Archive for the What the Experts say Category

Efficient Research – Events To Watch: 26 – 30 October 2009

The effect of the global economic slowdown has been felt by fiscal finances this year. An expansionary fiscal policy framework was adopted to counter the recession in South Africa. Over the past year, there have been various infrastructure development projects with an eye on the 2010 Soccer World cup and beyond. There were also significant increases in the unplanned funding to state owned institutions (ESKOM, DENEL, SAA) and social grants expenditure. The extra expenditure on state owned entities also placed continues pressure on state finances. Uncertainty about future expenditure patterns makes it very difficult to estimate the government expenditure for 2010/2011 accurately. It is however very worrying that fiscal expenditure increased substantially during 2009/2010 whilst fiscal revenue is much lower than expected. Read on….

Some Notes On The World Around US – World Equity Markets Towards 2011

Charles Snyman of the Efficient Groep says: 

The current world equity market environment can be summarized as follows:

  • The world is in a good news environment which will probably last through 2010 to somewhere in 2011. Company and economic news in all major world centers will continue to break news better than expected or better
    than the recent history.
  • In the US stocks are not particularly expensive. This is important because the US is probably the driver of world investment sentiment. In South Africa the p/e ratio of the Alsi 40 and the All Share Index is probably very close to the 10 year average.
  • Money market funds in the US still hold many trillions of dollars that needs to be allocated to the equity market. This is likely true for most countries/economies.
  • Lots of international investment cash is being allocated to the emerging markets. This is likely to continue throughout 2010. In SA we have received ZAR55billion this year so far. This is of course one of the reasons for the strong rand.
  • International news reports and anecdotal evidence seems to indicate that many portfolio managers have missed the bull run of 2009.

The above facts may indicate that there will be many buyers if the equity markets are weaker during the next three to six months. This will translate to not much downside potential during this period. After the very strong run in world markets since early March 2009 (the Dow Jones Industrial Index increased from 6457 to 9712 as at close 30 September, an increase of almost 50%) one may expect a period of rest and very possibly some downside potential.

How much? This note proposes that there is much potential demand for equities and that downside price potential is limited. Over the longer term (six to 18 months) we have a healthy economic environment that will stimulate equity markets.

Markets will [however] remain volatile. Read on….

The Weekly Focus

I shall, amongst several other articles, be posting Stanlib’s Weekly Focus only periodically as one of several opinions available on the market.  In order to get a broad-based outlook, various opinions are obviously essential whilst avoiding unnecessary repetitive hollow-backed words.  Read on…….(For those who are not quite up to date with the everyday financial terminology will find the “Glossary of Terminology” useful at the end.)

Efficient Research

MPC Interest Rate Decision – ‘A Huge surprise’ – Report by Freddie Mitchell (Economist)

The SARB lowered its main repo interest rate by 50 basis points to 7%, as effective

from 14 August 2009. There are (also) encouraging signs that the global slowdown may have reached

its lower turning point.  Read on….

Economic and Market Analysis 27 to 31 July

More and more fundamental indicators are starting to show that the world economic recession is subsiding and the past week was no exception. Domestically, South African shares are continuing their upward rally notwithstanding the dark clouds of strikes across most economic sectors. Foreign investors remain positive on South African shares and bonds. Together with the strong rally in the prices of gold and platinum, the rand exchange rate continued to appreciate against all major currencies. Property shares finally started to move positive. Read on..

Economic & Market Analysis June 2009

Though many analysts still hold the view that the recent increase in share markets are

nothing but a temporary correction in a bear market, we are of the opinion that there is

enough fundamental evidence suggesting that the turning point was 3 March 2009 and that the share markets already are in a bull run. Read on..

MPC Interest Rate Decision – Be Careful for that Heartburn, Tito…

The SARB lowered its main repo interest rate by 100 basis points (1%-point) to 10.5%, as effective from 6 February 2009. Read more about the highlights of the MPC Statement.

Economic and Market Analysis January 2009

Despite negative prospects for international economies, there remains optimism that the South African economy will withstand recession woes. Key economic events over the next month may lead to a strong recovery on South African financial markets. Read on

International Update – State of the Nations

Global growth cooled significantly during 2008, with the outlook for 2009 getting gloomier by the day. As growth eased, numerous central banks opted to drop interest rates significantly to stimulate financial markets and support investment sentiment. Lower global demand should (and have already) lead to lower inflationary pressure in the short term, but the worry remains how long the inflation genie will remain in the bottle. Below is a snapshot of a few countries, which are the major engines behind world growth, with their current growth performances and inflationary trends. Read on

Economic and Market Analysis 1- 5 December

World financial markets started to recover last week. Negative sentiment makes way for some optimism, as some of the rescue money in the US is distributed via the banking sector. The Dow Jones on Wall Street ended higher on all four days last week (Thursday was a public holiday). The index had the biggest increase over a week this year of almost 17%. Expectations for further tax relief from the Obama administration early next year, as well as further interest rate cuts support the recovery.  Read on

The Good, the Bad and the (not so) Ugly

The slowdown in consumer inflation from the peak reached in August is a very welcome development.  The Outlook of inflation depends on various factors.  Economist, Doret Els, briefly highlights “The Good”, “The Bad” and “The (not so) Ugly”. Read the rest of this entry…..

Efficient Research – Growth Under Severe Pressure

The weak third quarter GDP figure confirms that economic activity is slowing at a serious pace, but also indicates that, for now, this weakness is limited to certain sectors. The discrepancy between sub-sectors complicates forecasting but could help SA to not enter into a technical recession. What seems clear however is that 2009 is going to be a tougher year and we expect growth to drop from around 3.0% y/y in 2008 to 1.0% y/y in 2009. As general economic activity slows, future consumer and business activity (and confidence) will remain low which limits the prospects of job creation. Hopefully, some monetary easing during 2009 and the prospects of the 2010 World Cup could help in spurring optimism, while we watch the global economic turmoil play out.”  Read the rest of this entry……
 

Economic & Market Analysis

The question whether the JSE will recover during November is uppermost in our minds. Professor Chris Harmse and his research team at Dynamic Wealth have, among others, the following to say at this time:

“Despite a slight recovery of almost 12% in the JSE ALSI (between its lowest level of 17 812 points on 24 October 2008 and the closing at 20 030 points on 7 November 2008), the news of South Africa’s credit rating being revised from a stable to negative outlook– due to the large deficit on the current account of the balance of payments, as well as negative indications that commodity prices will stay under pressure – may cause the volatility on the JSE to continue. Nevertheless, we expect a recovery in share prices in November driven by further sharp decreases in the price of petrol,  slower increases in food prices, sharp decline in the inflation rate, a stronger rand and international portfolio interest in South African shares. The somewhat more positive sentiment globally after the combined efforts by various countries to curb further recessionary pressures should also support commodity prices over the next few months. Therefore resources stocks on the JSE may hold its own.

TECHNICAL ANALYSIS

The Top 40 Index dropped a hefty 48.5% from its high on 22 May, and is now very close to the technical support level of 50%. It seems as if the Top 40 Index is establishing a base for 2008 – the low possibly being made on the 27th October. If the Index does not drop through the low of 16 122, the Top 40 Index will rally into 2009. Accumulating some shares at the current levels should be considered.” Read on

Some Notes on the World around Us

The October 2008 World Financial Crisis – 4 November 2008

The October 2008 world financial crisis in a nutshell:

  • Banks found themselves unwilling to lend because they had run out of capital as a result of bad loans, especially mortgages.
  • This unwillingness to lend also included the unwillingness to lend to one another. As a result interbank money market activity (this is one of the principal lubricants of the industrial ‘gearbox’) virtually seized up. 
  • Apart from one’s bank, the easiest place to obtain cash is to draw on your savings (i.e. sell equity). Americans (individuals, mutual funds, pension funds, hedge funds, etc.) held $5.4 trillion in non-US equity. In Europe, the same situation occurred whilst approximately the same international equity holdings prevailed.
  • The result was a great wave of stock (equity) finding its way to markets, both developed and emerging. Do not underestimate the power of the margin call in a falling market – stock markets are more liquid than debt markets.

What followed was a large-scale international sell-off of any and all equities which was motivated by the dire need to get cash at any cost which further caused mass panic during which shareholders sold without thinking. Continue reading Some Notes on the World around Us

Economic & Market Analysis – Weekly Report

The recovery of share prices around the world was ignited last week Monday after the insignificant announcement that new home sales in the US has increased by 4000 to 464 000 during September 2008. Read on