STANLIB's Weekly Focus 19 November 2007

EXECUTIVE SUMMARY OF STANLIB’s WEEKLY FOCUS

Items covered: Garzarelli’s view of the US market, Other big developed economies slowing, Resource shares hurting. Snippets of Info.

1. DON’T LOSE FAITH: TOP US MARKET ANALYST GARZARELLI STILL BULLISH

· One of the most experienced US analysts, Elaine Garzarelli, now 55, has been analyzing the US economy and markets for some 30 years and has arguably been one of the very best through much of that time, calling bull and bear markets.

· Garzarelli’s 14-stock quantitative market composite indicator remains bullish at 71%. She makes the point that from the highs, the worst declines for the market indices so far were -8% for the S&P 500 Index, -9.3% for the Dow and -9.6% for the Nasdaq. Her indicators suggest that the S&P 500 correction should be no more than 10% from its peak.

· At current interest rates of 4.16% and her 2008 (below consensus) earnings forecast, the S&P 500 Index is undervalued by over 20%.

· The bad news on the credit crisis is that Elaine suspects we are only about half-way through the crisis.

· Estimates of write-downs are in the $60-$120bn range; so far only about $50bn in losses has been realized.

2. EVIDENCE MOUNTS OF SLOW-DOWN IN OTHER BIG DEVELOPED ECONOMIES

· Japan, Europe and the UK are all showing signs of economic slowdown and Japanese deflation still seems uncomfortably close at hand.

· Bank of England Governor, Mervyn King, said the global credit squeeze would hit UK growth hard early in 2008, with risks of further fallout from falling equity prices and currency tensions that are stalking the world economy (FT 15 Nov), although no recession is expected.

· Governor King also made it clear that he thought equity markets had not yet adequately priced in risk, and warned of the threat posed to the world economy by falling asset prices.

· This is a little surprising as the FT100 Index on the London Stock Exchange is trading at a 20 year low price-to-earnings ratio of just 12, indicating that it already seems to be pricing in lots of bad news with this low rating.

· CEO of Wells Fargo, one the big American banks said the US housing market is experiencing its worst recession since the Great Depression of the 1930’s and it is not over yet.

3. WEAKENING ECONOMIES HITTING RESOURCE PRICES/SHARES

· All these reports of an expected weakening in the big developed economiesarehurting the prices of some of the big commodities, notably copper, which is down 18% in the past month. Slowing economies imply less demand for commodities.

· Most analysts are looking for much lower copper prices, although most analysts have been very wrong so far on this one.

· However, BCA believe the pullback in commodity prices is likely to be temporary as the structural big economic picture remains positive for commodities. But expect near-term weakness, at least until central banks move further to cut interest rates.

· SA mining shares are down quite a lot this morning (Monday) on the back of the correction.

4. SNIPPETS OF INFO

· BCA are warning that a bounce in the US dollar could be imminent because sentiment against the dollar is currently at an extreme (“selling climax overdone”). However, they see only a bounce in an ongoing bear market.

· Interesting to see Richemont’s sales of luxury goods to Hong Kong and mainland China up 33% in the past year.

· JP Morgan South Africa, who have forecast well over the past few years, remain overweight equities in SA because of healthy earnings forecasts and low valuations (low forward PE ratio of only 11.4 for the MSCI South Africa Index one year out, which is a 20% discount to the MSCI Emerging Market Index PE ratio).