STANLIB's Weekly Focus 28 January 2008
EXECUTIVE SUMMARY OF STANLIB’s WEEKLY FOCUS
SA’s ‘SHARE PRICE’, THE RAND, DIPS AGAIN, UNSURPRISINGLY
· Last week’s shutdown of our biggest exporters (coal, platinum and gold mines) was yet more bad news in an unusual string of bad news so far in 2008.
· Partly because of the negative sentiment generated by the news and partly because SA already imports far more than it exports, the rand (our “share price”) has weakened again. A weakening rand could aggravate inflation, which could cause even higher interest rates and squeeze the economy further.
· In particular, the rand to the Euro looks bad (a five year low today), as the charts indicate a breakout, implying the rand is set to weaken vs. the Euro.
· The good news is that the mines are getting at least 50% of their power back today and possibly most of it by the end of the week.
· BJM’s strategist, Herman van Papendorp, has just turned bullish on the JSE, looking for a return of 25% in 2008, partly because of peaking interest rates and an assumption of no recession in the US.
· He expects 15% in the next six months, far better than cash’s 5.2% return over this period (3.9% after tax) or bond returns of 7.3%.
· It is true that stock markets usually bottom when the fear factor (“risk aversion”) is at its highest AND good value is evident. Arguably, we may be close to this point. Sentiment is currently extremely negative.
ELECTRICITY CRISIS MAY HELP LISTED PROPERTY COMPANIES
· Despite current electricity cuts hurting shopping malls, the cuts may eventually assist listed property companies by increasing their rentals on existing properties, especially industrial property and office blocks.
· This is because the shortage of electricity is already causing a delay in new projects, a number of which are being rejected. This could cause rentals on existing properties to rise more strongly.
· The listed property index is down over 20% from its high just two months ago. The historic dividend yield is now about 7.5% and forward yield 8.3% (one year out), which is similar to the ten year bond yield of 8.6%.
· The STANLIB International Property Fund had a nasty 2007, largely because property was badly tainted by the credit crisis because property is usually credit-driven.
· The fund fell 28% in dollar terms from its record high in February 2007. It is currently down 5% in 2008 in dollar terms and slightly up in rand terms.
· Assuming the US at worst slips into a shallow recession; the fund seems to offer decent value now, with dividend yields in some countries as much as 2% higher than ten year bond yields, compared with the 1% discount in SA.
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