STANLIB's Weekly Focus 08 September 2008

EXECUTIVE SUMMARY OF STANLIB’s WEEKLY FOCUS

STRONG DOLLAR AND WEAK DEVELOPED ECONOMIES KNOCKS RESOURCE SHARES FOR SIX

• One of the unanswered questions we had a couple of weeks ago was what effect a strengthening dollar would have on resources and resource shares; the dollar has gained 10% against the euro in the past six weeks.

· The JSE Resources Index tumbled by almost 16%, leaving the index down 37% from its record high in May. Resources currently comprise 43% of the All Share Index, down from 55% in May.

· The copper price has lost 21% in the past two months, and the platinum price has lost 33% in the past two months, but appears to be showing early signs of bottoming.

· Last week’s fall was almost entirely a resources fall. The 57% of the JSE that is in financials and industrials mostly held their own. We continue to like the financials and industrials for accumulation based on the view that SA interest rates peaked in June.

· Sasol’s results for the year to end June 2008 came out early this morning; the STANLIB analyst is forecasting an average price of $119 for the year to June 2009 and is recommending a strong buy on the sharp.

US GOVERNMENT BAILOUT OF FANNIE MAE & FREDDIE MAC A BIG HELP

• Fannie Mae & Freddie Mac are the twin pillars of the US mortgage market, financing 75% of new mortgages in recent months.
• The move by the US government to stand by the two companies, the most dramatic since the start of the US housing and credit crisis, is aimed at preventing a disaster in the US housing market.

SNIPPETS OF INFO

• The MSCI Emerging Markets Index fell sharply last week, falling 8.6% in dollar terms, extending its loss to 30% since May and 35% since the high last October.
• The bigger MSCI World Index of mostly developed markets is down 25% from its high, trading at late 2005 levels.
• STANLIB has over the past few weeks upped the bond weighting in the risk profiled portfolios to neutral from slightly underweight.

ECONOMIC REVIEW

• As expected, the latest SARB’s quarterly bulletin showed that consumers have become more cautious in the face of 10 interest rate hikes and heightened inflationary pressures; however bad debts have started to move up. It highlighted that the ratio of household debt to disposable income improved in Q2 2008 for the first time in 4 years; and the Current Account Deficit improved.

• STANLIB Economics have revised up our GDP (Gross Domestic Product) forecast for 2008 to 3.4% from 2.8% previously.
• Last week passenger and light commercial vehicle sales recorded a shock decline in August.
• Offshore, US consumer confidence took another pounding with the release of the unemployment rate which jumped to 6.1% in August. This was well above expectations, and is the highest unemployment rate in 5 years. The economy has lost a total of 605 000 jobs so far this year. 
  
  

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