braving the stock market Vimal Chagan acsis chief investment officer
what is equity?
what is equity? share certificate? another price in the newspaper? pension fund / retirement annuity / unit trusts / endowment policies?
what is equity? owned by shareholders profits/losses make a direct impact on share prices voting rights attached to shares shareholders stand behind lending banks and bond holders
what is equity?
what is equity? listed (JSE, NYSE, FTSE) private (Pty, CC, partnership) unlisted (BJM, PSG, Saasdaq)
what is equity? shares of public companies are generally listed on an exchange examples of exchanges JSE Securities Exchange New York Stock Exchange NASDAQ London Stock Exchange Deutsche Börse Euronext Paris / Brussels / Amsterdam Australian Stock Exchange Shanghai Stock Exchange
what is equity? JSE facts founded in 1887 active floor closed in 1996 JSE now fully automated (order driven, automated trading) source: Johannesburg Stock Exchange
why is equity important? historically provides higher growth than other traditional asset classes equity price appreciation should outpace inflation comfortably business profits should be above borrowing costs to be successful
why is equity important? Value of R100 invested in December 1924 10,000,000 1,000,000 Equities Bonds Cash Inflation 6,634,471 100,000 10,000 38,806 17,671 10,045 1,000 100 10 1 Dec-24 Dec-27 Dec-30 Dec-33 Dec-36 Dec-39 Dec-42 Dec-45 Dec-48 Dec-51 Dec-54 Dec-57 Dec-60 Dec-63 Dec-66 Dec-69 Dec-72 Dec-75 Dec-78 Dec-81 Dec-84 Dec-87 Dec-90 Dec-93 Dec-96 Dec-99 Dec-02 Dec-05 source: Firer & McLeod and I-Net
source of returns dividends cash scrip dividend capital appreciation buying / selling to another investor buybacks by company
the riskiness of investing SA calendar year returns (1925-2005) equity bonds cash inflation proportion of negative years 23% 19% 0% 12% source: Firer & McLeod and I-Net
the riskiness of investing 150 SA calendar year returns (1925-2005) % returns 100 50 0-50 94.01-26.3 16.6 35.79-8.9 8.1 21.8 0.0 6.8 18.5-6.0 6.0 equity bonds cash inflation asset classes source: Firer & McLeod and I-Net
a risk perspective action risk historical average return historical average return (after inflation) tax shares very risky 16.63% 10.66% CGT bonds risky 8.07% 2.09% interest cash not risky 6.75% 0.78% interest source: Firer & McLeod and I-Net
years when the equity market fell 0% 1960 1969 1970 1975 1976 1987 1990 1992 1997 1998 2002-5% -10% -15% -20% -25% -30% source: Firer & McLeod and I-Net
equity markets rise in value most of the time source: Firer & McLeod and I-Net
equity (JSE) volatility Graph Of JSE All Share Volatility 60% 50% 40% Volatility 30% 20% 10% 0% 96 97 98 99 00 01 02 03 04 05 source: I-Net
equity returns 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 1970-1985 Total Ret 1986-2005 Total Ret 1970-1985 Real Ret 1986-2005 Real Ret 1970-1985 Aver GDP (Q-Q) 1986-2005 Aver GDP (Q-Q) source: Firer & McLeod and I-Net
real returns source : Andisa Securities
equity performance drivers source : Andisa Securities
negative returns source : Andisa Securities
why invest overseas?
why invest overseas? offshore / international / global
why invest overseas? reduce risk diversification different investment cycle different economic cycle industries / securities not available locally correlation stock concentration sector concentration increase expected returns
diversification different economy different currency different stock markets different industries globalisation
effects of globalisation global companies different economy different currency different stock markets different industries
the role of correlation 85% Local + 15% International Equities Local Assets 100% Equities Expected Return 100% Bonds 6 8 10 12 14 16 18 20 22 24 Expected Volatility (%) source : I-Net, MSCI
correlations with the JSE 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% United States United Kingdom Japan MSCI World MSCI Emerging Markets source : I-Net, MSCI
correlations global capital flows correlations in normal markets these correlations normally break down in times of market crisis
JSE versus FTSE correlation should increase over time Anglos plc BHP Billiton plc SAB Miller plc Compagnie Financière Richemont SA Sasol top 5 shares = 37% of JSE international shares = 32% of JSE
equity returns 35% 30% JSE All-Share Index MSCI World Index (Rand) 25% 20% 15% 10% 5% 0% -5% 1970-1979 1980-1989 1990-1999 2000-2005 source: Firer & McLeod, I-Net and MSCI
global equity markets source: FactSet
in parting.. legislation allowances taxation investment instruments amnesty Belgium, US, SA
accessing the stock market direct, stockbroker, unit trusts, Satrix, endowments, RA s.. active / passive / quants / value / growth / high dividend yield / GARP / small cap / contrarian / large cap financial advisor..
thank you