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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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    The Big Roll-Over

    For those who analyze JSE market breadth (advance/decline data as opposed to price action), the most interesting times are almost always when major troughs or peaks are forming, for it is during these times that the data under the skin of the JSE start telling the real story. Have a look at our DELTA-10 Breadth chart below, which measures the number of JSE shares on a daily basis that are trading above their close 10 days prior.

    Marker-1 shows where this metric rose from a depressed level of 102 (25% of JSE) to over 165 (40% of JSE) in a matter of 5 days, a sure clue a bottom had just been formed. It then continued to power up to 265 shares (63% of JSE) and then at Marker-2 we were given the first sign things were weakening when the index failed to print a new high with the JSE. From this point onward, the JSE started "rolling over". But looking at the daily share price, there was no hint of weakness - but day by day, more and more JSE shares failed to print closes higher than 10-days prior. With more and more shares tipping over the top and falling out the race, the rise of the JSE was supported by fewer and fewer shares,the burden on these remaining large-caps resulting in higher volatility of the JSE.

    Normally when this index falls below 190 after a strong run, the JSE succumbs to gravity, but this time the JSE was surprisingly resilient despite the plummeting breadth. The laws of the markets dictate that either breadth must improve or the JSE will give way to gravity. The longer the divergence, the harder the fall.

    Great market peaks are also characterized by a drop-off in aggregate demand (white line)...

    ...with a concomitant rise in aggregate selling pressure...


    ...eventually aggregate selling pressure exceeds demand and gravity takes over

    One other interesting breadth indicator is our McClellan Funds Flow oscillator that measures liquidity in the market through advancing/declining volume. When there is a net liquidity outflow, as demarcated when the indicator falls below zero, we normally warn traders to close their index futures long trades with many also using it to open shorts:

    The JSE has been surprisingly resilient despite the indicator plummeting sharply below zero.

    There is no guarantee of course that this will all lead to a serious correction,or even a mild one, but the risks now are undeniably higher than if you had taken up long positions 30 or 40 days ago. Frankly, it would be desirable for some form of correction to normalize things and set the stage for another advance. But exuberance sometimes knows no bounds and a continued rise in the face of weakening underlying breadth will surely classify as market froth.

    Dwaine van Vuuren

    Permalink2010-10-29, 17:10:17, by dwaine Email , Leave a comment

    Losses in resource shares lead the JSE down

    Local markets

    At midday the JSE All Share had fallen 0.34% as losses in resource shares weighed on the local bourse, adding to losses in other sectors.

    The rand was trading at R7.02 to the US dollar, remaining steady after credit growth and money supply statistics were better than expected.

    Oil cost $82.54 a barrel around noon, falling 0.24% on apprehension before news of the size and structure of the US Federal Reserve’s plan for monetary easing.

    International markets


    On Thursday, the Dow Jones closed 0.11% lower while the Nasdaq edged up 0.16% little changed from the previous session. Investors were cautious ahead of the release of GDP data for the third quarter.

    In Japan this morning, the Nikkei finished 1.75% lower to reach its lowest close in seven weeks, after poor earnings were released by key companies such as Sharp.

    Hong Kong's Hang Seng index fell 0.49%, after losses in China Life and the release of worse-than-expected quarterly results from other insurers.

    Britain’s FTSE 100 had slipped 0.41% by midday in SA, as losses in miners and caution ahead of US GDP data weighed on the market.

    Share price news

    The Foschini Group Limited (share code: TFG) gained 1.88% after 318 165 shares were exchanged in 488 deals, sending the share price up to R84.50 at noon.

    Fellow retailer MR Price Group Limited (MPC) rose 1.75% to R63.49 a share, after 524 961 shares were traded in 423 deals.

    Metals and minerals firm Assore Limited (ASR) fell to R162 a share, after investors exchanged 4 504 shares in 24 deals, a loss in price of 3.57%.

    Losing 0.98% by noon was platinum firm Lonmin PLC (LON) as shares fell to R192.59 a share. Investors had sold 53 477 shares in 88 transactions.

    Permalink2010-10-29, 13:35:32, by Natalie Email , Leave a comment

    Resource shares lead JSE upwards at noon

    Local markets

    Thursday midday saw the JSE All Share up by 0.63% with gains in resource shares leading the upward movement.

    The rand had strengthened slightly against the US dollar at noon, exchanging at R7.02 to the dollar though still hovering near its lowest level in five weeks after new efforts by treasury to limit its strength.

    Gold cost $1 327.15 an ounce, rising 0.16% as a weaker dollar gave support and investors looked to the upcoming decision by the Federal Reserve on monetary easing.

    International markets

    Yesterday the Dow Jones slipped 0.39% while the Nasdaq edged up 0.24% as investors had mixed expectations of how the US Federal Reserve planned to stimulate the economy.

    The Japanese Nikkei index fell 0.22% this morning, its lowest close in six weeks after the Bank of Japan announced details of its asset-buying scheme, which failed to properly stimulate buying.

    Hong Kong’s Hang Seng managed to gain 0.20% despite the influence of a weak close on US markets, as investors took confidence in record profits from top Chinese banks.

    Gains in commodity shares saw Britain’s FTSE 100 rise 1.07% by midday, with energy giant Shell amongst the top movers upwards.

    Share price news

    Gaining 6.48% by midday was Litha Healthcare Group Limited (LHG) whose shares rose to R2.30 after investors traded 685 550 shares in 34 deals. Litha announced this morning that they have entered into negotiations that could affect the share price.

    In the metals and minerals sector, BHP Billiton PLC (BIL) rose 2.25% to sell at R245.00 a share at noon, after 719 deals exchanged 1 046 521 shares.

    Platinum producer Wesizwe Platinum Limited (WEZ) lost 8.39% after investors sold 129 681 shares in 16 deals, sending the share price sliding to R1.42.

    Murray and Roberts Holdings Limited (MUR) in the construction sector fell 2.95% to R42.70 after 968 670 shares were traded in 407 deals.

    Permalink2010-10-28, 12:11:48, by Natalie Email , Leave a comment

    JSE edges down ahead of finance minister’s budget speech

    Local markets

    At noon on Wednesday, the JSE All Share had fallen 0.10% as investors acted cautiously ahead of Finance Minister Pravin Gordhan's Medium-Term Budget Policy Statement to be made later today.

    The rand was selling at R7.00 to the US dollar, weakening slightly before the release of inflation data, which may support further interest rate cuts. Today’s Budget Policy Statement may also signal changes in exchange rate policy.

    Oil cost $82.37 a barrel at noon, recovering 0.45% after the price took a hit from a firmer dollar and higher-than-expected crude oil inventories.

    International markets

    On US markets yesterday, the Dow Jones inched up 0.05% at its close, while the Nasdaq edged up 0.26% before midterm elections and next week’s meeting of the US Federal Reserve.

    Japan’s Nikkei average closed 0.10% higher this morning, after falls in other Asian markets and losses in Japanese banking shares spurred investors to take profits.

    China's Shanghai Composite Index fell 1.46% after commodity prices dropped and weighed on shares.

    Britain’s FTSE 100 had slipped 0.44% by midday, as a strengthening US dollar put pressure on commodity shares.

    Share price news

    Gold miner Pan African Resource PLC (share code: PAN) rose 2.94% to R1.05 at noon, after 45 900 shares were traded in 9 deals.

    After 559 deals that totaled 1097888 shares, Murray and Roberts Holdings Limited (MUR) climbed 2.15% to sell at R45.13 a share. M&R announced this morning that their order book had improved by 16% to R49 billion in the quarter ended 30 September 2010.

    In the electrical equipment sector, Delta EMD Limited (DTA) fell to R9.99 a share, a loss of 3.48% after investors traded 85 182 shares in 12 deals.

    Gold One International Limited (GDO) lost 2.45% after 20 deals exchanged 126 500 shares, sending the share price down to R2.39 around midday.

    Permalink2010-10-27, 12:24:48, by Natalie Email , Leave a comment

    Losses in basic materials, resources lead JSE downwards

    Local markets

    The JSE All Share had fallen 0.75% by midday on Tuesday, with losses in basic materials and resources leading the downward slide.

    The rand was steady at around R6.90 to the US dollar at noon, after the euro could not continue at the $1.40 level which weighed on the local currency.

    Gold cost $1 335.69 an ounce, falling 0.30% by 12:00 as physical buyers were cautious ahead of potential monetary easing by the US Federal Reserve.

    International markets

    The Dow Jones rose 0.28% while the Nasdaq gained 0.46% yesterday on US markets, after the dollar weakened and investors expected additional stimulus by the Federal Reserve.

    In Japan, the Nikkei index lost 0.25% this morning at its close, after the yen almost reached a record high against the dollar.

    Investors were wary before the release of most corporate earnings.
    China’s Shanghai index gained 2.24% this morning, while Hong Kong’s
    Hang Seng lost 0.11% after investors took profits after recent gains in insurance, coal and metals shares.

    Bank and commodity shares lost ground this morning in Britain, sending the FTSE 100 down by 0.84% at midday SA time.

    Share price news

    In the construction sector, Aveng Limited (share code: AEG) rose 0.90% after investors traded 1 534 421 shares in 647 deals, sending the share price up to R43.94 at noon.

    After 116 deals of 100 473 shares, construction firm Group Five Limited (GRF) rose 1.41% to sell at R38.24 a share.

    Esorfranki Limited (ESR) fell 3.37% to R2.01 a share, after 21 deals exchanged 134 561 shares. Esorfranki released their interim results this morning, noting that revenue had fallen 26% in the six months ended 31 August 2010.

    Steel company ArcelorMittal SA Limited (ACL) fell 2.34% after investors sold 2 164 560 shares in 742 deals, which saw the share price slide to R81.35 at midday. ArcelorMittal released their unaudited group earnings this morning, announcing “significantly lower” earnings compared to last quarter.

    Permalink2010-10-26, 12:17:16, by Natalie Email , Leave a comment

    Investment risks

    When it comes to investments, there are a range of risks to consider. We have touched on some of these forms risks from time to time and today consider 3 specific investment risks.

    Most, but not all, investors have a possible actuarial risk to their investments. This is the risk that they require a certain capital base at retirement, but that their ultimate investment value falls short of this.

    Investment risk is the risk that the overall investment strategy and specific investments don’t meet the long term objective. For example in order to meet your long term capital asset base at retirement, your advisor has calculated that you require a compounded annual return of say 9,5%. The risk is falling short of this longer term requirement.

    3 factors that will impact on investment risk include

    • Business risk
    • Valuation risk
    • Liquidity risk

    Lets look at these in turn

    Business risk

    This is the risk that the business or investment made fails. The very nature of any business or loan is that it is subject to the possibility of outright or partial failure. This can be through increased competition, change in regulatory environment, insolvency, or a downturn in the economic environment etc.

    Certain businesses have lower risk than others. Some of the factrors to consider include:

    • The type of business. Commodity type businesses have higher risk
    • The financial structure of the business. Highly geared businesses carry higher risk
    • Barriers to entry. The easier competition can take away market share the higher the risk.

    Valuation risk

    Once the business risk is considered, then the next important risk that an investor will incur is valuation risk – this is the risk of overpaying for the business and hence not achieving an adequate return on your initial investment.

    Unlike business risk the valuation risk is a far more controllable risk. An investor can set the entry price and avoid buying until such time as the price is right.

    Very often a wonderful business becomes available but the price may be too expensive. An investor that overpays – even for a good business, can and often does end up making a poor investment (despite buying into a quality business).

    Liquidity risk

    A third risk to an investor is that of liquidity. In order to realise the capital inherent in an investment, it must be on sold to another party. Sometimes the buyer can be the original seller, but often not. Where an investor is forced to sell an investment, then liquidity becomes an area of concern.

    Even where a market is made between buyers and sellers for example on the JSE, liquidity is not guaranteed. And at times where an investor is a forced seller, the price may be depressed with few buyers.

    Conclusion

    Investment risks cannot be fully eliminated. An investor needs to take steps to mitigate these risks and indeed use for his advantage. For example an investor that can accept high risk with low liquidity, can invest the bulk of his portfolio into private equity, but then he will look to be adequately rewarded over time for taking on the additional risk.

    Another investor that cannot afford to take on that type of excessive risk, or has liquidity constraints will have to include lower performing investments such as money market, listed property etc.

    Ultimately all investors take on a certain degree of risk - but this needs to be assessed both initially and on an ongoing basis and then reduced through proper diversification and risk management.

    Kind regards

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

    Permalink2010-10-25, 17:04:45, by ian Email , Leave a comment

    Global markets up after G20 meeting

    Local markets

    Noon on Monday saw the JSE All Share up 0.66% following gains on global markets, after finance ministers and central bankers at the G20 meeting signaled that they won’t devalue their currencies.

    The rand was trading at R6.89 to the US dollar at 12:00, as the dollar weakened on after the weekend’s G20 meeting.
    Brent crude oil cost $83.06 a barrel at midday, up 2.54% as the dollar sunk to new 15-year lows after the G20 meeting.

    International markets

    On US markets on Friday, the Dow Jones fell 0.13% while the Nasdaq rose 0.80% after the release of more positive corporate earnings.

    In Japan, the Nikkei index fell 0.27% after the yen strengthened to a 15-year high against the dollar, but trading was moderate as investors were cautious of commitment before the main earnings period.

    In Europe, gains in basic resources came after G20 nations agreed not to engage in competitive currency devaluations. Germany’s DAX had risen 0.65% while France’s CAC40 had lifted 0.46% by midday.

    In Britain, the FTSE 100 was 0.59% up at noon, as stronger mining shares led the bourse higher in line with global markets.

    Share price news

    Foneworx Holdings Limited (FWX) rose to R1 a share, a gain of 5.26% after 90 386 shares were traded in 11 deals by midday.

    Metorex Limited (MTX) rose 3.09% to R4.34 a share, after investors exchanged 508 470 shares in 139 deals.

    Diamond firm Trans Hex Group Limited (TSX) fell to R3.30, a loss of 8.59% after 89 deals traded 222 476 shares. Trans Hex reported this morning an expected R103 million loss for the six months ended 30 September 2010.

    After 190 320 shares were traded in 44 deals by noon, Wesizwe Platinum Limited (WEZ) fell to R1.49 a share, a loss of 1.97%.

    Permalink2010-10-25, 12:36:21, by Natalie Email , Leave a comment

    Is stock-picking an investment dying art?

    With the JSE up some 62% in spectacular fashion since the March 2009 low’s, you would be correct in assuming stock-pickers from the mid to large-cap universe would need to pull out all the stops to beat the indices.

    In fact, to make the stock-pickers’ challenge even harder, the private investor can go one better than following the ALSH index with a SATRIX40 (or equivalent) Exchange Traded Fund (ETF) and opt for a thematic (“fundamental stock-picking”) ETF such as the SATRIX DIVI+ that picks its constituents based on their “dividend paying credentials”. These high dividend-yield (Dogs of the Dow) type strategies work exceptionally well following brutal bear markets and the SATRIX DIVI+ is without a doubt the darling of the index/ETF follower’s fan-clubs right now. Onother popular ETF using "fundamental stock picking criteria" is the RAFI family designed by Research Affiliates (also available through SATRIX and others.)

    Does this mean individual stock picking for non-speculative purposes is dead? Just buy the ETF’s and follow the indices and you can’t go wrong! They are cheap, easy to buy and sell, available for a variety of styles and JSE sectors and are simple to understand without having to do copious amounts of research. Even Warren Buffet suggests ETF’s are the place for self-directed investors to start.

    It is true that self-directed investors dabbling part-time in the markets are better off with ETF’s, but we counter that for the more tenacious private investor, stock picking can reap rich rewards both financially and intellectually.

    There is one timeless stock-picking strategy that most private investors are unaware of. It’s called “Follow the earnings”. We all know stock prices depend on company earnings, so this should be no surprise. But what many people do not realise is how powerful CONSISTANCY of earnings growth, say over the last 10 reporting periods, is as a predictor for future share gains.

    Let us assume in March 2009 you had received our “all clear” signals telling us it was time to get into equities again (or you figured it out through some other means). Assume you screened the JSE for liquid companies of ANY size that had shown consistent (always positive) earnings-per-share (EPS) growth for at least the last 5 years for BOTH their last 5 sets of interims and 5 sets of finals.

    You would have been amazed to find only 10 main-board shares meeting those strict criteria! In fact the 10 shares hail from various sectors and market-caps (none were small caps) and would have formed a nicely diversified, liquid portfolio. Assume you then bought those 10 shares in equal parts to create your own thematic “Fundamental ETF” we will dubb “EPS-5”. How do you think you would have stacked up versus say a SATRIX-40 (tracking the TOP-40 index) and the venerable SATRIX-DIVI? The results are shown below:

    The stock-pickers’ 10-shares would have delivered a stunning 144% capital growth, superior dividends and less drawdowns. For the first 10 months of the post-crash recovery, it maintained pace with the SATRIX-40 and SATRIX-DIVI index since everything usually rebounds sharply and is very closely correlated during the first 10-11 months of a new post-crash bull market. But after December 2009, when the market took its first "breather", is when the stock-picker's portfolio credentials started to shine, as market participants started being more selective in their buying and the shares were delivering superior earnings.

    The surprising thing (and this is not just isolated to this test case), is that consistent earnings growth, being the best-known predictor for capital growth of a share, is sometimes also a better predictor for superior future dividends than historical dividend yields/track records, with the stock-pickers’ portfolio yielding 9.97% dividend yield (not re-invested) versus the SATRIX-40’s 3.56% and the SATRIX DIVI’s impressive 8.28%

    Make no mistake, ETF’s such as SATRIX-DIVI, PTXSPY (listed property), GLD (New Gold) and the like are important parts of any investor’s diversified portfolio, but so are some individual share-picks using proven techniques such as this one. Finally, the satisfaction of seeing your own well thought-out stock picks beat an index or ETF is priceless! You can see the names of many of these consistent earnings growers in our latest training video for our JSE Share Watchlist (JSW) offering, which is purpose-built for stock picking and timing of purchases, for both investors and traders.

    Dwaine van Vuuren

    Permalink2010-10-22, 17:35:10, by dwaine Email , Leave a comment

    Global markets cautious ahead of G20 meeting

    Local markets

    Just after midday the JSE had fallen 1.21% with losses in gold miners leading the downward slide, as investors took profits after yesterday’s gains.

    The rand was trading at R6.95, recovering from part of its losses overnight in quiet trade before this weekend’s G20 meeting.

    Oil cost $81.67 a barrel, up 0.83% after employment and business activity data indicated that extra stimulus was needed.

    International markets

    The Dow Jones closed 0.35% higher yesterday, with the Nasdaq inching up 0.09% in a mixed session as solid earnings were slightly offset by a stronger US dollar.

    This morning, the Japanese Nikkei rose 0.54%, recovering after two sessions of losses, but further gains were limited by caution ahead of the G20 meeting.

    Hong Kong’s Hang Seng fell 0.56% contrary to analysts expectations of gains following strong corporate earnings and continued capital inflows.

    Britain’s FTSE had dipped 0.51% by midday, as losses in mining shares saw the bourse drift away from a six-month high.

    Share price news

    Litha Healthcare Group (LHG) saw 183 283 shares traded in 41 deals, raising the share price 2.50% to R2.05 after midday.

    Investors exchanged 1 524 391 Pick N Pay Stores Limited (PIK) shares in 747 deals, which saw the share price climb 1.49% to R43.64.

    Sacoil Holdings Limited (SCL) fell 8.75% to sell at R1.46 around noon, after 172 deals exchanged 2 491 489 shares.

    Aspen Pharmacare Holdings (APN) saw shares fall 3.18% after investors traded 232 597 shares in 543 deals, which left the share price down to R90.72.

    Permalink2010-10-22, 12:33:58, by Natalie Email , Leave a comment

    Emerging versus Developing

    Emerging Markets (EM) are currently all the rage in the investment world. Billions of investment dollars are pouring into this asset class as investors seek to capture their share of the investment return that this asset class has produced over the past 10 years. Unfortunately, however, investing doesn’t always work like that.

    You can’t just invest into an asset that has done spectacularly over an extended period, and expect it to carry on doing the same. There needs to be fundamental reasons for making the investment. The chart below shows the performance of the ALSI and EM versus the Developed Markets (DM) – all based in US dollars – over the past 10 years. These markets have outperformed the MSCI World by some 400% and 200% respectively over this period!

    To the casual investor they’ll probably say that this was down to superior economic growth in this region. While he’d be right that these economies produced strong economic growth over the past decade, the performance of these markets can’t purely be ascribed to economic growth. The chart below shows the different growth rates of EM and DM countries since the end of 2000.

    Investing is always about what price you pay for the specific asset that you buy. Buying a portfolio of good quality assets at extremely expensive prices is not as wise as buying a portfolio of poor quality assets at extremely cheap prices. Ideally one would buy good quality assets at extremely cheap prices, but this opportunity doesn’t come around that often.

    Taking a look at the 5 years immediately prior to the above charts we can see in the charts below that while the EM economies grew faster than their DM counterparts, the performance relative to the DM was extremely poor. The EM composite underperformed the DM composite buy some 87%, the ALSI fared slightly better but still underperformed by 80%!

    Good entry points into EM equities included the beginning of the decade, and also at the end of 2008 as EM equities were sold off more aggressively than DM equities. Despite the fact that EM economies are expected to grow much faster than DM economies over the next 5 years (and beyond) – see chart below – we feel that from a valuation perspective developed markets are currently more attractive.

    High quality companies (with exposure to the rapidly growing EM economies) are currently trading at attractive levels in DM countries.

    If you have any comments on this report, or want to have a look at online investment articles that we find interesting become a fan on our Facebook page by clicking here and clicking the ‘Like’ button.

    Take care,

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

    Permalink2010-10-21, 17:37:23, by Mike Email , Leave a comment

    Industrial shares lead JSE upwards at midday

    Local markets

    On Thursday at midday, the JSE All Share had risen 0.62% following positive movements on US markets, with industrial shares leading gains.

    The rand was trading at R6.88 to the US dollar at 12:00, remaining steady at its overnight levels.

    Gold cost $1 345.15 an ounce, inching down 0.03% after the dollar rebounded on defensive comments by US Treasury Secretary Tim Geithner.

    International markets

    Yesterday the Dow Jones climbed 1.18% while the Nasdaq gained 0.84% on rising industrial and commodity-linked shares, after the dollar fell and more solid corporate earnings were released.

    Japan’s Nikkei index fell 0.05% at its close this morning, despite the strengthening of the dollar against the yen on comments by the US Treasury Secretary.

    Hong Kong’s Hang Seng closed 0.39% higher after strong GDP and inflation data from the Chinese mainland.

    Britain’s FTSE 100 had risen 0.60% by noon due to gains in mining and bank shares after positive corporate results from the US and Europe.

    Share price news

    Merafe Resources Limited (MRF) rose 4.44% to sell at R1.41 a share at midday. Investors had traded 1 602 723 shares in 76 deals.

    Grand Parade Investments Limited (GPL) had gained 5.37% as shares rose to R2.55 after 24 deals traded 368 331 shares.

    Losing 1.60% by midday was Redefine Properties International Limited (RIN), whose shares fell to R6.15 after investors exchanged 1 374 982 shares in 82 deals.

    After 604 deals that sold 3 582 395 shares, Old Mutual PLC (OML) shares slid 1.67% to R14.74 at noon.

    Permalink2010-10-21, 12:18:56, by Natalie Email , Leave a comment

    SA trade and capital accounts

    There are so many drivers of a currency relative to another that it is very difficult to predict an outcome over any shorter period of time.

    Included in some of the driving factors are the following

    • relative size of the economy to the rest of the world.
    • productivity and manufacturing production
    • global demand for a country’s goods, services and commodities.
    • necessity on imported goods and services.
    • political factors
    • government’s fiscal policy and its level of external government debt
    • relative attractiveness of interest rates and returns on investment assets
    • differential in inflation rates.
    • intervention by central banks

    These factors are always present, but from time to time, one or more of these factors dominate trading in the currency.

    In terms of a country’s external trading account with other countries, there are 2 main components - the current account and the financial account.

    The current account itself consists of 2 main components, firstly the trade balance, which is the differential in merchandise imports and exports. Added to this is the net payment for services, income and current transfers, in order to arrive at the balance on the current account.

    For many years now, South Africa has been running a current account deficit. A large component of this is the net services line.

    For the first 2 quarters of 2010, the trade numbers were positive, but these faltered in August where a trade deficit of R4,6bn was recorded.

    The chart below reflects the current account deficit as a function of the GDP, where it is clear that a large and steady net outflow is the net income payments.

    Source: SA Reserve Bank

    Funding of the shortfall

    The shortfall on the current account has been funded by inflows on the capital account or financial account.

    The composite numbers according to the Reserve Bank for the years 2005 to date are as follows:

    This aggregate number includes direct investment, portfolio investment and other. While 2008 recorded large portfolio outflows, these were negated by large direct investments.

    In many cases however it’s the net portfolio investments that have an immediate impact on the currency, while large direct investments can be neutralised by the Reserve Bank.

    Net foreign flows into SA Bond Market


    Source: Grindrod Bank

    It is very evident that the trade account deficit continues to be funded by the financial account, which largely comprises portfolio flows. Direct investment was recorded at R48,3 billion in 2009. For the first 2 quarters of 2010 there has been very little, but there are some larger deals in the pipeline, such as the foreign purchase of Didata and Massmart.

    Portfolio flows have been high, but for the last few weeks net investment into the bond market by foreigners has slowed.

    The net result of all of this is a rand trading at R6,91/dollar, R10,93/pound, R9,66/euro and R6,82/AUD.

    Kind regards

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

    Permalink2010-10-20, 17:08:22, by ian Email , Leave a comment

    Surprise hike in Chinese interest rate weighs on global markets

    Local markets

    The JSE All Share was 0.03% lower at midday, following international markets after yesterday’s surprise interest rate hike in China pressured world equities.

    The rand was trading at R6.94 by noon, recovering after yesterday’s losses which came on the back of increasing risk aversion after China’s rate hike.

    Oil was selling at $81.37 a barrel at midday, up 0.46% rebounding after the previous session’s losses after China’s interest rate news.

    International markets

    Yesterday, fears that fears banks might face defaults on billions of dollars in mortgage bonds sent US markets sliding. The Dow Jones lost 1.48% while the Nasdaq fell 1.76%.

    Japan’s Nikkei average closed 1.65% lower this morning on profit taking after China unexpectedly raised interest rates.

    Just after midday, Germany’s DAX index had risen 0.13% while France’s CAC40 inched up 0.21%. European shares rose after minutes from the latest Bank of England Monetary Policy Committee supported hopes of further easing.

    Britain’s FTSE 100 was 0.10% up at midday, recovering after initial losses as gains in mining shares offset losses in energy stocks.

    Share price news

    Sacoil Holdings Limited (share code: SCL) rose 17.36% to R1.42 at midday, after investors exchanged 1 376 149 shares in 123 deals.

    After 10 deals that saw the trade of 7 769 357 shares, Country Bird Holdings (CBH) in the farming and fishing sector rose 7.69% to sell at R2.80 a share.

    Shares in Gold One International Limited (GDO) fell to R2.35, a loss of 5.24% after 159 933 shares were traded in 14 deals.

    DRD Gold Limited (DRD) slid to R3.46 after 51 deals sold 243 752 shares, resulting in a loss of 2.54% in share price.

    Permalink2010-10-20, 12:38:38, by Natalie Email , Leave a comment

    China raises interest rates

    Global markets fell back on Tuesday. A factor was the surprise interest rate hike by China of its one year deposit and lending rates by 0,25%. Commodity prices fell, markets traded down and the dollar gained ground against other currencies.

    This was the first hike in interest rates by Chinese authorities in 3 years and suggests that the government is concerned about the massive lending, asset prices moving up and high inflation, which for August was interestingly at the same rate for South Africa, i.e. 3,5%

    The table below reflects Chinese official interest rates from 2000, just prior to the rate hike today.

    The 0,25% rate hike takes the lending rate from 5,56% and the one year deposit rate to 2,5%.

    China’s effective currency peg to the dollar and large trade surplus with the rest of the world has allowed it to amass growing foreign exchange reserves. In October 2006 China’s foreign exchange reserves exceeded $1 trillion for the first time. This grew to $2 trillion in April 2009 and in the latest September 2010 numbers released last week, reserves increased by their largest amount ever - $194 billion to $2,65 trillion.

    The rand lost ground against a strong dollar today. It was last at R6,98. The chart below reflects the US dollar index, which is the US dollar against a trade weighted basket of currencies.

    Global monetary policy is now a huge factor in global asset prices.

    Kind regards

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

    Permalink2010-10-19, 17:16:02, by ian Email , Leave a comment

    Oil and gas shares lead JSE gains

    Local markets

    At midday, the JSE All Share had risen 0.53% with gains in oil and gas shares leading the upward movement.

    The rand was selling at R6.90 to the US dollar at 12:00, slightly weaker but remaining range bound, following in the footsteps of a weaker euro.

    Precious metal gold cost $1 367.90 an ounce at noon, edging down 0.09% after the dollar strengthened.

    International markets

    Yesterday on US markets, the Dow Jones rose 0.73% while the Nasdaq edged up 0.48% after better than expected profit figures from Citigroup eased foreclosure anxiety in the finance sector.

    In Japan, the Nikkei closed 0.43% higher this morning, with gains in banking shares after the release of Citigroup results.

    China's Shanghai index climbed 1.58% after rising coal and new energy stocks offset losses in steel producers.

    In Britain, the FTSE 100 had recovered 0.10% after earlier losses in miners and technology stocks as bank shares gained strength.

    Share price news

    Sacoil Holdings Limited (share code: SCL) climbed 5.26% to sell at R1.20 a share at noon, after 777 364 shares were traded in 61 deals.

    Mr Price Group Limited (MPC) rose to R58.60 a share, a gain of 3.72% as investors exchanged 853 301 shares in 548 deals.

    Investment bank Cadiz Holdings Limited (CDZ) fell to R3.26, a loss of 4.12% after 52 444 shares were sold in 13 deals.

    After 383 deals that exchanged 1 045 568 shares, Telkom SA Limited (TKG) fell to R36.80 a share, a loss in price of 1.68%.

    Permalink2010-10-19, 12:19:08, by Natalie Email , Leave a comment

    Is stock-picking an investment dying art?

    With the JSE up some 62% in spectacular fashion since the March 2009 low’s, you would be correct in assuming stock-pickers from the mid to large-cap universe would need to pull out all the stops to beat the indices.

    In fact, to make the stock-pickers’ challenge even harder, the private investor can go one better than following the ALSH index with a SATRIX40 (or equivalent) Exchange Traded Fund (ETF) and opt for a thematic (“fundamental stock-picking”) ETF such as the SATRIX DIVI+ that picks its constituents based on their “dividend paying credentials”. These high dividend-yield (Dogs of the Dow) type strategies work exceptionally well following brutal bear markets and the SATRIX DIVI+ is without a doubt the darling of the index/ETF follower’s fan-clubs right now. Onother popular ETF using "fundamental stock picking criteria" is the RAFI family designed by Research Affiliates (also available through SATRIX and others.)

    Does this mean individual stock picking for non-speculative purposes is dead? Just buy the ETF’s and follow the indices and you can’t go wrong! They are cheap, easy to buy and sell, available for a variety of styles and JSE sectors and are simple to understand without having to do copious amounts of research. Even Warren Buffet suggests ETF’s are the place for self-directed investors to start.

    It is true that self-directed investors dabbling part-time in the markets are better off with ETF’s, but we counter that for the more tenacious private investor, stock picking can reap rich rewards both financially and intellectually.

    There is one timeless stock-picking strategy that most private investors are unaware of. It’s called “Follow the earnings”. We all know stock prices depend on company earnings, so this should be no surprise. But what many people do not realise is how powerful CONSISTANCY of earnings growth, say over the last 10 reporting periods, is as a predictor for future share gains.

    Let us assume in March 2009 you had received our “all clear” signals telling us it was time to get into equities again (or you figured it out through some other means). Assume you screened the JSE for liquid companies of ANY size that had shown consistent (always positive) earnings-per-share (EPS) growth for at least the last 5 years for BOTH their last 5 sets of interims and 5 sets of finals.

    You would have been amazed to find only 10 main-board shares meeting those strict criteria! In fact the 10 shares hail from various sectors and market-caps (none were small caps) and would have formed a nicely diversified, liquid portfolio. Assume you then bought those 10 shares in equal parts to create your own thematic “Fundamental ETF” we will dubb “EPS-5”. How do you think you would have stacked up versus say a SATRIX-40 (tracking the TOP-40 index) and the venerable SATRIX-DIVI? The results are shown below:

    The stock-pickers’ 10-shares would have delivered a stunning 144% capital growth, superior dividends and less drawdowns. For the first 10 months of the post-crash recovery, it maintained pace with the SATRIX-40 and SATRIX-DIVI index since everything usually rebounds sharply and is very closely correlated during the first 10-11 months of a new post-crash bull market. But after December 2009, when the market took its first "breather", is when the stock-picker's portfolio credentials started to shine, as market participants started being more selective in their buying and the shares were delivering superior earnings.

    The surprising thing (and this is not just isolated to this test case), is that consistent earnings growth, being the best-known predictor for capital growth of a share, is sometimes also a better predictor for superior future dividends than historical dividend yields/track records, with the stock-pickers’ portfolio yielding 9.97% dividend yield (not re-invested) versus the SATRIX-40’s 3.56% and the SATRIX DIVI’s impressive 8.28%

    Make no mistake, ETF’s such as SATRIX-DIVI, PTXSPY (listed property), GLD (New Gold) and the like are important parts of any investor’s diversified portfolio, but so are some individual share-picks using proven techniques such as this one. Finally, the satisfaction of seeing your own well thought-out stock picks beat an index or ETF is priceless! You can see the names of many of these consistent earnings growers in our latest training video for our JSE Share Watchlist (JSW) offering, which is purpose-built for stock picking and timing of purchases, for both investors and traders.

    Dwaine van Vuuren

    Permalink2010-10-18, 18:30:00, by dwaine Email , Leave a comment

    JSE slides, global markets mixed

    Local markets

    At noon on Monday, the JSE All Share had slipped 0.05% after mixed trade in line with international markets, and falling commodity prices weighed on resource shares.

    The rand was trading at R6.86 to the US dollar, after the American greenback firmed on speculation that stimulus from the US Federal Reserve may not be sufficient to boost the recovering economy.

    Gold cost $1 361.35 an ounce, falling 0.65% after the dollar rebounded on US economic stimulus concerns.

    International markets

    On Friday in the US, the Dow Jones lost 0.29% while the Nasdaq rose 1.37%. Markets were mixed after uncertainty surrounding the US Federal Reserve economic stimulus measures.

    In Japan, the Nikkei average edged down 0.02% this morning, weighed on by a stronger yen and looming corporate earnings season.

    In China, the Shanghai index lost 0.54% after recent gains, while Hong Kong’s Hang Seng fell 1.21% at its close.

    The British FTSE 100 had edged up 0.08% around midday, with gains in mining shares supporting the index.

    Share price news

    Litha Healthcare Group Limited (share code: LHG) rose 7.03% to R1.98 a share after investors traded 436 935 shares in 60 deals by noon.

    In the chemicals sector, Spanjaard Limited (SPA) gained 6.06% after 13 deals exchanged 119 691 shares, sending the share price up to R3.85.

    Wescoal Holdings Limited (WSL) lost 3.08% as shares fell to R1.26 after investors traded 106 325 shares in 5 deals.

    After 30 deals totaling 494 425 shares, construction firm Esorfranki Limited (ESR) fell to R2.05 at noon, a loss of 1.91%.

    Permalink2010-10-18, 12:35:36, by Natalie Email , Leave a comment

    JSE slides as Nedbank and Old Mutual shares fall

    Local markets

    At noon on Friday, losses in financial shares led the downward slide, leaving the JSE All Share 0.53% lower. Nedbank and Old Mutual lost ground after rumours that HSBC may cancel its bid to take over Nedbank.

    The rand was trading at R6.80 to the US dollar at 12:00, continuing its strength as investors remained interested in high-yielding assets.

    Brent crude oil cost $83.44 a barrel, up 0.53% ahead of the US Federal Reserve chairman’s speech which is likely to signal the prevailing economic outlook.

    International markets

    Yesterday, the Dow Jones edged down 0.01% while the Nasdaq dipped 0.24% after banks fell on fears of a widespread foreclosure crisis in the US.

    Japan’s Nikkei average finished 0.87% lower this morning, as investors took profits and financial stocks followed US markets lower on foreclosure worries.

    In China, the Shanghai index climbed 3.18% to record its best weekly gain since February 2009 after a rally in bank shares.

    Britain's FTSE 100 had edged down 0.11% just before midday, after losses in insurer shares and investors remain cautious ahead of Federal Reserve Chairman Ben Bernanke’s speech later today.

    Share price news

    After 50 deals exchanged 99 673 shares, diamond company Trans Hex Group Limited (share code: TSX) rose 3.86% to sell at R3.50 a share at midday.

    Also amongst the top movers upwards was computer services company Datacentrix Holdings Limited (DCT), whose shares rose to R4.60, a gain of 2.22% after investors traded 1 277 112 in 8 deals.

    Nedbank Group Limited (NED) lost 8.58% as shares fell to R134.20, after 5 833 542 shares were exchanged in 4 266 deals this morning.

    After 15 838 566 shares were sold in 1 979 deals, Old Mutual PLC (OML) fell to R15 a share, a loss in share price of 5.30%.

    Permalink2010-10-15, 12:18:17, by Natalie Email , Leave a comment

    Gold NOT at All Time High... Yet

    That headline is more than enough to grab your attention, right? Many square inches of news, most noticeably in investment news publications, have been dedicated to a couple topics in the past few months. The first Ian has touched on – global currencies and a currency war, the second news item that we are informed about on an almost daily basis is that gold has hit a new all time high. This is, in fact, not quite true for South African investors.

    Since the beginning of the 21st century, gold has been an excellent investment, delivering double digit annual returns in pretty much any currency. Below is a chart of the performance of gold across a range of currencies (based to 100). Out of these currencies it is clear that the rand investor has done best as the rand weakened against the US dollar over this period. Sterling is pretty much on par, while the other currencies have appreciated against the US dollar (USD) and the returns in these currencies are therefore lower than in USD.

    Gold has been a great investment in any currency over this extended period but, like any investment, there are shorter periods where the performance hasn’t been as stellar. Gold hit its peak in rand (and Aussie dollar) at the end of February 2009, right at the bottom of the market when it appeared as if the world would end. At this point gold was at $952, but the rand was over R10 to the USD. From this point we’ve seen the rand firmly strengthen to its current levels at around R6.80 to the USD, while the USD price of gold has soared to $1375!

    South African investors and miners returns have therefore been sharply eroded by the strengthening rand. Despite the nearly 50% rise in the USD gold price, in rand terms it has fallen just over 2%. The chart below shows the divergence in returns in the two currencies since this point.

    From the first chart we can see that out of this selection of currencies, the Aussie dollar has been the strongest and the rand the weakest. It is interesting, then, that the performance of gold in these two currencies has had a high degree of correlation since the fall of Lehman Brothers and the onset of the crisis as we know it. As resource exporting countries we have been (rightly or wrongly) painted with the same brush as Australia. I don’t have the data for Canada, but assume that it would be in a similar position. The chart below shows how these two currencies have almost perfectly matched each other since the end of August 2008.

    The above chart also shows that the gold price in both currencies has not quite reached the highs of February 2009. It will be interesting to see whether this level gets breached in the next couple of months, or whether there will be sterner resistance.

    For more investment news and views click here to see our Facebook page.

    Take care,

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

    Permalink2010-10-14, 18:33:04, by Mike Email , Leave a comment

    Global markets positive ahead of earnings season

    Local markets

    At 12:00 on Thursday, the JSE All Share had edged up 0.02% on higher commodity prices and a weakening dollar-euro exchange rate.

    The rand was trading at R6.76 to the US dollar at noon, with traders anticipating further strengthening.

    Gold had risen 0.45% to cost $1 377.90 an ounce, reaching a record high as the euro pushed past €1.41 to the US dollar.

    International markets

    On US markets yesterday, the Dow Jones closed 0.69% higher while the Nasdaq rose 0.96% after corporate earnings were better than expected and dollar weakness raised appetite for shares.

    Japan’s Nikkei average rose 1.91% to reach its best level in a month, after firmer commodity prices spurred buying of resource stocks.

    Germany’s DAX had risen 0.58% around noon while France’s CAC40 had edged up 0.20%, thanks to gains in mining shares as well as positive expectations for US monetary easing and solid corporate profits.

    Britain's FTSE 100 had lost 0.13% by midday SA time, eroding earlier gains in mining shares after stronger commodity prices.

    Share price news

    Rising 6.25% to sell at R1.02 a share at midday was Sacoil Holdings Limited (share code: SCL) in the oil sector, after investors traded 749 152 shares in 49 deals.

    Litha Healthcare Group Limited (LHG) climbed 4.60% to R1.82 a share, after 47 deals exchanged 456 948 shares.

    Losing 2.70% was gold miner Pan African Resources PLC (PAN) whose shares fell to R1.08 after 1 226 383 shares were sold in 73 deals.

    116 deals saw the trade of 1 478 665 Merafe Resources (MRF) shares, which sent the share price down 3.36% to R1.44 a share at noon.

    Permalink2010-10-14, 12:25:41, by Natalie Email , Leave a comment

    Possible monetary easing by US Federal Reserve boosts sentiment

    Local markets

    At midday on Wednesday, gains almost across the board supported a 1.09% rise in the JSE All Share, as global markets were lifted by positive sentiment.

    The rand-US dollar exchange rate was R6.82 at 12:00, remaining steady around its overnight levels.

    Gold cost $1 360.05 at noon, up 0.72% as a weaker dollar provided support, after a US Federal Reserve meeting indicated that monetary easing might be needed in the near future.

    International markets

    On US markets, the Federal Reserve indicated that the central bank may once again flood markets with cheap cash to revive economic recovery. The Dow Jones ended 0.09% higher, while the Nasdaq gained 0.65%.

    In Japan, the Nikkei average edged up 0.16% at its close this morning after positive forecasts by Intel Corp improved sentiment and led to short-covering by investors.

    Hong Kong’s Hang Seng rose 1.45% to reach its highest level in 28 months after gains in blue-chip shares and rebounding property shares.

    Britain's FTSE 100 had risen 1.32% by midday SA time, as gains in commodity shares came after optimistic economic data from Asia, and possible further monetary easing in the US raised risk appetite.

    Share price news

    After 10 deals totaling 13 875 029 shares, Grand Parade Investments Limited (share code: GPL) rose to R2.45 at noon, a gain of 4.26%.

    In the metals and minerals sector, Petmin Limited (PET) rose 3.15% to R2.95 a share after 2 232 067 shares were traded in 47 deals.

    Mobile Industries ORD (MOB) in the shipping and ports sector fell to R2.62 a share, a loss of 1.13% as investors exchanged 22 221 shares in 4 deals.

    Construction firm Basil Read Holdings Limited (BSR) lost 0.95% as shares fell to R12.47 each at midday, after 38 466 shares were traded in 22 deals.

    Permalink2010-10-13, 12:30:43, by Natalie Email , Leave a comment

    Global trade finance

    Yesterday we touched very briefly on the hotly debated issue of global currencies and the pressure that this is causing.

    This chart below, from Der Spiegel clearly indicates the problem that has concerned Washington for some time, but is escalating.

    In 2009 the US racked up a $227 billion trading deficit with China. At the same time China recorded a $171,5 billion trading surplus with the European Union.

    Because China is still effectively pegging its currency to that of the US and not letting it appreciate naturally – as it would given the trade surplus – China is able to maintain its cheap exports into the US and to the EU.

    As American importers sell dollars to buy yuan, and in turn use these yuan to pay for the Chinese merchandise, so it puts upward pressure on the yuan relative to the dollar. In order to peg the rate, the PBOC has to buy dollars and sell yuan.

    A stronger currency for China would have an immediate and detrimental affect on its manufacturing and export business to both the US and to the EU – this is something that it cannot politically afford.

    The chart inset on the right is telling – China’s foreign currency reserves have skyrocketed over the last few years to around the $2,5 trillion level. To be sure much of the dollars received is sent straight back in lending to the US government – i.e. invested into Treasury bonds.

    The US has an annual gross domestic product of $14 trillion. The aggregate EU has a GDP of $16,5 trillion and China in nominal terms $5 trillion (but $9,1 trillion in purchasing power parity)

    For a decade from 1995 to 2005 the Peoples Bank of China (PBOC), maintained a fixed exchange rate of the yuan to the US dollar. It set the peg at 8,28 yuan per dollar. This peg was loosened on the 21 July 2005, but the level has been steadily managed to its current 6,67 yuan per dollar, which is still undervalued.

    Because market forces are not left to run their course, adverse consequences of intervention are escalating. The sheer scale of the interconnectedness makes any unwinding process potentially problematic.

    Kind regards

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

    Permalink2010-10-12, 16:55:01, by ian Email , Leave a comment

    Losses in resource shares lead JSE down

    Local markets

    The JSE All Share was 0.51% lower at noon on Tuesday, following movements on global markets. Resources led losses as investors took profits and commodity prices fell.

    The rand was selling at R6.92 to the US dollar around midday, after the dollar strengthened and the rand following a weaker euro.

    Oil fell 0.53% to sell at $82.56 a barrel, after Opec looked likely to continue current production levels at the group's meeting towards the end of this week.

    International markets

    Yesterday, the Dow Jones edged up 0.04% while the Nasdaq clung on to a 0.02% gain after the lightest trading volume of the year on Monday. Investors were cautious ahead of key company results due this week.

    In Japan, the Nikkei index lost 2.09% at its close this morning, after the yen rose to new 15-year highs against the dollar. Investors were cautious ahead of possible intervention in the currency markets.

    Hong Kong’s Hang Seng fell 0.37% as investors took profits after recent gains in property companies, and Chinese banks fell after a report that China has for the moment raised the reserve requirement for six mainland lenders.

    The British FTSE 100 had fallen 0.84% just before noon, after disappointing news from the oil exploration sector and investors act cautiously before news of fresh stimulus measures in the US.

    Share price news

    Gaining 4.08% to sell at R1.02 at midday was Pan African Resources PLC (PAN) in the gold mining sector, after 1 458 330 shares were traded in 53 deals.

    Naspers Limited (NPN) in the broadcasting contractors sector rose 3.79% to R348.20 a share, after 2207 deals exchanged 1 704 081 shares.

    Losing 16.67% by noon was Silverbridge Holdings Limited (SVB), whose shares fell to R1.60 after 152 054 shares were sold in 14 deals. Silverbridge announced this morning that EPS and HEPS for the six months ended 31 August 2010 are expected to decline in comparison to the same period last year.

    Insurance brokers Glenrand MIB Limited (GMB) fell 3.12% to R1.55 a share, after 8 deals exchanged 119 157 shares by midday.

    Permalink2010-10-12, 12:14:18, by Natalie Email , Leave a comment

    Currency wars

    Into the third year of the global financial crisis and the many of the outcomes are still dominating discussions. A major headache for many countries is the flood of newly created money, which has played havoc with exchange rates.

    At the weekend IMF meeting, the US is calling the IMF to increase its surveillance of exchange rate policies and on reserve accumulation policies saying that excess reserve accumulation is leading to serious distortions in the global financial system.

    At the same time China continues to hold its currency down, not allowing it to naturally appreciate relative to its main export countries, with the premier saying that China's social order will be threatened if the yuan would rise by 20%. Their view is that the US is destabilising emerging economies by allowing ultra loose monetary policy which in turn is flooding the emerging world with money.

    Last week, Dominique Strauss-Kahn, head of the International Monetary Fund, warned of a currency war if countries manipulate their exchange rates to solve domestic problems. His comments echoed those of Brazil's finance minister, who said that exchange-rate conflict threatened the global financial system.

    It is difficult to identify which of the two major actions is having a more serve impact on global currencies.

    What no-one wants is for the currency issues to turn into a full scale trade problem, where countries begin to hike up trade tariffs in order to restrict imports.

    But at the same time, what is also not that clear is whether additional money creation in the form of a second round of quantitative easing from the US Federal Reserve, will boost aggregate demand and start moving asset prices up.

    Some of the recent currency positions:

    The Swiss franc traded to a new high relative to the US dollar. From a level of CHF 1,70 in 2002, the dollar has steadily weakened to CHF0,9555 last week.

    The Japanese yen traded at a 15 year high relative to the dollar. It was last trading at 81.99 yen to the dollar.

    China will only gradually let its currency appreciate relative to the US dollar, effectively managing a peg to the dollar. The dollar is trading at around CNY6.67

    The Australian dollar is trading close to parity with the US dollar – the strongest level since they ended exchange controls in 1983.

    Gold, not only a commodity, but more a currency of last resort, has been steadily climbing – in US dollar terms at least – to around $1350/oz, last at $1347/oz.

    The rand is at R6,87/dollar.

    As emerging markets have been huge buyers of US dollars to try and stabilise their appreciating currencies, so foreign exchange reserves have escalated. The Wall Street Journal reported that Asia forex reserves of 11 central banks, (excluding China) climbed to a record in September to $2,963 trillion. China reports quarterly – at the end of June it held $2,454 trillion.

    Clearly many countries are struggling with exchange rates and the implications on their local economies.

    Kind regards

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

    Permalink2010-10-11, 17:30:40, by ian Email , Leave a comment

    Global markets up on hopes for further stimulus in US

    Local markets

    At midday on Monday, the JSE All Share had risen 0.23% despite losses in resource and oil and gas shares, as the local bourse looked to stronger US markets for direction.

    The rand was trading at R6.87 to the US dollar at noon, mostly unchanged from weekend levels after thin trade.

    Oil had gained 1.12% to sell at $83.93 a barrel, on hopes that the US Federal Reserve would announce new economic stimulus measures.

    International markets

    On Friday on US markets, the Dow Jones closed 0.53% higher while the Nasdaq climbed 0.77% after weak jobs data provided further motivation for a monetary injection by the US Federal Reserve.

    The Nikkei was closed today for a public holiday in Japan.

    In Hong Kong, the Hang Seng closed 1.15$ higher this morning, reaching above a 2-year peak and leading a general rally in Asian equities.

    In Britain, the FTSE 100 had edged up 0.24% just before midday as investors anticipated further stimulus by the US Federal Reserve after Friday’s weak jobs report.

    Share price news

    Amongst the top movers up at midday was Coal of Africa Limited (share code: CZA) whose shares rose to R9.88, a gain of 5.89% after 175 455 shares were traded in 35 deals.

    Brait SA (BAT) in the investment bank sector rose 3.02% to R23.50 a share, after investors exchanged 126 685 shares in 85 deals by noon.

    In the construction sector, Aveng Limited (AEG) fell 3.50% to R40.55, after 368 deals saw the trade of 271 215 shares.

    After 939 deals of 3 781 782 shares, Firstrand Limited (FSR) slid to R20.53 a share, a loss of 2.14%.

    Permalink2010-10-11, 12:19:21, by Natalie Email , Leave a comment

    Tax considerations on investment vehicles

    The current generation will one day be known as the generation that invented unlimited choice.

    This creates a problem for many people because unlimited choice often distracts people from what they are supposed to do. How often has it happened to you that you sit in front of your computer and before you know it you have been sidetracked by another email or article on the web which had nothing to do with what you planned to do?

    Too much information can be our downfall if we are not disciplined in saying “No” to some “stuff” even if it is “good stuff”. The quality decision makers will be those that learn the art of being focused.

    This is so important when dealing with investments.

    We believe private clients should focus on the following key items:

    1. Investment objective of my assets e.g. I am targeting a return of CPI + 5% over a 5 year period.
    2. Asset allocation i.e. what should my allocation be to the different asset classes in order to secure my investment objective?
    3. Deciding on a portfolio manager. Who am I going to appoint to manage my portfolio or am I going to manage it myself?
    4. Investment vehicles … which vehicle provides adequate tax efficiency for me?

    Let’s look at the last point on this list today.

    One of the important factors for private client is to reduce their tax liability as far as possible and also to extend the payment of the tax into the future as far as possible.

    How could this be achieved?

    1. Direct share portfolios:
    Many private clients prefer their own share portfolio as a “hands-on” approach to managing their investments. It is an exciting structure because you have “your own” portfolio. However, from a tax point of view it is not ideal because capital gains tax is paid on every trade and if trades are too frequent the gains could become “income” by nature.

    2. Endowment policy:
    One option is to ring-fence the share portfolio or unit trust portfolio in an endowment policy. This way the capital gains are taxed at a 7.5% rate and income at a 20% rate. Some life companies offer better rates than these depending on their internal tax liability. These unit-linked endowment policies are very flexible and could reduce the tax liability significantly if one gets competitive tax rates.

    3. Unit trusts:
    Private clients sometimes dislike unit trusts because of their view that unit trusts offer “bad returns”. At the end of the day a unit trust is just an investment vehicle i.e. legal structure. The performance of the unit trust depends 100% on the underling investments in the unit trust. E.g. you could have a unit trust where the underlying holdings are only shares and the performance of the trust will be 100% linked to the return of the share portfolio. One advantage is that the investor only attracts a capital gain when the investor sells units from the unit trust and not when shares are bought and sold within the unit trust itself.

    4. Retirement annuities:
    Private clients sometimes dislike retirement annuities because of its high cost structures, penalties, and poor performance. However, these are generally comments about the old natured retirement annuities. Nowadays retirement annuities can be unit-linked. Therefore the retirement annuity is again just a legal structure. The investor can decide what underlying investments he wants to invest in. It can even be a share portfolio. However, tax wise a retirement annuity is an excellent vehicle.

    So if you ask many private clients the question: “Which vehicle they prefer?” they will most likely say the direct share portfolio and the least likely say retirement annuities and endowment policies. However, from a tax point of view (and net cost) there can be better solutions … even though at face value they don’t always appear so “attractive”.

    Have a fantastic weekend

    Kind regards

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

    Permalink2010-10-08, 16:53:32, by ian Email , Leave a comment

    Global markets wary ahead of US employment data

    Local markets

    On Friday at 12:30, the JSE All Share had lost 0.26% as investors act cautiously ahead of US employment statistics due later today.

    The rand had weakened fractionally to trade at R6.92 to the US dollar, as the market awaits the key US employment data due later.

    Gold fell 0.54% to $1 325.45 an ounce after a rebound in the dollar, as investors expect new stimulus measures from the US Federal Reserve.

    International markets

    Yesterday, the Dow Jones lost 0.17% while the Nasdaq ended flat, up 0.13% after US markets were pressured by losses in commodities and a firmer dollar.

    Japan's Nikkei index fell 0.99% this morning after the yen rose to almost a 15-year high against the dollar, and as investors took profits after recent gains.

    In China, the Shanghai index closed 3.13% higher as investors returned from a public holiday. In Hong Kong, the Hang Seng also gained slightly, edging up 0.26% by its close.

    Britain’s FTSE 100 had slipped 0.50% by 12.30, with losses in banks offsetting gains in mining shares, as investors watch out for September’s US non-farm payrolls report.

    Share price news

    South Ocean Holdings Limited (share code: SOH) soared 12.37% this morning to sell at R2.18 a share at 12.30, after 117 400 shares were traded in 20 deals.

    Petmin Limited (PET) rose to R2.84, a gain of 3.27% after investors exchanged 45 750 shares in 10 deals.

    DRDGold Limited (DRD) fell 3.69% to R3.65 after 37 deals exchanged 113 893 shares.

    After 227 deals of 417 431 shares, Sappi Limited (SAP) lost 2.32% as shares fell to R34.58 each just after midday.

    Permalink2010-10-08, 12:46:01, by Natalie Email , Leave a comment

    JSE flat; awaits US jobs data for direction

    Local markets

    At 12:30 on Thursday, the JSE All Share had risen 0.27% as investors were on the lookout for the release of US jobs data tomorrow for direction.

    The rand was trading at R6.85 to the US dollar, strengthening slightly as the dollar continued to come under pressure.

    Brent crude oil cost $85.14 a barrel, up 1.36% as investors anticipate central banks will ease monetary policy to revive economic recovery.

    International markets

    Yesterday on US markets, the Dow Jones edged up 0.21% while the Nasdaq fell 0.80% after tech shares were hit by concerns about demand for semiconductors and data storage.

    Japan's Nikkei index slid 0.07% at its close this morning, as investors factored in the Bank of Japan’s surprise rate cut on Tuesday.

    European shares were mixed just after midday, with France’s CAC40 up 0.33% and Germany’s DAX down 0.14% ahead of interest rate decisions and policy indications from the European Central Bank.

    Britain's FTSE 100 was 0.19% up after gains in pharmaceuticals managed to offset losses in bank shares, as investors awaited interest rate decisions from the Bank of England.

    Share price news

    Redfine Property International Limited (share code: RIN) had gained 4.38% by 12.30 to sell at R6.20 a share, after 585 706 shares were traded in 35 deals.

    Coal of Africa Limited (CZA) rose 4.05% to R9 after 22 deals exchanged 114 688 shares.

    Builders’ merchants Winhold Limited (WNH) fell to R1.31 a share, a loss of 2.96% after 518 630 shares were sold in 14 deals.

    After 611 deals in which 1 105 776 shares were traded, Steinhoff International Holdings Limited (SHF) fell 1.23% to R20.84 a share.

    Permalink2010-10-07, 13:12:55, by Natalie Email , Leave a comment

    Global markets strengthen on hopes for further stimulus

    Local markets

    On Wednesday at midday, the JSE All Share had risen 0.82% with gains in basic materials shares leading the upward movement. However, gold mining and industrial stocks were losing ground.

    The rand was exchanging at R6.88 to the US dollar, strengthening slightly as the dollar weakened.

    Gold climbed 0.46% to cost $1 346.20 an ounce at noon, selling at a record high after dollar weakness and on expectations that the US Federal Reserve may ease policy.

    International markets

    Yesterday, the Dow Jones gained 1.80% and the Nasdaq soared 2.36% as investors became more convinced that central banks would further boost weak economic recovery worldwide.

    Japan’s Nikkei average climbed 1.81% this morning to reach its highest close in two months after the Bank of Japan's credit easing boosted financial and property shares.

    Hong Kong’s Hang Seng rose 1.07%% despite technically overbought conditions, taking a lead from gains on US markets on hopes of further intervention by international central banks.

    The FTSE 100 had risen 1.02% by midday Johannesburg time, on hopes for further stimulus measures worldwide, which spurred gains in commodity shares.

    Share price news

    Gold One International (share code: GDO) had risen 5.79% to R2.01 a share by midday, as 187 063 shares were traded in 18 deals.

    In the metals and minerals sector, Anglo American PLC (AGL) saw the exchange of 4 973 707 shares in 3 633 deals, which boosted the price by 3.27% to sell at R301.25.

    After 78 deals exchanged 563 694 shares, Esorfranki Limited (ESR) in the construction sector experienced a 4.12% loss as shares fell to R1.86 each.

    Shares in Jasco Electronics Holdings Limited (JSC) slid 2.26% to R1.30 at noon, after investors traded 149 937 shares in 7 deals.

    Permalink2010-10-06, 12:13:00, by Natalie Email , 1 comment

    Volatility and long term returns

    The JSE gained 8,7% for September – which also happens to be its total return for the year to date.

    While an investor that commenced his investment on the JSE just one year back would be satisfied with a 12 month return of 21%, an investor that commenced 3 years back will be dissatisfied with a compounded annual total return of 2,2%.

    The question is why has 3 years produced such a poor result for patient investors? Even if the next 2 years give a compounded return of 25%, these investors will only receive a five year compounded 10,7% return.

    The answer lies in the fact that 3 years ago the market was expensive, rose to an even more expensive level in May 2008 and then fell sharply.

    The chart below reflects discrete annual nominal returns from 1960 to 2009. Over this period the average annual return was just shy of 20%. It is evident that while the majority of years have produced positive numbers, in nominal returns at least, there have been a very years with negative numbers.

    In 1970 the total decline on the JSE was 25,8% (after the receipt of dividends of 3,9%)

    Calendar 2008 was the second biggest decline of 25,7% (after dividends a net decline of 22,5%)


    Source : Old Mutual

    It’s this large downside volatility that takes time to recover from. But if history is anything to go by investors will over time be rewarded for taking on the additional risk.

    This is not to suggest a fixed allocation to equities, but to vary depending on the valuations. Today the JSE All Share moved through its mid April high and looks set to move higher. It is at expensive levels, but the sheer weight of monies can continue to drive it up further. The rand was last at R6,89/dollar. Gold is trading at close to $1340 and the gold index gained almost 2,5% on the day.

    Kind regards

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

    Permalink2010-10-05, 17:27:08, by ian Email , Leave a comment

    JSE up after investors consolidate gains

    Local markets

    Tuesday noon saw gold mining shares leading the JSE All Share up 0.17x% higher after yesterday’s profit taking, as investors consolidated gains.

    The rand was trading at R6.99 to the US dollar, following a weaker euro-dollar exchange rate.

    Gold cost $1 325.32 an ounce at 12:00, recovering 0.78% after a recent dip as Asian jewelers bought the physical precious metal.

    International markets

    On US markets, the Dow Jones fell 0.72% while the Nasdaq lost 1.11% yesterday after profit taking, and as neutral economic data and euro zone debt concerns spurred selling.

    The Japanese Nikkei rose 1.47% this morning after the Bank of Japan effectively reduced interest rates to zero, which softened the yen and boosted exporters.

    Hong Kong’s Hang Seng ended flat, edging up 0.09% as investors felt conditions were overbought, and were influenced by losses on US markets.

    Britain's FTSE 100 had risen 0.52% by noon, after gains in banks and oil shares offset losses in mining stocks.

    Share price news

    At midday, UCS Group Limited (share code: UCS) in the software sector had gained 5.13% as shares rose to R2.05 each, after investors traded 27 100 shares in 4 deals.

    Also amongst the top movers up was 1time Holdings Limited (1TM), as investors exchanged 44 451 shares in 2 deals, sending the share price up 2.97% to R1.04.

    Blue Label Telecoms Limited (BLU) fell 2.33% to R6.29 a share, after 69 deals sold 5 547 546 shares.

    In the construction sector, Murray and Roberts Holdings Limited (MUR) lost 1.51% after 644 521 shares were exchanged in 440 deals, which saw the share price fall to R44.32 at noon.

    Permalink2010-10-05, 12:12:10, by Natalie Email , Leave a comment

    Local retail shares from a foreign perspective

    Global fund managers, Orbis highlighted the major price movements that South African retail shares have had over the last 9 years. Over this period of time, investors in local retailers have seen exceptional returns as prices have moved up dramatically.

    There has been a classic double whammy for investors over this time period.

    A double whammy is where company earnings move up AND there is an expansion in the valuations, providing exceptional returns.

    The table below reflects the increase in these selected retail investments.

    For example, Shoprite’s earnings have increased 9 times from 6.8 cents to 61.9 cents, while the valuation on these earnings has also expanded from 7,8 times to 22,9 times, moving the price up 27 times!

    Mr Price’s earnings expanded 7 times, but the price moved up 20 times. These exclude dividends.


    Source : Orbis, I Net Bridge

    These prices are in US cents translated at the prevailing exchange rates.

    December 2001 just happened to be a period of extreme weakness for the rand relative to foreign currencies.

    It was at this time that South African investors were scrambling to move funds offshore as the rand was at R12 to the US dollar and R17 to the pound. In other words the entry level for foreigners was, with the benefit of hindsight, extremely attractive.

    Over the past 10 years consumer spending improved as credit was extended from a relatively low base. This has subsequently contracted, but what continues to attract foreigners is the future emerging market growth in consumption.

    A lot of the exceptional return has to do with the low base. At the time with extreme rand weakness, it was not that obvious to both local and foreign investors that local retailers would do well over the next 9 years.

    From these more expensive levels, even with reasonable growth prospects, it is unlikely that the next 10 years will produce 20 to 27 times returns, despite the fact that these are very well run businesses.

    Vincent Heys is going to be in Jhb next week, Monday to Wednesday. If you are a financial advisor, looking to work more closely with Seed, please do not hesitate to contact us on Vincent@seedinvestments.co.za

    Kind regards

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

    Permalink2010-10-04, 16:58:03, by ian Email , Leave a comment

    Losses in gold miners weigh on JSE


    Local markets

    Gold mining shares had lost 0.84% by noon on Monday, dragging the JSE All Share down 0.02%.

    The rand was selling at R6.95 per US dollar at 12:00, remaining near last week's highest rate in two-and-a-half years.

    Brent crude oil was selling at $83.40, up 1.71% on hopes that US economic recovery will trigger a monetary boost that would increase energy consumption.

    International markets

    On Friday, US markets rallied on gains in resource stocks after the release of positive Chinese manufacturing data. The Dow Jones closed 0.39% higher while the Nasdaq inched up 0.09%.

    Japan’s Nikkei fell 0.25% this morning, ahead of a Bank of Japan policy decision that investors expect will ease the market.

    Hong Kong's Hang Seng rose to end 1.17% higher this morning, thanks to gains in oil-related shares such as CNOOC Ltd.

    Britain’s FTSE 100 had lost 0.64% by noon SA time, due to losses in energy shares and falling investor confidence before the release of economic data later this week.


    Share price news

    Micromega Holdings Limited (share code: MMG) in the business support services sector rose 10.74% to R1.65 at noon, after 2 deals traded 28 000 shares.

    After 48 500 shares were exchanged in 14 deals, shares in Anooraq Resources Corporation (ARQ) climbed 8.49% to sell at R7.28.

    Clicks Group Limited (CLS) fell 2.50% to R41.65 a share, after investors sold 691 160 shares in 649 deals.

    Losing 1.99% at midday was Mr Price Group Limited (MPC) whose share price fell to R53.80 after 334 deals traded 190 539 shares.

    Permalink2010-10-04, 13:48:04, by Natalie Email , Leave a comment

    JSE slides despite gains on global markets

    Local markets

    On Friday at noon, losses practically across the board had dragged the JSE All Share down 0.38%. Resource shares bucked the trend, edging up 0.24% by lunch.

    12:00 saw the rand sell at Rx to the US dollar, strengthening fractionally ahead of the weekend.

    Oil climbed 3.9% to $82.42 a barrel, returning to above $80 to reach a new seven-week high. Investor confidence was given a boost after better-than-expected economic data from the US and China.

    International markets

    On Thursday the Dow Jones closed 0.44% lower, while the Nasdaq lost 0.33%, though US markets ended their best quarter in a year, after data showed the economy was healthier than expected.

    The Japanese Nikkei rose 0.37% this morning on short-covering after yesterday’s slide and better-than-expected US economic data.

    European markets looked optimistic at midday, after gains in the energy sector and positive Chinese manufacturing data. France’s CAC40 had risen 0.53% while the German DAX lifted 0.75%.

    Britain’s FTSE 100 had gained 0.93% by noon, thanks to stronger energy shares after increasing confidence spurred a rise in crude prices.

    Share price news

    Diamond company Trans Hex Group Limited (share code: TSX) rose 2.35% to R3.48 a share at noon, after 87 deals traded 266 925 shares.

    In the electrical equipment sector, Arb Holdings Limited (ARB) rose 1.75% after investors exchanged 288 500 shares in 13 deals, which sent their share price up to R2.90.

    After 1 110 deals totaling 640 761 shares, Naspers Limited (NPN) fell 2.14% to sell at R333.52 at 12:00.

    Woolworths Holdings Limited (WHL) fell 2% to trade at R26.50, after 922 771 shares were exchanged in 346 deals.

    Permalink2010-10-01, 12:25:34, by Natalie Email , Leave a comment