.14% just before noon, recovering slightly after falls in energy and bank shares.

    Share price news

    Wesizwe Platinum Limited (WEZ) rose 10% to R2.20, after investors traded 234 810 shares in 39 deals.

    Paper producer Sappi Limited (SAP) rose to R27.66 a share, after more than 200 deals traded 409 269 shares, sending the share price up 3.02%.

    After 21 deals totaling 3 032 814 shares, Coronation Fund Managers Limited (CML) fell 4.29% to R10.70.

    Metorex Limited (MTX) lost 2.29% as shares fell to R3.41, after 660 559 shares were exchanged in 79 deals.

    Permalink2010-05-24, 12:18:08, by Natalie Email , Leave a comment

    Markets continue to remain under pressure

    The 2008 financial crisis was essentially a private sector credit crisis – i.e. bank debt to the private sector, a collapse in housing prices which had underpinned much of the debt. The issue facing the world now is the high levels of public or government sector debt.

    Asset prices have come under immediate pressure as perception of risk has increased.

    This is clearly represented in the major indices of the world, one of which is the Standard and Poor 500 which tracks the price performance of the top 500 US companies.

    The US S&P500 index which had escalated from a low of 666 on the 6 March 2009, and gaining 80% to over 1200, fell 3,9% on Thursday which was its biggest one day fall in 13 months.

    The index is now off around 12% from its peak and down 3,8% for the year to date.

    Importantly the 200 day moving average price was breached and this is a signal that is closely watched.

    This type of decline just puts into perspective the importance of capital preservation in a total portfolio.

    While not describing himself as bearish, the founder of successful US investment firm Oaktree Capital, Howard Marks, was asked in an interview in the latest Fortune, what worried him?

    He answered

    No 1 that the economy is highly reliant on the government stimulus programs. What happens when they’re withdrawn?

    No 2, the economy is reliant on artificially low interest rates. What happens when they rise to normal levels?

    No 3, there are still a lot of problems to be worked out in commercial real estate and a lot of banks still hold a lot of commercial mortgages.

    No 4, the main source of energy in the economy over the prior 20 years has been the consumer, who did his part by spending more money than he made. Where does growth come from in the next five years if the consumer does not go back to doing so?

    For local investors the rand has acted as a type of shock absorber for those investors that value their foreign exposure back into rands.

    The rand declined to around the R8/dollar level. It is currently at R7,90/dollar, R11,36/pound and R9,91/euro.

    Have a fantastic weekend


    Ian de Lange
    021 9144 966

    Permalink2010-05-21, 16:54:40, by ian Email , Leave a comment

    Disagreement on how to solve Europe’s debt crisis sends global markets tumbling

    Local markets

    Friday noon saw the JSE All Share up 0.41%, though analysts expect the local bourse to follow international markets lower due to negative sentiment.

    Basic materials shares led gains, and alongside other sectors offset losses in gold mining and industrial stocks.

    The rand was trading at R7.89 to the US dollar at midday, falling from its R8 overnight level.

    Oil cost $70.86 a barrel, recovering 2.70% at 12:00 after earlier falls on concerns that European debt problems could hamper world economic growth and impact negatively on energy demand.

    International markets

    Yesterday, the Dow Jones tumbled 3.60% and the Nasdaq plunged 4.11% as european debt fears escalated. Analysts worry that bailout efforts will not be sufficient to prevent damage to global economic recovery.

    Japan's Nikkei dived 2.45% this morning, sustaining its heaviest weekly loss in over a year, as investors sold off riskier assets in light of news of disagreement on how to solve the euro zone debt crisis.

    The Hang Seng was closed for a public holiday.

    Britain's FTSE 100 had fallen 0.24% by midday SA time, losing for a third successive session on growing fears about Europe’s sovereign debt crisis and concern for the possible impact of stricter financial regulations on economic growth. Bank and oil shares were leading losses.

    Share price news

    BHP Billiton (BIL) rose 2.37% to R206 a share at noon, after 2 619 227 shares were sold in 1 977 deals.

    Anglo American PLC (AGL) gained 2.17% after 2 966 857 shares were traded in 3 011 deals, to sell at R279.30 a share.

    Gold One International (GDO) fell 4.76% to R1.80 a share, after investors exchanged 635 339 shares in 23 deals.

    After 6 deals totaling 1 018 000 shares, Peregrine Holdings Limited (PGR) fell to R11.95 a share, a loss of 4.40%.

    Permalink2010-05-21, 12:57:56, by Natalie Email , Leave a comment

    The Definition of Risk

    One of the Daily Equity Report’s readers recently posed an extremely relevant question to the Daily Equity Report on Risk Appetite last week (click here). Paraphrasing his email,

    “…when you talk about risk and the market commentators refer to the overseas investors being either risk averse or prepared to take on risk, I feel that the word risk is becoming a buzzword and the man in the street needs to be informed what the word really means for him.
    I feel that investing in fixed interest bonds contains a degree of risk as opposed to the general implication that investing in shares represents an investment that represents risk.
    Are there measures that are used in today’s climate to classify/quantify or give more meaning to the word risk?”

    Risk is a word that is often bandied about, and it is important to understand the context within which it is used to decide whether it is relevant to you. Let’s take a look at some of the definitions of risk:

    Risk = Volatility
    This is typically the most common meaning of risk. If the price of an asset is volatile then it will be described as risky. As your time horizon increases, so the volatility of an asset class typically decreases, and this risk diminishes.

    Risk = Not Reaching Retirement Targets
    Over the long term the risk of not meeting your retirement targets is possibly the biggest investment risk that you face. The irony here is that you need to take a certain amount of risk over the shorter term (i.e. invest into volatile assets) in order to reduce the risk of not being able to retire comfortably over the longer term.

    Operational Risk versus Investment Risk
    Investment risk can simply be defined as the risk that the assets purchased don’t perform in line with expectations. Operational risk, on the other hand, is the risk associated with the product or product provider. While the outcome of investment risk is typically in shades of grey (i.e. performance might not be great, but you do get a small return) operational risk is often a binary event (i.e. your entire capital investment is subject to operational risk). It is therefore imperative that your investment is in an operationally sound vehicle and with a reputable manager.

    Risk = Permanent Loss of Capital
    When talking and thinking about risk, Seed defines risk as the risk of permanently losing capital. This permanent loss can stem from buying assets that trade far above their value, by investing in vehicles that aren’t operationally sound, or investing with dishonest managers. Seed seeks to minimise these risks as far as possible.

    Change in Risk
    The changes to your risk profile are predominantly dictated by the changes in your personal circumstances. This is the case both for individual investors and corporate operations alike.

    Ultimately investing is about taking risks, some of the different risks have been described above. Investors should remember that when taking any risk there should be a comparable potential reward for taking on that specific risk.

    Take care,

    Mike Browne
    021 9144 966

    Permalink2010-05-20, 15:33:55, by Mike Email , Leave a comment

    JSE down at noon, lacking direction

    Local markets

    At midday on Thursday, the JSE All Share had slipped 0.68%, with losses almost across the board, except for gold mining shares. Mixed global equities failed to give the local bourse any definite direction.

    12:00 saw the rand trading at R7.82 to the US dollar, once again following movements of the euro amidst mixed international markets.

    Gold had fallen 0.73% to $1 186.30 an ounce, despite the world's largest gold-backed ETF recent rise to its highest level ever, after investors sought a safe haven amid market uncertainty.

    International markets

    The Dow Jones fell 0.63% and the Nasdaq dropped 0.82% yesterday, after investors were spooked by Germany's ban on short selling of some stocks and bonds and became increasingly risk averse.

    Japan's Nikkei lost 1.54% this morning, falling to its lowest level in over three months as the euro's retreat from a recovery spurred selling of exporter shares.

    Hong Kong’s Hang Seng closed 0.17% lower, as investor concern over European debt issues weighed on European-linked shares such as HSBC.

    Britain's FTSE 100 had inched up 0.37% after gains in bank shares led a recovery after yesterday’s losses, lifted by news of improving debt problems in Dubai.

    Share price news

    Vehicle distributors Combined Motor Holdings Limited (CMH) rose 1.98% to R10.30 a share, after investors traded 358 060 shares in 7 deals.

    The Spar Group Limited (SPP) climbed 1.48% to sell at R76.66 a share, after 175 deals traded 121 681 shares by midday.

    After 1 227 deals of 1 624 023 shares, SABMiller PLC (SAB) fell 5.16% to R216.66 a share, after the company announced the composition of board committees this morning.

    In the construction sector, Esorfranki Limited (ESR) dropped to R3.01 a share, a loss of 5.94% as investors exchanged 132 058 shares in 27 deals.

    Permalink2010-05-20, 12:34:36, by Natalie Email , Leave a comment

    The bond yield curve

    The Bond Exchange of South Africa, now part of the JSE, produce a daily yield curve, which is a plot of the yield of a bond and its maturity date

    This is the plot of all bonds from short dated to longer dated bonds. The curve is a best fit curve using a combination of actual bond yields for as many of the plots as possible and then mathematical formula to determine the “missing” plots.

    Source: Bond Exchange of South Africa

    Currently the bond curve is a normal upward sloping curve – i.e. positive and not inverted. As the lending term extends from up to a year, to 3,5,10 years, the interest rate escalates from 6,294% to 8,754%. Thereafter there is diminishing marginal increases – i.e. a flattening out - for the period to 30 years where the yield is 8,9%.

    The main argument for an upward sloping curve is that longer maturities entail greater risk for the investor (i.e. the lender)and so lenders require a risk premium. The economy faces greater uncertainty 30 years from now as opposed to 5 years from now.

    The yield curve is also influenced by supply and demand criteria.

    The SA government, like most around the world is facing higher debt levels and on Monday the national Treasury announced the listing of 4 new longer dated government bonds. We know from the budget for the next few years, that government has and will continue to step up its borrowing requirements and these new bonds are part of this programme.

    The government is taking advantage of the strong appetite for bonds by borrowing long by issuing the R213 which will be redeemable on the 28 February 2031 and the R214, which is redeemable on the 27 February 2041.

    In addition to these bonds, the government is also going to be issuing 2 new inflation linked bonds maturing in 2017 and 2022.

    Bond performance

    Despite, or perhaps because of the nervousness of global markets over the last month, bonds have done well. Up until the 18 May the All Bond has given investors a total return of 4,91%, while the JSE as a whole is now slightly negative.

    Bonds have done surprising well. Looking at the year to end of April, the JSE All Share index was up 4,4% and the All bond index 5,8%.

    This has also been the case on two year basis where the All Bond produced 12,7% versus the -0,6% for the All Share. On a three year period bonds have produced a 7,4% return versus 3,4% for the JSE.

    Today foreigners sold out, leaving the rand weaker and bond yields higher. Global markets remain on edge.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-19, 17:45:25, by ian Email , Leave a comment

    Negative global sentiment drives markets down

    Local markets

    At midday on Wednesday, the JSE All Share followed Asian and European markets – down 2.05%, with the largest losses in the basic materials sector. International sentiment was negative after Germany banned the short selling of eurozone government bonds.

    The rand was exchanging at R7.78 to the US dollar at 12:00, weakening after the euro fell against the dollar, reaching its lowest level in four years.

    Oil lost 0.23% to sell at $72.83 a barrel, coming under pressure of increasing crude inventories in the US and a move away from riskier assets on worries over tighter financial regulation.

    International markets

    Yesterday, US markets fell, led by losses in bank shares after concern over financial regulation gave way to worries about the health of global economic recovery.

    The Dow Jones dropped 1.08% while the Nasdaq lost 1.57%.

    Japan's Nikkei fell 0.54% this morning to reach its lowest in three months after losses in exporters came as the yen gained against the euro.

    Hong Kong’s Hang Seng finished 1.83% lower as investor sentiment took a hit from Germany's move to increase financial regulation and losses on global markets.

    Britain's FTSE 100 had fallen 2.01% by noon, after Germany limited short-selling and spurred sales of commodity and bank shares.

    Share price news

    Mazor Group Limited (share code: MZR) rose 2.33% to R2.20 at noon, following the sale of 1790 00 shares in 6 deals.

    After investors traded 723 327 shares in 5 deals, Business Connexion group Limited (BCX) gained 0.87% to sell at R5.80 a share.

    Losing 5.95% to sell at R39.50 a share, Pioneer Foods Group Limited (PFG) saw the exchange of 105 555 shares in 48 deals this morning.

    Optimum Coal Holdings Limited (OPT) fell 4.93% to R27, after 36 deals traded 69 358 shares.

    Permalink2010-05-19, 13:36:40, by Natalie Email , Leave a comment

    And the winner is?

    Some of the top investment analyst firms have produced some reports on winners for the World Cup. The quantitative team from JP Morgan produced a 64 page report analyzing the teams, the fixtures, the venues, history etc and then produce the probable winner.

    They do add this rider

    Whilst this report should be taken with a pinch of salt, we find it an interesting exercise and an ideal opportunity to light-heartedly present some simple quantitative techniques within an easy to understand and topical framework.

    Their goal is to highlight potential World Cup winners by applying quantitative/mathematical methodology traditionally used with balance-sheet, valuations and consensus information to data from the football world.

    They do this by looking at a range of inputs including:

    • probabilities to win from a range of bookmakers and exchanges
    • official FIFA World Rankings
    • results from previous World Cup tournaments and qualifying competitions.
    • Trend in FIFA rankings
    • Result expectations
    • Consistency metrics
    • Win ratios

    As a team of quantitative analysts, they have designed a mathematical model over the year typically looking at 4 types of financial information, valuation metrics, market sentiment, company fundamentals and price trends.

    Their view is that because the sporting field is highly numerical with match scores, win /loss ratios, probability to win etc being available, the financial model could be adjusted to the world cup.

    The technical report applied the historical data to a working model and then put the probabilities through the actual fixtures to determine a likely winner.

    And the conclusion:

    While their model pointed towards Brazil as being the strongest team taking part in the world cup, because of the actual fixtures they believe England will be the winner of the 2010 World Cup with Spain second and Netherlands third.

    They also highlighted that the 3 favourites, Brazil, Spain and England offer a combined probability of 52,5% of winning the World Cup.

    The participating countries were scored as follows:

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-18, 17:05:07, by ian Email , Leave a comment

    JSE, global markets flat

    Local markets

    On Tuesday at 12:00, the JSE All Share had edged up 0.16% in line with international markets, despite losses in gold mining and resource shares.

    The rand was trading at R7.53 to the US dollar at midday, staying within a range and looking to the euro for further direction.

    Gold cost $1 214.35 an ounce, falling 1.75% after the precious metal reached a lifetime high last week.

    International markets

    Yesterday the Dow Jones ended flat, up 0.05% while the Nasdaq inched up 0.31%. US markets gained on bargain hunting as investors bought beaten-down shares, temporarily ignoring the euro zone debt crisis.

    Japan's Nikkei closed 0.07% higher this morning, as losses due to short-covering was offset by the yen strengthened against the euro amid euro-zone worries.

    China’s Shanghai index rose 1.36% and Hong Kong’s Hang Seng climbed 1.17% as banking and resource shares led gains, and a recovery in the euro and commodity prices revived risk appetite.

    Britain’s FTSE 100 had edged up 0.5% with energy and mining stocks leading gains, and bank shares rose on increasing risk appetite crept back.

    Share price news

    Gaining 3.31% was Simmer and Jack Mines Limited (SIM), whose shares rose to R1.25 at midday, after 370 337 shares were exchanged in 19 deals.

    Metropolitan Holdings (MET) climbed 2.91% to R16.26, after investors traded 206 077 shares in 55 deals.

    After 189 deals totaling 464 988 shares, Netcare Limited (NTC) fell 2.24% to R13.08 a share by noon.

    Impala Platinum Holdings Limited (IMP) fell 2.14% to R192.53, after 1 557 deals saw the exchange of 648 417 shares.

    Permalink2010-05-18, 12:35:03, by Natalie Email , Leave a comment

    Foreign investors back US assets

    While the world does not necessarily enjoy having just one major currency, the fact remains that capital flows continue to move to the US as the euro has been unable thus far to present itself as a firm competitor.

    US Treasury International Capital (TIC) data reflects capital inflows into and out from US Securities by foreigners. When global markets become nervous the default position has been one of funds flowing back to the US dollar.

    In the month of March net purchases of long term US securities was $157,7 billion. Of this $125 billion was from private investors and $32,7 billion from foreign institutions.

    This was far higher than the previous 3 months where the average net inflow was $56,6 billion.

    Economists had forecast the March inflow to be in the region of $50 billion, but foreigners continue to demonstrate their willingness to back US assets.

    Adjusting for various line items reduces the net long term security transactions to $140,5 billion and when adjusting further by a line item called “change in banks own net dollar denominated liabilities” the monthly net TIC flow reduces to $10,5 billion.

    Owners of US assets

    The US department of treasury has recently released the final results of the annual survey of foreign security holdings of US securities at year end June 2009.

    This measured foreign holdings of US securities to be $9,641 billion, of which $2,2 trillion was held in equities, $6,2 trillion in US long term debt and $1,1 trillion in short term debt.

    This total of $9,6 trillion was down from June 2008 which measured foreign holdings to be $10,3 trillion. Part of the reason would be the decline in asset value to June 2009.

    The table below reports the major foreign holders of US assets.

    China remains the largest foreign holder of US securities according to this report – with almost $1,5 trillion, with Japan coming in a close second.

    By comparison, South Africa – included in rest of the world – owned $10,6 billion in US securities.

    The trend of capital moving to US assets is likely to have continued as Europe’s woes escalated over the last couple of months.

    Today the rand traded at R7,58/dollar, R10,90/pound and R9,33 to the euro.

    The dollar/euro is at $1,223/euro

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-17, 17:39:45, by ian Email , Leave a comment

    JSE tracks international markets lower

    Local markets

    At noon on Monday, the JSE All Share was down 0.4%, weighed on by losses in the oil and gas sector, which had lost 1.19%. The JSE followed negative trends on overseas markets.

    The rand was trading at R7.55 at midday, tracking a softer euro as debt problems continued to haunt Europe.

    Brent crude was selling at $76.46 a barrel, recovering 0.61% after recent losses related to higher US inventories and European debt concerns.

    International markets

    On Friday, the Dow Jones closed 1.51% lower, and the Nasdaq lost 1.98% after poor retail earnings, Senate support for credit card fees limits, and continued anxiety over European debt.

    Japan's Nikkei index finished 2.17% lower this morning on fears that the global economy could suffer more than expected, which saw exporters lose ground.

    Hong Kong’s Hang Seng fell 2.14% in line with US market losses and continued concern for the fiscal problems in the euro zone.

    The FTSE 100 had risen 0.99% just after midday, after BP shares rose on news of progress in containing an oil spill in the Gulf of Mexico, which offset losses in mining and banking shares.

    Share price news

    Vodacom Group Limited (share code: VOD) rose 2.24% to R57.30 at noon, after 812 071 shares were exchanged in 602 deals. Vodacom released positive preliminary results this morning for the last financial year.

    Retailer JD Group Limited (JDG) rose to R41.16 a share, a gain of 2.64% as investors traded 349 677 shares in 256 deals. JD Group also released good results for the six months ended 28 February.

    In the real estate sector, Fountainhead Property Trust (FPT) fell 4.06% to R6.38 a share, after 413 901 shares were traded in 84 deals.

    459 162 shares were exchanged by investors in 368 deals, sending the share price of Capital Shopping Centres Group PLC (CSO) down 2.92% to R36.60 at noon.

    Permalink2010-05-17, 12:44:48, by Natalie Email , Leave a comment

    Rolling 10 year returns

    I came across an interesting chart that looked back at the US market return on a rolling basis. Assessing returns over rolling periods provides a more realistic picture than compounded over multiple years.

    Yesterday we mentioned that there is a low correlation between the growth of an economy as measured by something like GDP – gross domestic product and market returns.

    A factor that has a high correlation is valuations and subsequent returns – irrespective of the economic growth.

    The chart below – in red - reflects a 10 year rolling return of the S&P500. This is in real terms including dividends.

    Source : dshort

    An investor that invested in March 2000 – March 2010 would have received a negative real rate of return of 2,57% per annum compounded. On a cumulative basis this is a negative 24% loss.

    With the market rebounding over the last 12 months, this is an improvement where the 10 year annualised real return fell to a record low 5,93% annualised. i.e. a total loss of 45,7%.

    What is clear from this combination graph of the actual index and 10 year rolling returns is that while the index moves up over time, which is the long term expectation for real assets, investors returns vary dramatically even for periods of up to 10 years.

    What is also very clear is that superior compounded 10 year returns follow poor 10 year compounded returns, and vice versa with a degree of regularity.

    Most investors tend to be backward looking. For this class of investor it tends to go against the grain to invest into a market that has given such a very poor performance over 10 years. But with the benefit of hindsight, there is a high probability that compounded returns over the next 10 years will improve dramatically.

    Have a fantastic weekend

    Kind regards

    Ian de Lange
    021 9144966

    Permalink2010-05-14, 17:01:14, by ian Email , Leave a comment

    JSE down following negative global sentiment

    Local markets

    Friday midday saw the JSE All Share down 1.7%, following negative global sentiment and weighed on by losses in the basic materials sector. Investors awaited international news and US April retail sales data due this afternoon.

    The rand was trading weaker at R7.56 to the US dollar at 12:00, as usual following a weaker euro-dollar exchange rate.

    Brent crude oil was selling at $78.20 a barrel, after US inventories were higher and investors remained concerned that European debt will limit energy demand.

    International markets

    The Dow Jones fell 1.05% yesterday while the tech-heavy Nasdaq lost 1.26%, as pessimistic comments on the economy from Cisco Systems Inc and Kohl's Corp revived doubts of the force of economic recovery.

    Japan's Nikkei gave up 1.49% this morning after losses in exporters such as Canon Inc came after negative commentary on US tech markets.

    In China, the Shanghai index dipped 0.51% after a report that the China Securities Regulatory Commission had not stopped the process of approving initial public offerings.

    Britain's FTSE 100 had slipped 1.51% by noon, as investors continued to worry over euro-zone debt and austerity measures, leading to losses in banking and mining shares.

    Share price news

    Afrimat Limited (share code: AFT) rose 3.03% to R3.40 a share at noon, after 119 000 shares were traded in 15 deals.

    Gold One International Limited (GDO) saw 27 deals exchange 641 420 shares, spurring a 2.69% increase in share price to R1.91 a share.

    Losing 5.66% this morning was Petmin Limited (PET) whose share price fell to R2.50 after 16 deals traded 430 374 shares. Platmin announced the completion of an issuance of new common shares and convertible debentures.

    Impala Platinum Holdings Limited (IMP) fell 3.87% to R197.83, after investors exchanged 402 516 shares in 1 051 deals this morning.

    Permalink2010-05-14, 12:13:53, by Natalie Email , Leave a comment

    Correlation of GDP and market returns

    The monetary policy committee meeting of the SA Reserve Bank left its key repo rate unchanged at 6,5% today. This rate drives prime rates levied by the banks, which remains at 10%.

    They noted that the inflation outlook was looking good with inflation expected to remain within the 3-6% band for at least the rest of 2010 and is expected to fall to a low of 4,7% in the third quarter of 2010.

    As to the country’s growth rate, they expect GDP growth of 2,7% in 2010 and 3,6% in 2011.

    Investors looking at this upward trend in GDP could be mistaken for assuming that this can translate into an improvement of market returns. But although it seems almost counterintuitive, empirical evidence reflects that GDP per capita and stock returns are not correlated over long periods.

    Many studies give evidence that there is very little correlation between a country’s GDP growth and the return on share prices.

    In their Global Investment Returns Yearbook, Dimson, Marsh and Staunton reported that a rapidly growing economy does not necessarily generate commensurate growth in corporate profits, dividends and hence returns to investors. Since 1900, low-growth economies have superior stock market performance. “Historically, buying into equity markets with a high GDP growth rate has given a return that is below the return of markets with a low GDP growth rate.” They conclude that “there is no apparent relationship between equity returns and GDP growth.”

    There are many reasons for this including:

    • GDP is analogous to sales, while stock returns to company profits
    • The stock market does not reflect the full economy
    • Company profits are increasingly being earned on a global basis
    • Estimating GDP itself is not an exact science and the evidence reflects the difficulty that economists have in predicting it
    • Corporate events impact share returns, but don’t necessarily impact on a country’s GDP.

    The chart below of developed market GDP and real returns from 1970 – 2002 gives a clear indication that there is no correlation.

    What this tells us is that while it may be of interest to analyse and make forecasts of country growth, this has very little to no predictive ability for the direction of the market as a whole.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-13, 17:05:48, by ian Email , Leave a comment

    Losses across the board see JSE down at midday

    Local markets

    On Thursday at noon, shares were down across the board, and losses in gold mining and financial shares led the slide. The JSE All Share had fallen 0.39%, retreating after earlier gains inspired by positive global sentiment.

    The rand was selling at R7.50 to the US dollar, weakening slightly in line with a softer euro, but remaining within a range.

    Brent crude oil cost $80.69 a barrel, up 0.86% as stronger equity markets in Asia offset rising crude inventories in the Midwest US.

    International markets

    Yesterday, technology and industrial shares lifted US markets after Spain announced an austerity plan that reassured investors. The Dow Jones gained 1.38% while the Nasdaq climbed 2.09%.

    In Japan, the Nikkei rose 2.18% this morning, after Spain’s austerity plan announcement calmed fears of spreading debt in Europe, and boosted exporter stocks.

    In China, the Shanghai index ended 2.06% higher, while Hong Kong’s Hang Seng closed up 1.04% as investors bought shares in Chinese banks after a recent correction.

    Britain’s FTSE 100 had edged up 0.11% by midday, after gains in commodity shares came after news of European austerity measures raised demand expectations for raw materials.

    Share price news

    In the broadcasting contractors sector, Naspers Limited (share code: NPN) gained 3.12% to sell at R308.85 a share, after investors traded 1 410 573 shares in over 1 300 deals by noon.

    Gaining 3.32% was Dimension Data Holdings Limited (DDT) whose shares sold for R11.52 each after 1 284 235 shares were exchanged in 330 deals.

    KAP International Holdings (KAP) fell 4.17% to R2.30 a share, after 157 573 shares were sold in 4 deals.

    In the building and construction materials sector, Pretoria Port Cement (PPC) slid 3.21% to R33.20 a share, after 857 671 shares were traded in 667 deals.

    Permalink2010-05-13, 12:36:08, by Natalie Email , Leave a comment

    Risk Appetite

    It is extremely important for every investor to understand their appetite for taking on risk when investing. In an ideal world your ability to take on risk would equal your willingness to stomach it. This would result in there being no conflict between your desire and capacity to take risk.

    We all know that no one lives in a perfect world, but at the same time realise that there are ways to reduce the effect that these limitations have on our existence. In a perfect world we would be able to avoid exercising, yet retain the health benefits of leading an active life. We know that this isn’t the case, so therefore need to make the decision to either exercise and remain healthy, or increase the risk of poor health if we decide to remain inactive. There is always a trade off, and importantly there is a spectrum of possibilities.

    Investing is no different.

    Ability to take on risk in a portfolio is predominantly a function of four variables:
    • Current asset size
    • Contributions to retirement
    • Years to retirement
    • Income requirements

    The ability of an investor to take on more risk increases as: their portfolio sizes increases (both current size and future contributions), the number of years to retirement increases, and income requirements in retirement decrease.

    Willingness to stomach risk comes down to an investor’s personality and their life experiences. Here we can have any number of combinations from high net worth investors who want to only make conservative investments, to high net worth investors who want to risk all of their capital. On the other end of the spectrum we have investors who aren’t as well off trying to risk all of there investments on a long shot, while others have been burnt before and therefore never want to take any risk at all.

    As consultants to investors we need to understand these conflicting dynamics and reduce them as far as possible. Education does reduce some of the disparity between a client’s wants (willingness) and needs (ability) but can’t always close the gap. We therefore need to balance the client’s portfolio in such a way that we maximise the actual payoff rather than the expected payoff profile.

    An example here is that where a very conservative client is required to make high risk investments. If we invest into low risk investments we are ensuring that the client doesn’t reach his retirement goals (not maximising expected or actual payoff). If, however, we make the required high risk investments (maximising expected payoff profile) we run the risk that the client withdraws his investment after a period of poor performance, thus locking in the poor returns, and ensuring that he doesn’t reach his goals (not maximising actual payoff). A middle ground would need to be reached in this situation to maximise the client’s actual payoff.

    Ultimately there are ways to improve the actual investment outcome. Better knowledge of the obstacles to your investment destination will enable you to improve your ability to negotiate these obstacles successfully. Investment consultants aim to maximise the probability of your desired outcome being achieved. Investment consultants also understand the difference between theory and practice.

    Take care,

    Mike Browne
    021 9144 966

    Permalink2010-05-12, 18:51:34, by Mike Email , Leave a comment

    JSE climbs as gold hits record highs

    Local markets

    On Wednesday at noon, the JSE All Share had risen 1%, boosted by gains in gold mining and financial shares.

    The rand was trading at R7.49 to the US dollar at midday, remaining range bound following movements of the euro.

    Gold continued to reach record highs this morning, selling at $1 242.40 an ounce by 12:00 as investors were attracted by the precious metal’s safe-haven appeal in light of persistent worry about the euro zone debt crisis.

    International markets

    Yesterday on US markets, the Dow Jones closed 0.34% lower while the Nasdaq finished flat up 0.03%. Trade was volatile, reflecting fears that Greece’s bailout will not be sufficient to solve the euro zone’s fundamental problems.

    Japan's Nikkei lost 0.16% this morning at its close, as earlier gains were offset as concern about the euro zone's debt problems continued to dampen sentiment.

    Hong Kong’s Hang Seng rose 0.33% and China’s Shanghai index edged up 0.31% despite euro zone debt concerns.

    Britain's FTSE 100 had inched up 0.02% by midday, after gains that came from banks in relief over the announcement of the new British government.

    Share price news

    Old Mutual PLC (share code: OML) was highly active this morning, as investors exchanged 34 028 828 shares in 3 700 deals, which saw the share price climb 4.61% to R13.15 at noon.

    Nedbank Group Limited (NED) rose 3.44% to R139.95 a share, after 4 208 054 shares were traded in 2 681 deals.

    Sentula Mining Limited (SNU) lost 2.82% after 25 deals exchanged 161 257 shares, which saw the share price drop to R2.76.

    Simmer and Jack Mines Limited (SIM) fell to R1.22 a share at noon, a loss of 1.61% after 127 700 shares were sold in 16 deals.

    Permalink2010-05-12, 15:05:05, by Natalie Email , Leave a comment

    Company announcements

    Global markets remain highly correlated. Today we saw the JSE fall back 0,5% in line generally with other developed and emerging markets. Gold was one of the highlights, with bullion moving up to $1218 and the shares gaining 5,2%

    Goldfields gained 5,9% and Harmony 6,1%.

    Some announcements today included:

    Goldfields announced a major discovery of a gold-copper –silver deposit in southern Peru. Goldfields has a joint venture with Compania de Minas Buenaventura SAA. They reported that this deposit called the Canahuire deposit has a mineral resource of an estimated 6,5 million gold ounces along with its joint venture partners,

    A company like Famous Brands, owners of franchise outlets such as Steers, Wimpy, and now also Mugg and Bean, has proved to be resilient over the years. Fast food is a growth business around the world and definitely in SA.

    This morning the company released its results to February. Revenue grew by 8% to R1,7 billion with operating income up 17% to R305m. Headline earnings per share gained 29% and the strong cash generation allowed the dividend to be raised by 50% to 114c. The operating margin is a very impressive 18,2% up from 16,9%.

    As the number of stores has expanded to 1779, so greater efficiencies have been generated. The strong cash flow allowed the debt to equity ratio to fall from 46% to 28%. They reported that Wimpy opened its 500th store.

    During the year the group bought Mugg and Bean and in February they acquired Blacksteer from its liquidators.

    The price fell 2% to R29, with a market cap of R2,7 billion

    Yesterday afternoon Discovery Holdings issued a cautionary announcement. At 11:15 today they announced that they have entered into an agreement to acquire the entire share capital of Standard Life Healthcare for R1,56 billion (GBP138m). This will increase the business exposure into the UK as well as increasing its stake in PruHealth and PruProtect, its joint venture business with Prudential Assurance in the UK after Discovery contributes this new acquisition into the joint venture

    This will see Discovery’s stake in these 2 businesses increase to 75% from 50%. Discovery will pay the entire purchase consideration of R1,56 billion from internal sources, using a limited amount of debt.

    The share price ended flat at 3680c. It has been a very good performer in recent months.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-11, 18:28:26, by ian Email , Leave a comment

    Measuring volatility

    A measure of global risk in markets is the Volatility index. Last week’s spike up was one of the biggest with the index moving swiftly from around 20 to 40. It is also known as the fear index

    The abbreviated symbol is the VIX. This is the symbol for the Chicago Board Options exchange Volatility index. It measures the implied volatility of options on the S&P500 index.

    Understandably then, this does then get complicated for the layman and professional alike. Let’s look at the make-up.

    • At the basic level there are 500 or so large companies that have their shares listed on the US exchanges.
    • From 1957 an index of these shares was calculated and published, known as the S&P500 index. After the Dow Jones, this is the most widely followed index of shares.
    • Over the last 20 years or so, investors and traders could buy and sell various dated options on this S&P500 index.
    • An option price includes an implied volatility factor, so that the greater the volatility of the underlying instrument, the higher the price of an option. For example, if a gold company sells an option on its production of gold, the more volatile the price of gold, the higher they can price that option.
    • Over time then, this implied volatility in both put and call options can be tracked.

    The volatility index then was developed in the 1980’s and in simplistic terms is a weighted blend of the range of implied volatilities of put and call options on the S&P500.

    Naturally when the expectation of risk and hence volatility increases, then this is captured into the pricing of options. Conversely when expected volatility decreases, then the VIX declines.

    The VIX index then tracks and records these movements over time.

    Whenever an index is created, then the next step is to turn the index into an investable index. And so just to take the process on step further, from 2006 investors / traders can buy or sell VIX options contracts as well as buy into an exchange traded fund.

    So these are then options which derive their price from underlying option pricing!

    It can be used fro example as a type of insurance. For example, an investor into the global market may be concerned about downside risk. Instead of investing 100% of his capital, he can do the following. Invest say 90% into a range of global mutual funds and with 10% of his capital he can buy options on the VIX.

    Typically the VIX is negatively correlated with markets. I.e. when risk escalates and prices decline, the volatility or fear index jumps. An investor having bought “insurance” therefore has some protection for his overall portfolio when the VIX spikes as asset prices decline.

    The large up spike is seen in the chart above.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-10, 18:02:29, by ian Email , Leave a comment

    the euro and global markets

    With the ongoing fiscal issues in Europe, the currency continues to come under pressure relative to the US dollar. Currency selection for global investors naturally plays a big part of the total return equation. The relative pricing of global currencies mixed with numerous fundamental and political factors makes assessing one versus another extremely challenging.

    I have highlighted some of the points raised by the G10 fixed income research department at Standard Bank on their views of the euro.

    They have had a target of dollar /euro 1,25 euros but with this now coming into view have moved their target.

    They believe that the euro will decline further to the 1.20 level over the next few months and more likely to 1.15. If it goes through the 1.20 level this will bring it back to end of 2005 levels.

    The reason for the amendment of this view to a weaker euro is because the situation in the Euro zone has deteriorated quite badly and over the last 2 days has produced fear in global markets.

    They see this not as a Greek problem, but a Eurozone problem with other countries going to also require bailouts.

    More budget cuts from Greece and other countries are unlikely to stop the rot.

    The euro zone countries cannot devalue or slash rates in response to this shock, unlike the US and UK.

    While there remain high deficits and debts in the US and UK, the US dollar still has considerable safe haven support.

    For these reasons they mentioned on Thursday morning that if contagion does start to spread it will put the euro into even deeper peril. Then it came – US markets went into a massive decline on Thursday and into the start of Friday.

    Yesterday the ECB left their key interest rate unchanged at the record low 1% as was expected. ECB president, Trichet said that despite the fiscal crisis, the 1% is appropriate and there is no immediate need to cut rates further.

    The euro lost further ground to its current 1,27 to the dollar.

    Global markets came under immense pressure on Thursday with some technical issues in the US. There was a rebound, and while futures were trading into positive territory, they have fallen back at the opening on Friday and markets are down again.

    Global markets opened up into negative territory and remained that way throughout the day. The FTSE/JSE All Share index ended down 3,6% to 26515.

    With the decline in risk appetite in the world, the rand weakened over the last few days to its current R7,62 /dollar but up slightly against the euro to R9,72.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-07, 17:31:52, by ian Email , Leave a comment

    Wall Street plunge leaves global markets reeling

    Local markets

    At noon on Friday, the JSE All Share had slipped 1.83%, as losses in financial and industrial shares weighed. Investors sold off their shares in reaction to Wall Street's overnight plunge and amid intensifying concern for Greece’s debt problems.

    The rand had fallen to R7.71 a share at midday, following a weaker euro as global markets reeled following Wall Street's plummet overnight.

    Oil had lost 0.4%, selling at $79.68 a barrel as investors awaited the outcome of a meeting of international leaders to try to remedy Greece's debt crisis.

    International markets

    US markets were jittery yesterday after a near 1 000 point slide in the Dow Jones, its biggest intraday points drop ever, driven by an apparent glitch from high-frequency online trading. The Dow closed 3.20% lower, while the Nasdaq fell 3.44%.
    Japan's Nikkei average lost 3.10% this morning, as investors followed the global sell-off trend spurred by Europe's debt crisis.
    China's Shanghai index lost 1.87% again due to persistent worries about domestic monetary tightening, and the possible spread of Greece's debt troubles.
    Britain’s FTSE 100 was 0.98% lower at noon, as euro zone debt fears weighed and investors were uncertain of the outcome of yesterday’s election.

    Share price news

    Anglogold Ashanti Limited (share code: ANG) rose 1.64% to R316.60 by noon, after investors traded 1 031 310 shares in 2 703 deals.

    In the shipping and ports sector, Trencor Limited (TRE) gained slightly to sell at R32.52 after 4 deals exchanged 2 315 314 shares.

    After 271 deals totaling 4 693 630 shares, Merafe Resources Limited (MRF) fell 6.43% to sell at R1.60 at midday.

    JD Group Limited (JDG) lost 6.85% to sell at R39 a share, after 149 266 879 shares were traded in 818 deals this morning.

    Permalink2010-05-07, 13:30:34, by Shaun Crous Email , Leave a comment

    Daily Equity Report Thursday 6 May 2010

    2010/05/06 20:32:57
    The JSE closed off 0.38% at 27513 with value traded at R 15.97 billion. Declines led advances 197 to 129 with 80 shares unchanged out of 406 active. Mining closed off 0.94% at 31872, while Industrials were down 0.13% at 26522 and financials ended the day up 0.18% at 20474.

    The best performing sectors of the day were Media Index up 1.6% at 65326, Pharmaceuticals & Biotechnology Index up 1.3% at 10101 and Health Care Index up 1.2% at 29506, while the worst were FTSE/JSE RAFI ALLSHARE INDEX down 4.8% at 5563, Platinum Mining down 2.3% at 77 and Forestry & Paper Index down 2% at 11400.

    There were 4 new 12 month highs today, including Ucs which closed up 7.4% at 218, Premium up 5.1% at 1550 and Spurcorp up 2.7% at 1325 while there were 2 new lows of which Hosp-b topped the list, down 7.2% at 1100, Arcmittal down 1.7% at 7950.

    Of the major stocks Anglo was down 0.92% at 29525, Billiton ended down 0.95% at 21580, Mtn was down 1.18% at 10501, Sasol was off 0.69% at 28800, Naspersn was up 1.71% at 29343.

    Best performers of the day were Cenrand up 28.71% at 130 , Cic up 17.24% at 170 , some of the losing shares included Sable down 24.96% at 1500 and Ips down 9.03% at 141

    The Dow was off 1.6% at 10693.09 and the S&P 500 off 1.9% at 1143.66 a few moments ago.

    Gold was up 1.5% at $ 1189.27/oz

    The rand was last trading at R 7.83 to the dollar, R 11.61 to the pound and R 9.88 to the Euro.

    Permalink2010-05-06, 20:34:33, by admin Email , Leave a comment

    A view on the euro

    With the ongoing fiscal issues in Europe, the currency continues to come under pressure relative to the US dollar. Currency selection for global investors naturally plays a big part of the total return equation. The relative pricing of global currencies mixed with numerous fundamental and political factors makes assessing one versus another extremely challenging.

    I have highlighted some of the points raised by the G10 fixed income research department at Standard Bank on their views of the euro.

    They have had a target of dollar /euro 1,25 euros but with this now coming into view have moved their target.

    They believe that the euro will decline further to the 1.20 level over the next few months and more likely to 1.15. If it goes through the 1.20 level this will bring it back to end of 2005 levels.

    The reason for the amendment of this view to a weaker euro is because the situation in the Euro zone has deteriorated quite badly.

    They see this not as a Greek problem, but a Eurozone problem with other countries going to also require bailouts.

    More budget cuts from Greece and other countries are unlikely to stop the rot.

    The euro zone countries cannot devalue or slash rates in response to this shock, unlike the US and UK.

    While there remain high deficits and debts in the US and UK, the US dollar still has considerable safe haven support.

    For these reasons they believe that if contagion does start to spread it will put the euro into even deeper peril.

    Today the ECB left their key interest rate unchanged at the record low 1% as was expected. ECB president, Trichet said that despite the fiscal crisis, the 1% is appropriate and there is no immediate need to cut rates further.

    The euro lost further ground to its current 1,27 to the dollar.

    With the increased perception of risk in the world, the rand weakened over the last few days to its current R7,62 /dollar but up slightly against the euro to R9,71.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-06, 16:39:55, by ian Email , Leave a comment

    Greek debt fears continue to weigh on global markets

    Local markets

    Gold mining shares had fallen 0.9% by midday, while gains in other sectors managed to keep the JSE All Share just in the black, up 0.15%.

    The rand continued to weaken to sell at R7.62 a US dollar at noon, as the Greek debt crisis remained a concern for currency traders.

    Oil cost $81.81 a barrel at 12:00, falling 1.43% in line with global stock markets as investors continued to fear the spread of Greece’s debt to other vulnerable nations.

    International markets

    US markets slid yesterday, with the Dow Jones closing 0.54% down and the Nasdaq losing 0.91%, as further signs appeared to suggest the spread of debt problems to larger euro economies.

    Japan's Nikkei tumbled 3.27% this morning as investors returned to the market after the spring holidays, and faced deepening concern about the spread of Greece’s debt issues.

    Hong Kong’s Hang Seng slid 0.96% also on Greek debt worries, as well as the possible impact of further monetary tightening in China.

    The UK’s FTSE 100 had fallen 0.07% by noon, returning to a downward trend after staging a short recovery from early losses after heavy selling on voting day.

    Share price news

    Shares in Spur Corporation Limited (share code: SUR) had risen 2.71% to R13.25 at noon, after 551 800 shares were traded in 106 deals.

    In the computer services sector, Dimension Data Holdings Limited (DDT) rose 2.05% after 113 deals exchanged 271 113 shares, sending the share price up to R10.44.

    Fortress Income Fund Limited (FFA) fell 3.92% to R9.80 a share after investors sold 24 219 458 shares in 7 deals.

    After 158 deals totaling 1 167 457 shares, Redefine Properties Limited (RDF) fell 2.31% to R7.62 a share at midday.

    Permalink2010-05-06, 12:22:25, by Natalie Email , Leave a comment

    Foreign Investment

    Growing your economy is generally seen as one of the more important tasks faced by governments around the world. How economies are grown varies dramatically from country to country, but the simple matter is that there is generally the desire to grow one’s empire.

    Different countries sit with different needs, and they therefore have different ways of growing their economy. Poorer countries tend to focus on the more essential needs like food and basic education. Job creation is also often high up on the list. Developed economies typically aim to grow by focusing higher up the value chain. Expanding your empire through force (typically in a war) has been used over the years as a means to gain access to land that has productive assets (usually resources of some form). As mentioned there are a myriad of ways to go about growing an economy.

    One of the ways that South Africa wishes to improve economic growth is through foreign investment. Foreign investment helps a country grow by assisting in the improvement of infrastructure and through the creation of jobs. Foreign investment comes in two forms: portfolio flows and direct investment.

    Portfolio flows occur when foreign investors wish to get quick, liquid exposure to South African assets, and typically flow into the local stock and bond markets, i.e. paper assets. While these investments do show confidence in the country, they are fairly fickle and can flow out as soon as sentiment changes (as happened in 2008). Incidentally South African fundamentals typically aren’t the major drivers for portfolio flows, as global investor appetite is more important with regards to portfolio flows. South Africa benefits from increased flows when global investors want to increase the risk in their portfolios, but any event that results in investors wanting/needing to reduce the risk in their portfolios results in outflows, which harm local markets. South Africa has been the recipient of portfolio flows year to date of R42.6bn!

    More stable, and valued, foreign investment is foreign direct investment (FDI) where investors from countries outside of South Africa make investments in physical assets. These investments are preferred as they are ‘stickier’, i.e. they tend to be more permanent, and show a greater faith in South Africa’s fundamentals. FDI is more beneficial as it generally makes a greater contribution to South Africa’s productive capacity and job creation. FDI can come from corporates in other countries or from other government investments. The South African government is therefore focused on creating the right environment for FDI.

    In his budget vote speech Rob Davies, Trade and Industry Minister, said that South Africa is targeting FDI of R 115bn over the next three years. The countries targeted will be those large and fast growing countries around the world including, China, India, Russia, Brazil, Japan, the USA and the Middle East.

    Hopefully this targeted investment is achieved as it will have a hugely positive impact on the local economy.

    Take care,

    Mike Browne
    021 9144 966

    Permalink2010-05-05, 17:08:49, by Mike Email , Leave a comment

    JSE up despite global worries over spread of euro zone debt

    Local markets

    Led by a recovery in the basic materials sector, the JSE All Share was up 0.20% at noon on Wednesday, though losses in industrial and financial shares limited further gains.

    The rand was trading at R7.56 to the US dollar at 12:00, little changed from its overnight levels. Traders expect the rand to continue following the weaker euro in light of persistent Euro debt problems.

    Gold was selling at $1170.40 an ounce, down 0.98% after investors continued to sell off their commodities and shares.

    International markets

    The Dow Jones fell 2.02% and the Nasdaq lost 2.98% yesterday as US investors sold on concerns that Europe's debt crisis could spread to other weak euro zone countries, despite the help of a bailout to Greece.

    The Nikkei remained closed today as Japan’s spring holiday continued.

    The Hang Seng finished 2.10% lower this morning as bank shares slid on increasing anxiety that the Greek debt crisis could become worse, dampening global economic recovery.

    Britain's FTSE 100 had edged up 0.02% at midday as euro zone debt worry saw banks slide, while oil prices declined and sent energy stocks falling.

    Share price news

    After 2 760 deals of 3 050 919 shares, BHP Billiton PLC (share code: BIL) had risen 2.81% to R219.83 at midday.

    Merafe Resources Limited (MRF) rose 1.78% to R1.72 at noon, after investors traded 3 368 842 shares in 159 deals.

    Simmer and Jack Mines Limited (SIM) lost 3.85% as traders exchanged 388 052 shares in 48 deals, which sent the share price falling to R1.25.

    Losing 2.29% to sell at R50.32 a share, Northam Platinum Limited (NHM) saw the exchange of 434 131 shares in 325 deals by midday.

    Permalink2010-05-05, 12:41:46, by Natalie Email , Leave a comment

    Market update

    Global markets were down sharply today on ongoing fears that European countries are not out of the woods yet – despite the bailout of Greece over the weekend. We have previously highlighted just how correlated global markets have been of late.

    The JSE ended down sharply falling below the 28 000 level. Large cap resource shares were hardest hit with Anglos down 5,6% and Billiton down 4,9%. This was partly due to the possible new tax regime in Australia for these commodity suppliers.

    Vehicle sales in April continued to rebound up sharply off the very low 2009 base. April numbers reflected a 36% year on year gain.

    Passenger sales increased 41% year on year and commercial 27,6%

    Nedbank announced a 1st quarter 2010 trading update. Net interest income declined by 2% to R4046 million. Non interest revenue however increased by 18% to R3034 million. On an annualised basis total assets grew by 5,8% to R579 billion.

    There is good appetite for Nedbank debt issues and during the quarter the bank issued R3 billion in senior debt and a further R3 billion in April. It was initially “only” targeting to raise R2 billion in April, but received bids for over R4 billion.

    Yesterday Absa announced that it has also sold 2 bonds worth R1 billion. This included R600m with a coupon of 10,28%and a maturity in May 2022 as well as R400m with a 2,1% yield above the 3 month Jibar (The Johannesburg interbank agreed rate). The Jibar has been steadily coming down to its current 6,6% which is the lowest level since 1999.

    Today’s government auction of bonds saw bids totalling R8,3 billion for an issue of R2,1 billion. The R204, which matures in December 2018, was issued at a yield of 8,525% and the R207, which matures in January 2020 at 8,6%.

    In March the City of Cape Town issued a R2 billion bond in terms of its capital raising program. The 15 year bond was issued at a fixed rate of 11,16%.

    There appears to be a generally strong appetite for fixed income instruments. Remember with a foxed coupon debt instrument, an investor knows the exact nominal return that he will receive.

    If he buys at 11,16% and holds the bond to maturity this is exactly what he will receive – assuming of course that there is no default. The only unknown is the inflation rate risk over the duration of the investment.

    Tigerbrands announced that its headline EPS for the interim to March 2010 should increase by between 3% and 8%. Excluding the once off BEE deal it is anticipated that the headline EPS will be up between 18% and 23% compared to the previous interim period.

    The rand has weakened to R7,56/dollar and R9,85/euro.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-04, 17:31:23, by ian Email , Leave a comment

    Losses on global markets see JSE flat

    Local markets

    At midday on Tuesday, basic materials shares were down 1.12%, leading the JSE All Share down 0.45% following movements on international markets. Gold mining bucked the trend, gaining 1.70% by noon.

    The rand was trading at R7.48 to the US dollar, remaining fairly stable as it followed the euro.

    Brent crude oil fell to $88.91 a barrel, a loss of 1.03% as a stronger US dollar weighed and a surprise increase in US inventories.

    International markets

    Yesterday, the Dow Jones rose 1.30% while the Nasdaq climbed 1.53% after a flurry of manufacturing, consumer spending and construction data boosted hopes that economic recovery will continue.

    The Nikkei index was closed for Japan’s spring holiday season.

    In France, the CAC40 was 1.38% down, while Germany’s DAX had lost 0.76% by midday, as investors were still uneasy about Greece's bailout and were concerned that the debt problems would spread to other euro zone countries.

    Britain’s FTSE 100 was 1.12% down, as losses in mining shares came after news of an Australian tax on the sector. Banks fell on renewed concern for euro zone debt contagion.

    Share price news

    Gold Fields Limited (share code: GFI) rose 1.58% to R99.99 a share, after 612 793 shares were exchanged in 826 deals.

    After 334 deals totaling 788 947 shares, Netcare Limited (NTC) rose 1.55% to sell at R13.76 a share at midday. Netcare announced basic earnings per share for the six months ended 31 March 2010 as expected to be between 20% and 30% higher than for the last comparative period.

    Mazor Group Limited (MZR) in the building and construction materials sector fell 4.44% to R2.15 a share, after 19 deals traded 337 791 shares.

    Gold One International Limited (GDO) lost 3.68% as investors exchanged 566 205 shares in 10 deals, which sent the share price falling to R1.83 at noon.

    Permalink2010-05-04, 13:48:14, by Natalie Email , Leave a comment

    Sell in May?

    Will this be a year of “Sell in May and go away” – an old Wall Street adage that has often proved to be prescient. While not infallible, history indicates some reliance on the “strategy” of switching to bonds in May until November.

    Of course asset prices don’t follow a definite regular pattern – for example the strategy would have left an investor underperforming if it had been followed in May 2009 – the concept has some compelling support.

    Reported in mscbc

    • Since 1950, the Dow Jones industrial average has produced an average gain of 7.4 percent from November through April and 0.4 percent from May through October.

    • Applying the approach to the Standard & Poor's 500 index, its returns from November through April have beaten those during the following May-October period 71 percent of the time dating to 1945.

    • Adhering to the practice also would have reduced risk. For whatever reason, the stock market crashes of 1929, 1987 and 2008 occurred between May and October.

    The S&P500 has gained 78% since bottoming out in March 2009. The Dow Jones Industrial average has gained some 71%.

    By all accounts despite a solid rebound in 2009, the first few months of 2010 have been very positive. US shares as represented by the S&P500 are up 6,5% and the Nasdaq 8,5%

    The JSE in dollar terms is up 7,3%, beating the 3% for the FTSE100 and 5% for the Dax and Hang Seng.

    However other emerging markets have fared slightly better. Mexico is up 8,3%, Russia 8,9% and Turkey is up 11,8%.

    The weekend had reports of the now almost confirmed bailout of Greece with a bailout from the European Central Bank and the IMF of 110 billion euros. Last week we commented on the spike up in bond yields as the rating agencies downgraded the status of Greece.

    This helped settle the global asset markets at the start of May, but Greece and indeed the EU have a long road to travel.

    The uncertainties around financing of governments may indeed be a positive factor for global equity investors.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2010-05-03, 17:05:20, by ian Email , Leave a comment

    Sell in May?

    Permalink2010-05-03, 17:04:41, by ian Email , Leave a comment