STANLIB's Weekly Focus 19 May 2008
EXECUTIVE SUMMARY OF STANLIB’s WEEKLY FOCUS
JSE ALL SHARE INDEX SHOWING REMARKABLE RESILIENCE
* Increased appetite for risk by global investors in particular led the JSE All Share Index, the ALSI 40 Index and the Industrial 25 Index to all-time record highs last week. This shows amazing resilience by select JSE sectors considering that the one year NCD (negotiable certificate of deposit) is now yielding over 13%, anticipating two more 50 basis point hikes in the prime rate (June and August).
* The INDI25 Index is dominated by the top seven shares, which comprise 72.4% of the index, namely MTN, Richemont, SAB, Remgro, Naspers and Arcelor Mittal, all of which are in strong uptrends, as opposed to almost all the financial and most other industrial shares.
* Last week witnessed a sudden and unexpected burst of good news for equities, including good results from Investec, even in pound sterling terms, as well as positive news from Murray & Roberts, Didata, Datatec, Spar and Reunert and possible corporate action on Billiton.
* Other good news included ratings agency Fitch estimating that 80% of the credit crisis is over.
* The JSE All Share Index, converted into dollars, is now outperforming both the MSCI World Index and the MSCI Emerging Markets Index and is ahead of both indices since the end of 2007, amazingly enough, especially considering the rand’s fall this year.
JP MORGAN PRODUCE SOME INTERESTING RESEARCH ON THE JSE DURING PERIODS OF RISING INTEREST RATES
* Since the start of the interest rate hikes two years ago in 2006, the JSE Financial & Industrial Index is up 22% compared with the median return of -6.5% two years after the start of previous interest rate up cycles. MTN has contributed 22% of this rise, Richemont 24% and SAB, Arcelor Mittal and Remgro the balance.
* Banks and Financial returns are very similar to past cycles. Historically the best time to buy banks and general retailers has been three to six months before the first interest rate cut, which JP Morgan anticipate only in the second half of 2009.
|SNIPPETS OF INFO
The JSE listed property index is now down 28.7% from its November record, taking it back to 2006 levels. The historic dividend yield is 8.5% and the forward dividend yield one year out is over 10%. The last time the historic yield was over 10% was in 2004, when prime rate was only 11.5%.
ECONOMIC SUMMARY
* Recent comments from the SA Reserve Bank indicate that it is very likely to hike interest rates again in June.
* The SA consumer is clearly under enormous pressure, especially from a cash flow perspective
* Non-discretionary spending on petrol, food, housing etc is forecast to rise by 16% this year for SA consumers, leaving very little over for discretionary spending.
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