STANLIB's Weekly Focus 03 November 2008

EXECUTIVE SUMMARY OF STANLIB’s WEEKLY FOCUS

MARKET WEEKLY

THE MONTH THAT WAS - HORRENDOUS

• October has frequently in the past been a tough month for markets and this was unquestionably one of the worst.
  • The US S&P 500 Index gained 10.5% during the week (best in 34 years), but still lost 16.9% in October.
  • The JSE All Share Index gained 13% last week, but was still down 12% for the month of October (-25.7% in dollars).
  • There were some amazing share price jumps last week, led by MTN’s 47.3% gain, then Foschini’s 30%, Truworths 30% and Mr Price 27.6%.
• The rand depreciated by 15.6% against the dollar in October and by 6.2% against the euro.
• The All Bond Index declined slightly by 0.5% in October, but the inflation-linked Bond Index gained 3.1%.
• Among selected Emerging Markets, the MSCI China Index performed best (-22.7% in dollars), while the MSCI Russia Index was the worst performer (-35.3% in dollars).
• International Property shares got slaughtered, with the STANLIB International Property Fund down a whopping 27% in October in dollar terms (-13.5% in rand terms).
• The SA listed property index lost just 6.6% during October after gaining an impressive 8.4% last week.

SO WHERE TO NOW?

• Our market has been and still is offering superb value for brave and patient investors.
  • Emerging Markets in general are offering great value on forward price-to-earnings ratios (PE’s) of 8.
• Offshore developed market shares had also reached attractive levels.
• We have seen the dry bulk shipping index declining 90%, indicating that world trade has almost ground to a standstill, partly because of inadequate bank lending.
• Bank-to-bank lending seems to be slowly returning as the cost of this lending gradually declines to more normal levels (not quite there yet).
• But all-in-all, the panic of October has created some excellent long-term investment opportunities.
• Some believe that our market could meander along in a general sideways move for a year or two until the big global economies begin to recover from the massive deleveraging underway. On the whole, companies are in better shape.

ECONOMIC WEEKLY

SOUTH AFRICA

• Credit growth and money supply slowed appreciably further in September.
• It appears that CPIX (consumer inflation less mortgage costs) peaked in August, and should ease further in the months ahead.
  • CPIX inflation rose modestly, with the annual rate falling to 13.0%y/y, from 13.6%y/y in August.
• SA PPI (Producer Price Index) inflation was much better than expected in September.
  • In September 2008, PPI declined by a substantial 3.5%m/m
  • The better than expected outcome was mainly due to a large decrease in electricity tariffs, which is seasonal and expected, as well as fall-off in metal and oil prices.
• During the past week market conditions have shown a very welcome improvement. Both PPI and CPIX inflation were better than expected, private sector credit growth moderated meaningfully, the Rand has pulled-back somewhat, after having been massively oversold, the SA risk spread has contracted, albeit marginally, foreigners turned net buyers of SA equities yesterday for the first time this month, the bond market rallied and the equity market rebounded by more than 10%. All good news, from an interest rate perspective, in a sea of bad news.
• SA unemployment rate rose fractionally in Q3 2008 to 23.2%.
  • Overall South Africa’s unemployment rate remains far too high by historical and international standards.

GLOBAL

• Bank of Japan cuts rates for the first time in 7 years.
  • The Bank of Japan (BoJ) opted to cut interest rate by 20bps to 0.30%.
• US consumer confidence crumbled in October to the lowest level ever recorded.
  • In October 2008, the estimate of US consumer confidence, as measured by the Conference Board, crumbled to an all-time low of 38.0 index points.
  • The overall level of confidence is consistent with a severe recession in the US.
• US GDP declined in Q3 2008.
  • In Q2 2008 US GDP fell by 0.3%q/q, annualised.
  • Overall, we forecast US GDP growth slowing to a mere 0.1% in 2009, down from an expected 1.6% in 2008 and 2.0% in 2007.
    

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