STANLIB's Weekly Focus 11 February 2008
EXECUTIVE SUMMARY OF STANLIB’s WEEKLY FOCUS
JP MORGAN DOWNGRADES SA EQUITIES TO NEUTRAL
* Electricity problems have caused JP Morgan to downgrade their 2008 earnings forecast from 20% growth to 15% growth (economic growth downgraded from 4-5% to 3-4%).
* The JSE FINDI (down 19% from its October high) has broken its almost five-year-old bull market trend, leaving it vulnerable to further downside, despite what appears to be excellent value in a number of shares.
* The Resources Index in contrast is up 9% in 2008 and the STANLIB Resources Fund is a mere 2% from its record high.
* Long-term investors could buy on a gradual phase-in basis into Financial & Industrial shares/unit trusts because the value looks excellent (forward price-to-earnings ratio of 10.3, the lowest since 2003, well below the twelve year average of 14.3)
CREDIT CRISIS STILL IN FULL SWING OFFSHORE
* G7 Finance Ministers fear that sub-prime write-offs could treble from the $120bn already written off.
* The next two weeks will be crucial because it sees the first audited accounts from financial institutions since the crisis started.
* The risks remain high, with credit contracting in the US, UK and Europe, which is serious because credit is crucial to economies.
* The biggest short-term threat relates to the possible downgrading of the US bond insurers’ AAA rating, which would have grave repercussions if it were to happen.
SNIPPETS OF INFO
* BCA remain positive about Emerging Markets because there is still excess liquidity (more than enough cash) around and because companies are still earning much higher rates of return than the cost of money.
* BCA also believe that the big offshore stock markets are currently quite cheap.
* We have raised our property holding from 12-15% in the STANLIB Conservative and Moderately Conservative Funds to take advantage of the 20% fall in property shares.
ECONOMIC UPDATE
* Last week President Mbeki delivered his State of the Nation address which had lots of promise, but little detail yet again.
* Tax revenues are again ahead of target leading into the budget. This trend should come to an end with the slowing of the economy.
* Vehicle sales improved in January 2008, after a dismal end to 2007, although passenger vehicle sales continue to struggle.
* Last week our STANLIB exchange rate forecasts were updated, as South Africa’s economic conditions have changed materially in a relatively short-period of time.
We are now expecting the USDZAR rate to be R8.00 at year end.
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