Mixed messages

The RSA equity market, currently at 22039; London was quiet last week and the USA unchanged.

The local equity market has returned almost to its previous high and is now expensive again, says Wayne McCurrie, deputy CEO of Advantage Asset Managers.

The resources shares (the expensive part of the market) have continued to rise, at the expense of the (cheap) shares, and we are firmly of the opinion that the commodity cycle has turned. The ryder is that it is still early days and we could be wrong.

Basically resource shares are expensive if the commodity cycle does turn down over the next three to five years, and while certain industrial and financial shares offer good value, this will not stop them from falling if sentiment is against them.

We have said this before, and it is still true - the really easy money has been made and investors shouldnt expect another major rally from this level.

Based on our best view forecast, we believe that the equity market would be expensive above the 20 000 level. While this is a moving target, because the fair value of any market increases over time as earnings increase, this still remains our best estimate.

What this means is that if you buy equity above this level, you will most likely not get the expected long term return that equity does deliver.

Says Malcolm Holmes, CIO at STANLIB Multi-Manager, two successive interest rate increases of 50 basis points in June and August affected sentiment, but after a substantial retreat in some market segments, some investors detect value opportunities and are inclined to test the waters.

Internationally the London market ended a quiet week slightly lower, as international news overshadowed a dearth of domestic news.

A bloodless military coup in Thailand saw the overthrow of Thaksin Shinawatra (who was in the US at the time), while in Hungary; the prime minister publicly admitted that he had lied to parliament about the state of the nations finance for the past two years.

Meanwhile in the US, in a widely anticipated move the Fed kept rates unchanged, although the outlook was slightly improved, as policymakers made reference to a reduced impetus from energy prices. The oil price remained soft last week, temporarily dipping below $60 a barrel.