0 2 A p ril 20 14 PS G Cas cades - Piete rma ritz b urg 03 3 3 47 2 62 0 wa rre n. fo rbes @ ps g.c o.z a w ww.ps g. co. za/cascad es/ JSE REACHES A NEW RECORD HIGH Japan The Nikkei Index climbed to a new three-week high on Wednesday as market sentiment was buoyed by a softer Yen, while Renesas Electronics Corp surged as much as 19% higher before ending up 6% on news that it is in negotiations with Apple and other potential buyers to buy its shareholding in a smartphone display chip unit. Hong Kong Property shares on mainland China, as well as in Hong Kong jumped higher on Wednesday after state media reported that local governments in Hangzhou and Changsha are considering a range of policies to promote the market and may relax house ownership restrictions. European Markets Reuter s reports that European markets are expected opening firmer on Wednesday, helped by gains on Wall Street overnight on the back of further evidence that economic growth was picking up in the United States, while a lack of European economic data and corporate releases should keep trading volumes on the light side. U.S. markets According to the Reuters website, U.S. markets ended in positive territory for a third consecutive trading session on Tuesday, with the S&P 500 Index reaching another record close, after the Institute for Supply Management (ISM) pointed to improving economic conditions. Local markets Business Day reports that the JSE All Share Index closed firmer on Tuesday on the back of a positive picture around China s manufacturing sector, which prompted a rally in our local resources shares, while market-friendly comments from the US Federal Reserve chairwoman Janet Yellen also encouraged investors. Rand - The Rand was last trading weaker at R10.5839 against the Dollar, while it is quoted at R14.6113 against the Euro and at R17.5641 to the Pound. Precious Metals The gold price was steady on Wednesday after declining for two days but the precious metal continued to trade close to its lowest level in seven weeks as strong U.S. factory data supported optimism about economic growth and in the process limited bullion s safe-haven appeal. Gold was last trading at $1,283.05, with the platinum price quoted higher at $1,423.90, while the palladium price is trading at $775.25. Oil Price Brent was last trading lower at $105.58 a barrel.
NEWSFLASH Stanlib: The Weekly Focus 31 March 2014 The rand is trading at its best level in 2014, down just 2.4% from its end 2013 close. Market Comment That was a very interesting and buoyant week just passed. Risk-taking shifted up noticeably, but mostly in the Emerging Market space, helping SA equities, the rand and bonds. Perceptions of Russian aggression were helped by news that Putin reached out to Obama to suggest a pow-wow between their foreign ministers. Also it seems that the Chinese want to re-stimulate their slowing economy, which is helping mining shares bounce back from their recent decline; also the price of copper rose 3.4%, but is still down over 9% this year in dollars. HSBC notes this morning that Indian banks have risen by 20% in the past two weeks and Chinese banks by 10%, the latter from a very low and cheap-looking base. Sectors around the world often move together. The JSE Banks Index rose 6.5% last week to a new record high, with Standard Bank in particular up a healthy 9.5% (still holding its R3 per share dividend - goes ex-dividend next Monday). The share is trading at twelve times its expected earnings for 2014 and on a forward dividend yield (expected for 2014) of 4.1%. Despite the Reserve Bank mentioning on Thursday that we are in a rising interest rate environment, usually negative for interest-sensitive shares, the General Retailers rose by some 8% last week to be slightly up on the quarter (year-todate). Foschini rose by 13.5% and is now up 12.3% so far in 2014. The share is trading at about 12 times earnings, with a dividend yield of 4.9%. So it isn t expensive relative to the 17.2 PE ratio of the All Share Index and certainly has a higher dividend yield than the 2.8% of the ALSI. Food & Drug Retailers also rose strongly last week, by 7.7% and these shares are far more resilient to interest rate changes. The Financial & Industrial Index has just popped up to a new record high, its first in almost 3 months. So perhaps it was more a case of emerging markets turning upwards. In the past 10 days foreign investors have bought a net R2.6bn of our shares, including R1.4bn on Friday. Various emerging market currencies have gained of late, including Brazil s, now at a five month high, Turkey s at a three month high and India s at an eight month high. The rand is trading at its best level in 2014, down just 2.4% from its end 2013 close. Foreigners have bought R2.9bn of our bonds in the past 10 days (R6bn in the past week), in turn helping drive the bond yield of the R186 13-year bond down by 23 basis points last week. It is now trading where it was last June at 8.37%. The All Bond Index is now +1% for 2014 versus being -3% at end January. In turn this helped the SA Listed Property Index gain 3% last week, turning what was a nasty -7.7% 2014 return at end January into a +1.5% return today (including dividends). Below we show a chart of the SA Listed Property Index, including dividends.
The index has broadly traded sideways since September 2012, so for about 18 months - and seems to be gathering some steam now. If interest rates and bond yields do rise over the next year, as is expected, this would tend to be negative for listed property, but a lot depends on the rand exchange rate and the inflation rate (the incoming data). However, there other positive issues, such as a consolidation in the industry (smaller companies merging or being acquired), plus some diversification offshore, not to mention the 7% expected growth in income/dividends. As far as the rand goes, the down-trend that started three years ago at 6.60 to the dollar remains intact for now, despite the rand s 6% gain since late January. It appears that the rand would need to break below 10.50 and stay there to have a chance of breaking the three year old down-trend versus the dollar. Will that happen? No-one knows, but if the sentiment towards emerging markets gathers positive momentum, it could certainly happen, because it could benefit both our bond market and our equity market, as happened last week. Certainly it does seem as if the emerging market storm may be over. Will our current account deficit narrow sufficiently to allow the rand to retrace more of its losses? That s still a big unknown. Other Commentators: US Market Analyst, Elaine Garzarelli Garza continues to recommend a 100% asset allocation to US equities and her fund remains unhedged, even though her proprietary stock market indicator composite declined to 74% from 80% last week, due to higher bullish sentiment and to a higher junk bond to 10-year yield ratio. She notes that US company profits rose by 6.2% year-on-year in the 4th quarter of 2013, better than nominal GDP of 4%. Fair value for the S&P 500 Index is 13% higher at 2100 (now 1857). So far in 2014 the index is +0.5%, but +28% for the past 12 months. The number of bullish investment advisors rose to 54.7% from 52%, so this indicator is downgraded to bearish.
US consumer confidence picked up to the best level since 2008. Garza expects it to improve significantly as the labour market continues to strengthen and as economic growth improves. This together with healthy economic growth, strong S&P 500 earnings, low valuations and global stability should ensure that this bull market continues, in her opinion. BCA Research Chen Zhao says the BCA Tactical Asset Allocation Model (purely quantitative) for April has slightly downgraded equities, from 89% to 87%, with euro area shares still accounting for the lion s share of the allocation, taking up 41% of the entire portfolio, or about 48% of the equity allocation. This pro-european share posture has been a consistent feature of the model since mid-2012. Since then Europe has outperformed the US by about 8%. Chen describes the current environment as grinding, with shares churning and developed market currencies trendless. There is no ball of fire in any asset class, although biotech and social network shares have had a mini crash. Paul Hansen Director: Retail Investing CHARTS OF THE DAY Nedbank Daily Market Commentary 1 April 2014 Nedbank Capital Strategic Research CapitalStrategicResearch@nedbank.co.za +27 11 295 5430 SA trade balance swung into a surplus of R1.7bn in February from a revised -R16.9bn in January (previously reported as R17.1bn), against expectations for a -R4.0bn deficit as exports rose 7.9% m/m while imports declined 13.2% m/m. The increase in exports is surprising against the backdrop of labour-related production stoppages in the mainstay platinum mining industry. Exports were boosted mainly by a 49.4 % jump in shipments of vehicles and equipment, suggesting improving foreign demand as global economic activity gradually picks up. The decline in imports was expected following the seasonally stronger January increase, when companies restock their shelves following the Christmas season. The decline was led a 17% or R6.5 bn fall in machinery and electronics as local consumer spending continues to moderate, followed by a 27% or R3.85bn slide in mineral products as the oil import bill was limited as the rand regained some lost ground in February following January s sharply weaker move above the R11.00/USD level. Some improvement in the trade balance is expected in 2014 due to the relatively weak rand, some recovery in traditional trading partners and slow domestic demand. However, supply disruptions in key export sectors, mainly manufacturing and mining, could erode some of the benefit of increased global price competitiveness. Furthermore a slower than expected slowdown in China risks limiting exports to one of SA s trading partners. As can be seen in the graph below a lower trade deficit tends to lead to stronger rand exchange rate, supporting our expectations for the rand to firm in late 2014 as the trade balance improves.