DRW Investment Research. Market Performances and Indicators

Transcription

1 DRW Investment Research Market Performances and Indicators April 2015

2 1-year 2-year 3-year 4-year 5-year 6-year 7-year 8-year 9-year 10-year 11-year 12-year 13-year Annualised return 1. FTSE JSE Indices Performances Annualised Return ALSI ALSI TRI SWIX SWIX TRI One-year 11.4% 14.8% 17.4% 21.0% Two-year 18.6% 22.2% 20.9% 24.7% Three-year 16.5% 20.1% 18.2% 22.0% Four-year 13.5% 17.0% 15.5% 19.4% Five-year 13.7% 17.2% 15.3% 19.0% Six-year 17.5% 21.0% 18.7% 22.4% Seven-year 8.5% 11.8% 10.3% 13.9% Eight-year 8.6% 11.8% 9.3% 12.8% Nine-year 11.1% 14.3% 11.8% 15.3% Ten-year 15.8% 19.2% 16.2% 19.9% Eleven-year 16.3% 19.6% 17.2% 20.8% Twelve-year 17.9% 21.4% 18.9% 22.7% Thirteen-years 13.1% 16.5% 14.5% 18.2% Annualised return TRI = Total return index, dividends re-invested 27.5% 25.0% 22.5% 20.0% 17.5% 15.0% 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% FTSE/JSE Total Index Returns (dividends re-invested) End of April 2015 ALSI TRI Holding period SWIX TRI 2

3 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Log scale 10, FTSE/JSE All Share Index Total return Index (dividends re-invested) June April ,

4 30 April 2015 Performance J200T J210T J212T J211T J253T over Top40 Resi 20 Fini Indi Property 1 Month 4.9% 7.3% 4.7% 4.2% 0.0% 3 Months 7.6% 6.7% 9.9% 6.7% 5.6% 6 Months 9.3% -4.5% 16.4% 12.3% 15.4% 12 Months 13.3% -20.2% 33.4% 26.7% 38.3% 24 Months * 22.5% 4.3% 29.8% 29.6% 15.4% 36 Months * 20.2% -0.8% 28.3% 31.3% 24.2% 48 Months * 16.5% -3.1% 25.8% 28.4% 22.8% 60 Months * 16.8% 0.2% 22.1% 28.2% 21.8% 84 Months * 10.8% -3.2% 18.0% 21.8% 21.5% 120 Months * 18.8% 11.4% 18.0% 25.1% 22.1% Since January % 7.6% 16.0% 10.6% 13.7% * Annualised Returns Top40 = Resi20 = Top 40 shares by market capitalisation Top 20 resources sector shares by market capitalisation Fini = Top 15 financial sector shares by market capitalisation Indi = Top 25 industrial sector shares by market capitalisation Property = SA listed property 4

5 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Return Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Cumulative Return FTSE/JSE Total Return Indices Cumulative Return April April 2015 Date Top40 Resi 20 Fini Indi Property 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% FTSE/JSE Total Return Indices 12-month Rolling Returns March April 2015 Date Resi 20 Fini Indi Property 5

6 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Correlation Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Correlation Correlations of sector performances with market index performances Based on 12-month rolling returns April % 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% -80.0% % RESI Cor FINI Cor INDI Cor Cross-correlations of sectors Based on 12-month rolling returns April % 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% -80.0% % FINI/RESI INDI/RESI FINI/INDI 6

7 Jan-60 Jan-63 Jan-66 Jan-69 Jan-72 Jan-75 Jan-78 Jan-81 Jan-84 Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 PE Multiple 2. Market Indicators Price / Earnings Ratio The most common valuation ratio; current share price relative to the historical earnings per share (EPS) An alternative and perhaps more useful indicator; share price relative to normalised earnings per share whereby historical earnings, adjusted for inflation, are smoothed out over rolling 7-year and 10-year periods. The P/E Rating of the FTSE/JSE All Share Index January April Year 7

8 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 PE Multiple The P/E Rating of the FTSE/JSE All Share Index January April Year 8

9 Jan-67 Jan-70 Jan-73 Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Trailing P/E multiple 30.0 Shiller's P/E [CAPE] (Real ALSI Index divided by 7-year normalised real earnings) April Period Source: JSE, SARB, DRW Investment Research 9

10 Jan-70 Jan-73 Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Trailing P/E multiple Shiller's P/E [CAPE] (Real ALSI Index divided by 10-year normalised real earnings) April 2015 Period 10

11 Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Real Stock Market Price Index Real Stock Market Dividends Index Dividend Growth Stock prices follow dividend growth; sometimes price lags dividend growth typically a value proposition but when prices are running far ahead of dividend growth one should take a more cautious stance. 60, , , , , , Stock Price and Dividend growth End of April , , , , , Real Price Real Dividends Source: JSE, SARB, DRW Investment Research 11

12 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 ALSI Index Dividend Index 60, , , Dividend Growth & ALSI Index Jan April , , , , , , , , Dividends Period ALSI Index 12

13 Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Real Stock Market Price Index Real Stock Market Earnings Index Earnings Growth A primary component of equity returns in the long run that is linked to the overall growth in the economy, which in turn is affected by inflation rate (and interest rate) trends. 60, , , , , ,000.0 Stock Price and Earnings growth End of April ,500 3,000 2,500 2,000 1,500 1, Real Price Real Earnings Source: JSE, SARB, DRW Investment Research 13

14 Jan-61 Jan-64 Jan-67 Jan-70 Jan-73 Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Jan-61 Jan-64 Jan-67 Jan-70 Jan-73 Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Nominal Earnings Growth 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Annual Earnings Growth JSE ALSI Jan April 2015 Date Nom Earnings Growth LT Average Real Earnings Growth JSE ALSI Jan April % 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Real Earnings Growth LT Average Source: JSE, SARB, DRW Investment Research 14

15 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Ratio 10y Bond Yield to Dividend Yield Equity Income Yield versus Long-term Bond Yield The dividend and earnings yield of the stock market are compared with the long-term bond yield. The spread (difference) between the respective yields is used to gauge the relative expensiveness of the equity market versus the capital market Equities and Bond Yields Relative Valuation January April 2015 Equities over-valued Equities under-valued Date 15

16 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Yield Spread (Bonds - Earnings Yield) 12.0% 10.0% Yield Spread Equities vs Bonds Relative Valuation January April 2015 Equities over-valued 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Equities under-valued Date 16

17 Volatility (based on a rolling 12-month period) Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul month stock market rolling return Stock Market Volatility The short-term volatility trend is calculated by the annualised standard deviation of the daily returns of the stock market index. The long-term volatility trend is calculated by the annualised standard deviation of the monthly returns of the stock market index. 45.0% Stock Market Returns & Volatility Measured on a daily basis June April % 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% Date Annual market return (rhs) Volatility (lhs) 17

18 Percentage of trading days Percentage of trading days 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Daily movement in JSE ALSI Index prices Abolute changes (+/-) Trading days June 1995 to April 2015 More than 3% More than 2% More than 1% Less than 1% 100% 90% Movement in daily prices FTSE JSE ALSI index Absolute changes (+/-) June April % 70% 60% 50% 40% 30% 20% 10% 0% More than 3% More than 2% More than 1% Less than 1% Past month Past year Long-term average 18

19 Jan-63 Jan-66 Jan-69 Jan-72 Jan-75 Jan-78 Jan-81 Jan-84 Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Ann Std Deviation (rolling 36-month volatility) 35.00% Stock Market Volatility Long-term Trend January April % 25.00% 20.00% 15.00% 10.00% 5.00% Volatility Median Volatility Statistics: Statistics Bottom Half Volatility Top Half Volatility Percentage of months positive return 88% 63% Percentage of months negative return 12% 37% Average Annual Return 21.6% 10.2% Positive periods only, Average Annual Return 26.2% 26.1% Negative periods only, Average Annual Return -10.4% -16.8% 19

20 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Moving Averages (MA) The relative price movement of 55-day and 233-day MAs; crossovers of these trendlines often indicate buy or sell opportunities. For example, if the 55-day trendline breaks out above the 233-day trendline it represents a bullish market period or if the 55-day trends below the 233-day it represents a bearish market period. 60,000 Moving Averages of FTSE/JSE All Share Index June April ,000 40,000 30,000 20,000 10,000 - FJA-ALSH 55-day MA 233-day MA 20

21 Asset Class Returns Historical returns of the major asset classes YEAR EQUITIES PROPERTIES BONDS CASH % 49% 22% 14% % 5% 16% 15% % 21% 14% 14% % 1% 28% 12% % 16% 32% 11% % 17% -9% 10% % 10% 30% 11% % -9% 7% 12% % 13% 29% 17% % -4% 5% 17% % 44% 30% 16% % 26% 20% 11% % 6% 18% 11% % 18% 16% 12% % 37% 18% 12% % 41% 14% 8% % 50% 11% 8% % 28% 5% 8% % 27% 4% 9% % -5% 17% 12% % 14% -1% 9% % 30% 15% 7% % 9% 9% 6% % 36% 16% 5% % 8% 1% 5% % 27% 10% 6% Average Equities Properties Bonds Cash Ann Return Ann Volatility 16.5% 18.7% 14.1% 10.6% 22.0% 16.6% 10.4% 3.5% Source: Investec Asset Management, DRW Investment Research 21

22 YEAR BEST 2ND 3RD WORST 1989 EQUITIES PROPERTIES BONDS CASH 1990 BONDS CASH PROPERTIES EQUITIES 1991 EQUITIES PROPERTIES BONDS CASH 1992 BONDS CASH PROPERTIES EQUITIES 1993 EQUITIES BONDS PROPERTIES CASH 1994 EQUITIES PROPERTIES CASH BONDS 1995 BONDS CASH PROPERTIES EQUITIES 1996 CASH EQUITIES BONDS PROPERTIES 1997 BONDS CASH PROPERTIES EQUITIES 1998 CASH BONDS PROPERTIES EQUITIES 1999 EQUITIES PROPERTIES BONDS CASH 2000 PROPERTIES BONDS CASH EQUITIES 2001 EQUITIES BONDS CASH PROPERTIES 2002 PROPERTIES BONDS CASH EQUITIES 2003 PROPERTIES BONDS EQUITIES CASH 2004 PROPERTIES EQUITIES BONDS CASH 2005 PROPERTIES EQUITIES BONDS CASH 2006 EQUITIES PROPERTIES CASH BONDS 2007 PROPERTIES EQUITIES CASH BONDS 2008 BONDS CASH PROPERTIES EQUITIES 2009 EQUITIES PROPERTIES CASH BONDS 2010 PROPERTIES EQUITIES BONDS CASH 2011 BONDS PROPERTIES CASH EQUITIES 2012 PROPERTIES EQUITIES BONDS CASH 2013 EQUITIES PROPERTIES CASH BONDS 2014 PROPERTIES EQUITIES BONDS CASH Source: Investec Asset Management, DRW Investment Research 22

23 Heat Map: Real returns from equities over time Based on real (after-inflation) annual equity returns from 1960 to 2014 Start of investment = vertical axis Investment period = horizontal axis Source: DRW Investment Research Interpretation of graph: Negative real returns = red areas 0-5% real returns = light-brown areas 5-10% real returns = light-green areas >10% real returns = dark-green areas Returns from equity investing are certainly volatile over short-term periods and may easily yield negative outcomes, as shown by the red-coloured areas on the chart. Yet, long-term equity investors historically experienced most of the time more than 5% real return per annum, as depicted by the light and dark green shaded areas on the chart. 23

24 Yield Yield Curve (Bond Exchange of South Africa) The yield curve derived from the yields of government bonds with different maturities traded on the Bond Exchange of South Africa Yield Curve Bond Exchange of South Africa April Term Structure (years to duration) Month ago 3 mnths ago 6 mnths ago One year ago 24

25 Yield (per annum) Changes in interest rates of different term maturities Bond Exchange of South Africa April 2015 Date Call One-year 5-year 10-year 25

26 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Y-o-Y change Inflation, Money Supply and Credit CPI Jan March % 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Period Source: Statistics SA, DRW Investment Research Major Categories of Inflation Basket Year-on-year changes March % 5.8% 5.7% Food Housing Transport Source: Statistics SA, DRW Investment Research 26

27 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Y-o-Y change Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Y-o-Y change M3 End of March % 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Source: SARB, DRW Investment Research 30.0% Private Sector Credit Extension End of March % 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% Source: SARB, DRW Investment Research 27

28 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Foreign Portfolio Flows Foreign portfolio flows (the purchasing and selling of shares and bonds by non-residents) directly influence the direction of the rand exchange rate and overall investor sentiment on the local bourse. 50,000 40,000 30,000 20,000 10, ,000-20,000-30,000-40,000-50,000-60,000 Net Purchasing of Shares and Bonds by Non- Residents End of March 2015 Monthly net purchases & six-month trendline Source: SARB, DRW Investment Research 28

29 R millions 120, ,000 80,000 60,000 40,000 20, ,000-40,000-60,000-80,000 Net purchasing of shares and bonds by non-residents March 2015 The year-to-date and previous years Shares Bonds Source: SARB, DRW Investment Research 29

30 Index Return 3. Return expectations Equity returns over the short term are predominantly driven by market ratings (P/E ratio) and earnings growth. The most likely market returns over the next twelve months are depicted below based on possible combinations of earnings growth and market ratings. 30% 20% 10% 0% -10% -20% -30% -40% Possible ALSI Index Return One Year Forward as at end of April 2015 P/E = 18 P/E = 16 P/E = 14 P/E = 12-50% -10% 0% 10% 20% 30% Current index value = 54,440 Current P/E = 19.2 Earnings Growth 30

31 ALSI Index Value 70,000 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 Possible ALSI Index Values One Year Forward as at end of April 2015 P/E = 18 P/E = 16 P/E = 14 P/E = 12 20,000-10% 0% 10% 20% 30% Current index value = 54,440 Current P/E = 19.2 Earnings Growth 31

32 Disclaimer: Please note that all the material, opinions and views herein do not constitute investment advice, but are published primarily for information purposes. The author accepts no responsibility for investors using the information as investment advice. Please consult an authorised investment advisor. Unless otherwise stated, the author is the sole proprietor of this publication and its content. No quotations from or references to this publication are allowed without prior approval. 32