Contents Newsflash Economic Update Weekly Market Analysis STANLIB Money Market Fund STANLIB Enhanced Yield Fund...

Transcription

1 23 February 2015

2 Contents Contents... 2 Newsflash... 3 Economic Update... 3 Weekly Market Analysis... 6 STANLIB Money Market Fund... 7 STANLIB Enhanced Yield Fund... 7 STANLIB Income Fund... 7 STANLIB Flexible Income Fund... 8 STANLIB Multi-Manager Absolute Income Fund... 8

3 Newsflash Please note that there will be no commentary from Paul Hansen this week. Economic Update 1. SA consumer inflation down at 4.4%y/y in January 2015, helped by the lower petrol price. 2. SA retail sales grew by an encouraging but moderate 3.4%y/y in December Eurogroup Finance Ministers agreed to extent the bailout funds to Greece for 4 months with conditions attached. 4. An unexpected 25 basis point hike in interest rates by Bank of Namibia. 5. The Bank of Botswana cut rates by 100 basis points. 6. The Bank of Ghana s Monetary Policy Committee kept rates on hold at 21%. 1. In January 2015, SA headline CPI inflation rate declined by -0.2%m/m, with the annual rate of inflation moving sharply lower to 4.4%y/y from 5.3%y/y in December 2014 and 5.8%y/y in November The sharply lower petrol price was the main factor pulling inflation down along with some moderation in food inflation. The petrol price has since fallen further, which should push inflation below 4%y/y next month. Unfortunately, there is currently a significant under-recovery on the petrol price, which should result in a significant price increase in March For 2014 as a whole, SA CPI inflation averaged 6.1%. For 2015, SA inflation is forecast to average an impressive 4.5%, with a low of less than 4%y/y. In 2016 consumer inflation is expected to average a more elevated 6.0%, largely due to base effects as well as some upward drift in the oil price and a fairly substantial increase in the electricity prices (assuming 16%y/y). The forecast, as usual, is highly dependent on the outlook for the exchange rate. CPI excluding food and petrol is still within the inflation target and relatively steady at 5.8%y/y. Core inflation (CPI excluding food, fuel and electricity) remained contained at 5.8%y/y in January 2015, up slightly from 5.7%y/y in December Services inflation eased fractionally to 5.8%y/y, while administered price inflation fell dramatically to 1.4%y/y as a result of the lower petrol price. The inflation rate for pensioners also slowed sharply to 4.3%y/y. As indicated above, consumer inflation is forecast to fall further next month to less than 4%y/y. This is largely due to the lower petrol price as well as a moderation in food inflation. Inflation should then move higher in the second half of 2015 and could reach 6%y/y by year-end. This upward move in the second half of 2015 is due to a combination of base-effects as well as an upward drift in the oil/petrol price and higher electricity inflation. Last year the South African Reserve Bank became more concerned about sustained higher inflation; including the upward drift in core inflation, hence the 0.25bps increase in interest rates a few months ago. However, the recent decline in the petrol price coupled with the ongoing weakness in the domestic economy (aggravated by loadshedding) should allow the Reserve Bank to keep interest rates unchanged for an extended period. Equally, the fact that core inflation is proving sticky at around 5.8%y/y, should prohibited the Reserve Bank from considering a cut in rates.

4 2. Stats SA released the retail sales data for December. According to this latest survey, retail sales fell by a disappointing 0.2%m/m, in real terms, during December 2014, after rising by 1.4%m/m, in November On a short-term trend basis (Q4 2014) consumer spending rose by a very welcome 1.0%q/q, which will provide a very welcome boost to the Q4 GDP growth rate, and suggests that although consumer activity remains relatively subdued, spending continues to avoid outright recession conditions. On an annual basis, retail spending was up 3.4%y/y (real) in December This compares with growth of 2.5%y/y in November and 3.2%y/y in October The latest annual reading was better than expected, which was for growth of 2.5%y/y. The 12-month moving average rate of annual growth appears to stabilise in a range of 2.0% to 2.5%, but should improve somewhat in the first few months of 2015, helped by the significantly lower petrol price. There is clear evidence that consumer income and spending remains under pressure. This partly reflects the illeffects of the higher inflation rate in 2014, but also weak consumer confidence, and the fact that middle to low income earners remain relatively highly indebted due to the surge in unsecured credit two years-ago. All this would suggest that consumer spending will remain under pressure on a trend basis. However, the recent and significant reduction in the fuel price will provide some relief in the first quarter of 2015, while the tourism boom South Africa is currently enjoying should also support the retail and hotel sectors. Unfortunately, along with an increase in the petrol price, the Minister of Finance is expected to raise the fuel levy and other taxes on individuals in the National Budget. The net result is that retail sales growth is most likely to remain range-bound at around 2.5% for most of The Greek government, led by the newly elected Syriza party, submitted a request to the Euro-group Finance Ministers to extend the Master Financial Assistance Facility Agreement (MFFA), which underpins Greece s current financial assistance from the Troika, for 6 months pending a re-negotiation of the terms of the assistance. After a number of meetings, and extensive negotiation the Euro-group Finance Minsters eventually agreed to extend the bailout funds to Greece for four months, but with certain conditions. The key condition requires that the Greek authorities submit a list of reform measures they intend implementing, based on the current arrangement, by Monday 23 February The Euro-group will then decide if the list is sufficiently comprehensive to be a valid starting point for a successful review of the MFFA. If Greece were to exit from the Euro, it would be an economic, social and political disaster. Longer-term, the implications of Greece exiting would depend on how Greece responded to their changed economic circumstances, and their ability to benefit from an extremely weak currency in a world without access to foreign capital markets. Importantly, the most recent market behavior suggests that there would be limited financial contagion should Greece exit. Markets seem to believe that exiting firewalls from the ECB (namely QE/OMT/ESM) would protect periphery countries. Nevertheless, the medium term consequences of a Greece exit could be considerable, with many economic and geopolitical consequences not foreseeable at present. 4. The Bank of Namibia went against market expectations of a hold and increased interest rates by 25 basis points to 6.25% at their Monetary Policy Committee meeting on 18 February This brings the spread between the South African Repo Rate and the Namibian to 50 basis points where it traditionally has been for the past 5 years. The decision was made on concerns about growth in household credit especially in overdrafts and instalment credit which grew by 24% and 19%, respectively over the last six months. The credit was mainly used to finance unproductive goods such as imported luxury items and cars. Namibia experienced a lower inflation rate at 4.5% in January 2015, down from 4.6% in December 2014 and a peak of 6.1% in June This was also the lowest inflation rate recorded since November This was attributable to lower transport and food prices although the effect of the latter could reverse as there is a looming drought in the region. However the petrol price was lowered by a further 10% in February which should keep inflation benign in the first of the year. The bank expects inflation to maintain the current low levels for the rest of The Monetary Policy Committee of the Bank of Botswana cut rates by a staggering 100 basis points from 7.5% to an all-time low of 6.5% at its meeting on 18 February The market was expecting rates to remain on hold for the rest of 2015 as interest rates in the Southern African Customs Union (Botswana, Lesotho, Namibia and South Africa) are in a tightening cycle. The last time rates were changed was in October 2013 when the bank cut rates by 50 basis points, from 8% to 7.5%. The decision was made on the back of the bank seeing price stability being positive in the medium term and supporting economic activity. According to the bank, domestic demand remains modest and international price developments have helped anchor prices pressures in the country. Inflation in Botswana came in at a record low of 3.6% in January 2015, down from the previous record of 3.73% in December This was mainly as a result of lower food and petrol prices. The bank envisages even lower inflation for the coming months as global demand has weakened and commodity prices are continuing to fall. The risks to the outlook are unexpected increases in administered prices, levies and the oil price.

5 There have been water shortages recently in Botswana and this could place upward pressure on food prices. The recent inflation print has given the Bank more room to provide easing of monetary policy as they see credit growth to be at a sustainable level and posing no threat to financial stability. Inflation in Botswana is expected to trend upwards from the end of the first half of 2015 and we therefore expect the Bank of Botswana to keep rates on hold for the remainder of the year. 6. Bank of Ghana s Monetary Policy Committee elected to keep rates on hold at 21% at their MPC meeting last week. The committee felt that the risks to the inflation and growth outlook were balanced. Inflation was recorded at 16.4% in January 2015, down from the 17% recorded in November and December This could be attributed to the lower non-food inflation which was recorded at 23% in January from 24.1% in November Food inflation rose to 6.9% from 6.6% though. Preliminary data shows that the budget deficit for 2014 narrow to 7% of GDP from 8.3% in Around 58% of the deficit was financed by the banking sector with the non-bank sector accounted for the rest. The current account deficit also narrowed from 11.9% of GDP in 2013 to 9.2% of GDP in Foreign exchange reserves are currently USD 4.9 billion which represents 2.9 months of import cover down from the 3.2 months of cover in December In the first half of 2014 the Ghanaian Cedi depreciated by 26.7% however it stabilised in the second half of the year only loosing 4.5% of its value. The currency has lost 1.3% year to date. The Ghanaian economy is expected to have grown by 4.2% in 2014 down from 7.3% in 2013 which is mainly as a result of power supply constraints and inflationary pressures. Consumer confidence increased to 89.9 in December 2014 from 85.6 in October Business confidence was also up from 88.7 in September 2014 to 99.2 in December The risks to this year s outlook are the lower commodity prices as Ghana s main exports are oil (also a major import so net-net this should theoretically cancel out), gold and cocoa. Please follow our regular economic updates on Kevin Lings, Laura Jones & Kganya Kgare (STANLIB Economics Team)

6 Weekly Market Analysis Currencies/ Indices/ Commodities Friday s Close 20/02/15 Weekly Move (%) YTD (%) Indices *MSCI World US Dollar *MSCI World Rand *MSCI Emerging Market US Dollar *MSCI Emerging Market Rand All Share Index US Dollar All Share Index Rand All Bond Index Listed Property J Currencies US Dollar/Rand Euro/Rand Sterling/Rand Euro/US Dollar Commodities Oil Brent Crude Spot Price ($/bl) Gold Price $/oz Platinum Price S/oz Source: I-Net Bridge * MSCI - Morgan Stanley Capital International

7 Rates These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY. STANLIB Money Market Fund Nominal: Effective: 6.19% per annum 6.36% per annum STANLIB is required to quote an effective rate which is based upon a seven-day rolling average yield for Money Market Portfolios. The above quoted yield is calculated using an annualised seven-day rolling average as at 20 February This seven- day rolling average yield may marginally differ from the actual daily distribution and should not be used for interest calculation purposes. We however, are most happy to supply you with the daily distribution rate on request, one day in arrears. The price of each participatory interest (unit) is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. STANLIB Enhanced Yield Fund Effective Yield: 6.52% STANLIB is required to quote a current yield for Income Portfolios. This is an effective yield. The above quoted yield will vary from day to day and is a current yield as at 20 February The net (after fees) yield on the portfolio will be published daily in the major newspapers together with the all-in NAV price (includes the accrual for dividends and interest). This yield is a snapshot yield that reflects the weighted average running yield of all the underlying holdings of the portfolio. Monthly distributions will consist of dividends and interest. Interest will also be exempt from tax to the extent that investor s are able to make use of the applicable interest exemption as currently allowed by the Income Tax Act. The portfolio s underlying investments will determine the split between dividends and interest. STANLIB Income Fund Effective Yield: 7.21% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 20 February 2015.

8 STANLIB Extra Income Fund Effective Yield: 6.78% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. The above quoted yield will vary from day to day and is a current yield as at 20 February STANLIB Flexible Income Fund Effective Yield: 6.90% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 20 February STANLIB Multi-Manager Absolute Income Fund Effective Yield: 5.67% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 20 February 2015.

9 Glossary of terminology Bonds A bond is an interest-bearing debt instrument, traditionally issued by governments as part of their budget funding sources, and now also issued by local authorities (municipalities), parastatals (Eskom) and companies. Bonds issued by the central government are often called gilts. Bond issuers pay interest (called the coupon ) to the bondholder every 6 months. The price/value of a bond has an inverse relationship to the prevailing interest rate, so if the interest rate goes up, the value goes down, and vice versa. Bonds/gilts generally have a lower risk than shares because the holder of a gilt has the security of knowing that the gilt will be repaid in full by government or semi-government authorities at a specific time in the future. An investment in this type of asset should be viewed with a 3 to 6 year horizon. Cash Collective Investments Compound Interest Dividend Yields Dividends Earnings per share An investment in cash usually refers to a savings or fixed-deposit account with a bank, or to a money market investment. Cash is generally regarded as the safest investment. Whilst it is theoretically possible to make a capital loss investing in cash, it is highly unlikely. An investment in this type of asset should be viewed with a 1 to 3 year horizon. Collective investments are investments in which investors funds are pooled and managed by professional managers. Investing in shares has traditionally yielded unrivalled returns, offering investors the opportunity to build real wealth. Yet, the large amounts of money required to purchase these shares is often out of reach of smaller investors. The pooling of investors funds makes collective investments the ideal option, providing cost effective access to the world s stock markets. This is why investing in collective investments has become so popular the world over and is considered a sound financial move by most investors. Compound interest refers to the interest earned on interest that was earned earlier and credited to the capital amount. For example, if you deposit R1 000 in a bank account at 10% and interest is calculated annually; your balance will be R1 100 at the end of the first year and R1 210 at the end of the second year. That extra R10, which was earned on the interest from the first year, is the result of compound interest ("interest on interest"). Interest can also be compounded on a monthly, quarterly, half-yearly or other basis. The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. The higher the yield, the more money you will get back on your investment. When you buy equities offered by a company, you are effectively buying a portion of the company. Dividends are an investor s share of a company s profits, given to him or her as a part-owner of the company. Earnings per share is a measure of how much money the company has available for distribution to shareholders. A company s earnings per share is a good indication of its profitability and is generally considered to be the most important variable in determining a company s share price.

10 Equity Financial Markets Fixed Interest Funds Gross Domestic Product (GDP) Growth Funds Industrial Funds Investment Portfolio JSE Securities Exchange Price to earnings ratio Property Resources and Basic Industries Funds A share represents an institution/individual s ownership in a listed company and is the vehicle through which they are able to share in the profits made by that company. As the company grows, and the expectation of improved profits increases, the market price of the share will increase and this translates into a capital gain for the shareholder. Similarly, negative sentiment about the company will result in the share price falling. Shares/equities are usually considered to have the potential for the highest return of all the investment classes, but with a higher level of risk i.e. share investments have the most volatile returns over the short term. An investment in this type of asset should be viewed with a 7 to 10 year horizon. Financial markets are the institutional arrangements and conventions that exist for the issue and trading of financial instruments. Fixed interest funds invest in bonds, fixed-interest and money market instruments. Interest income is a feature of these funds and, in general, capital should remain stable. The Gross Domestic Product measures the total volume of goods and services produced in the economy. Therefore, the percentage change in the GDP from year to year reflects the country's annual economic growth rate. Growth funds seek maximum capital appreciation by investing in rapidly growing companies across all sectors of the JSE. Growth companies are those whose profits are in a strong upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage price/earnings ratio. Industrial funds invest in selected industrial companies listed on the JSE, but excluding all companies listed in the resources and financial economic groups. An investment portfolio is a collection of securities owned by an individual or institution (such as a collective investment scheme). A funds portfolio may include a combination of financial instruments such as bonds, equities, money market securities, etc. The theory is that the investments should be spread over a range of options in order to diversify and spread risk. The primary role of the JSE Securities Exchange is to provide a market where securities can be freely traded under regulated procedures. Price to earnings ratio or p: e ratio is calculated by dividing the price per share by the earnings per share. This ratio provides a better indication of the value of a share, than the market price alone. For example, all things being equal, a R10 share with a P/E of 75 is much more expensive than a R100 share with a P/E of 20. Property has some attributes of shares and some attributes of bonds. Property yields are normally stable and predictable because they comprise many contractual leases. These leases generate rental income that is passed through to investors. Property share prices however fluctuate with supply and demand and are counter cyclical to the interest rate cycle. Property is an excellent inflation hedge as rentals escalate with inflation, ensuring distribution growth, and property values escalate with inflation ensuring net asset value growth. This ensures real returns over the long term. These funds seek capital appreciation by investing in the shares of companies whose main business operations involve the exploration, mining, distribution and processing of metals, minerals, energy, chemicals, forestry and other natural resources, or where at least 50 percent of their earnings are derived from such business activities, and excludes service providers to these companies.

11 Smaller Companies Funds Value Funds Growth Funds Smaller Companies Funds seek maximum capital appreciation by investing in both established smaller companies and emerging companies. At least 75 percent of the fund must be invested in small- to mid-cap shares which fall outside of the top 40 JSE-listed companies by market capitalisation. These funds aim to deliver medium- to long-term capital appreciation by investing in value shares with low price/earnings ratios and shares which trade at a discount to their net asset value. Growth funds seek maximum capital appreciation by investing in rapidly growing companies across all sectors of the JSE. Growth companies are those whose profits are in a strong upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage price/earnings ratio. Sources: Unit Trust and Collective Investments (September 2007), The Financial Sector Charter Council, Personal Finance (30 November 2002), Introduction to Financial Markets, Personal Finance, Quarter , Investopedia ( and The South African Financial Planning Handbook 2004.

12 Disclaimer The price of each unit of a domestic money market portfolio is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. An investment in the participations of a CIS in securities is not the same as a deposit with a banking institution. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from STANLIB Collective Investments Ltd (the Manager). Commission and incentives may be paid and if so, would be included in the overall costs. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. TER is the annualised percent of the average Net Asset Value of the portfolio incurred as charges, levies and fees. A higher TER ratio does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs. Portfolios are valued on a daily basis at 15h30. Investments and repurchases will receive the price of the same day if received prior to 15h30. Liberty is a full member of the Association for Savings and Investments of South Africa. The Manager is a member of the Liberty Group of Companies. As neither STANLIB Wealth Management Limited nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management Limited does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (Licence No. 26/10/590) Compliance No.: 1671HX 17 Melrose Boulevard, Melrose Arch, 2196 P O Box 202, Melrose Arch, 2076 T (SA Only) T+27(0) E contact@stanlib.com Website STANLIB Wealth Management Limited Reg. No. 1996/005412/06 Authorised FSP in terms of the FAIS Act, 2002 (Licence No. 26/10/590) STANLIB Collective Investments Limited Reg. No. 1969/003468/06