Monday, 24 October 2011 - 20:00
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Purchasing Power Parity Purchasing Power Parity (PPP) is an economic and investment concept explaining how prices of goods and services increase at the same rate (all else equal) around the world. Over the long run, differences in inflation rates should result in changes in exchange rates, with those countries experiencing high inflation seeing their currencies depreciate and vice versa.
The table below shows how this concept works in reality (using an extreme example to illustrate the theory):
In the above example we can see that at the start of the period identical rugby balls cost the same amount (in common currency) in South Africa (SA) and New Zealand (NZ). Over the period SA has a higher inflation rate and at the end of the period in order for the rugby balls to still cost the same (in common currency) the rand would need to have weakened to R9.09/NZ$.
In a world of zero frictional costs (i.e. transport, taxes, etc) if the actual exchange rate is R4.55/NZ$ (too strong) then South Africans’ would be able to exchange R 1 000 for NZ$ 220 (R 1 000 / R4.55/NZ$) and buy 2 rugby balls in NZ. They would then be able to sell these balls in SA for R 2 000 and make a riskless profit of 100% (R 1 000). Conversely if the rand had weakened to R20/NZ$ then rugby balls could be bought in SA and sold in NZ at a healthy profit. This process is known as arbitrage and will happen until either the price of rugby balls changes to neutralise the difference (change in inflation rate) or the exchange rate moves to neutralise the difference.
In this frictionless world exchange rates would always trade at fair value. In the real world there are frictional costs which therefore result in currencies spending periods where they are either over or undervalued relative to other currencies. PPP therefore doesn’t hold over the short term, but will generally provide a good estimate of fair value over the longer term.
As a currency moves further and further away from its fair value, the likelihood being able to arbitrage (make a riskless profit) goods between the two countries increases. At some point the currency will move back to fair value as the flow of goods and cash equalises the exchange rate.
In reality this plays out in the import and export sectors. Importers always want a strong currency so that imported goods cost less, while exporters prefer a weaker currency which lowers the prices of their goods in foreign currencies and therefore boosts demand.
The chart below shows how the rand has traded against the US$ over the past 26 years and compares it to the fair value exchange rate implied by PPP (i.e. the difference in inflation rates between the two countries). Notice that there are extended periods where the rand doesn’t trade at fair value, but over this long period we can see that the PPP fair value rate does provide a good anchor of where the actual exchange rate should be. The recent rand weakness has seen it move closer to fair value, but will still think that it is overvalued.
This method of valuing currencies is a blunt method and should therefore not be used to predict short term movements, but it does give an indication of which way your currency should move over the longer term.
Take care,
Mike Browne
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966
Mon, 24 Oct 2011
Top News
South African stocks closed at their highest level in nearly three months as demand for resources firms rose with hope that European Union leaders will agree on a solution to their region's debt woes later this week. Full story
Revenue decreased by 10.9% to R762.1 million (R855.3 million). Gross profit declined to R83 millio (R96.9 million). Net attributable profit slumped by 38.3% to R13.5 million (R21.8 million). In addition, headline earnings per share was down by 43% to 3.09c (5.42cps).
Prospects
Sanyati e Full story |
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Rescuers searched the rubble of collapsed buildings Monday for survivors and victims of a major earthquake that killed at least 279 people and injured more than 1,300 in mainly Kurdish southeast Turkey. Full storyYemeni President Ali Abdullah Saleh, facing an increasingly entrenched uprising against his rule, on Monday welcomed a U.N. Security Council resolution urging him to sign a Gulf-mediated power transfer plan, the state news agency reported. Full storyThe United States has pulled its ambassador out of Syria because of what it said were credible threats to his safety after his public support for protesters led to attacks on his embassy and diplomatic convoy by supporters of President Bashar al-Assad. Full story |
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Markets | U.S. stocks rose on Monday,
adding to three weeks of gains by the S&P 500, after strong
earnings from Caterpillar and some proposed. . . Full story | | European shares closed higher
after choppy trading on Monday with Chinese economic data
buoying miners and euro zone banks reversing early weakness on
progress. . . Full story | | Global stocks hit a seven-week
high on Monday and commodities rallied on optimism European
leaders were moving closer to resolving their debt crisis. . . Full story | | Britain's top share index hit a
2-1/2-month closing high on Monday, as strong manufacturing data
in China lifted miners and on hopes that. . . Full story |
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| Gold gained 1 percent
on Monday, rising with commodities and equities on hopes that
European Union leaders were making progress to tackle the
region's. . . Full story | | U.S. stocks opened modestly
higher on Monday as strong earnings from Caterpillar offset
concerns European policymakers were struggling to narrow
differences in tackling the. . . Full story | | World stocks gained on Monday as
investors bet on a positive outcome to the euro zone crisis
talks and took comfort from signs. . . Full story | | Hong Kong shares recorded
their best daily performance in two weeks on Monday, led by
mainland energy and materials plays that suffered the. . . Full story |
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SA Business | Great Basin Gold Ltd sold 27 percent less gold sequentially in the third quarter from its operations in Nevada and South. . . Full story | | Global miner Xstrata said on Monday it had met with South Africa's National Union of Mineworkers (NUM) in a bid to. . . Full story | | South Africa's rand reversed earlier gains against the dollar on Monday, falling more than 0.2 percent mainly in line with a. . . Full story | | South Africa's rand reversed earlier gains against the dollar on Monday, falling more than 0.2 percent mainly in line with a. . . Full story |
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| South Africa's rand turned positive against the dollar in volatile late Monday trade, gaining as much as 2.3 percent to a week's high in what some traders said was a retracement. . . Full story | | South Africa's rand started on a firmer note on Monday, shrugging off last week's weakness that took it to two-week lows, with dealers seeing it gaining further.. . . Full story | | South Africa's rand gained 1.4 percent against the dollar on Monday, as market players were encouraged to take on risky assets after a weekend euro zone summit made progress towards an. . . Full story |
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Company News | Further to the cautionary announcement dated 30 September 2010 and subsequent renewal of cautionary announcements, the last of which was dated. . . Full story | | Shareholders were advised that the annual financial statements will be distributed to shareholders on or about 31 October 2011 and contain. . . Full story | | Seardel advised that for the six months ended 30 September 2011 the company expects its financial results to fall within the. . . Full story | | Great Basin reported an operational update for the three months ended September 30, 2011. The company will file its management discussion. . . Full story |
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| The Minister of Mineral Resources of the Republic of South Africa ("the Minister") has consented to the temporary suspension of her. . . Full story | | At the annual general meeting of shareholders of Seardel held on Monday, 24 October 2011 (in terms of the notice of. . . Full story | | Shareholders of HCI are hereby advised that at the annual general meeting held today, 24 October 2011, all the ordinary and. . . Full story | | Grindrod shareholders are referred to the joint announcement published by Grindrod and Remgro Ltd ("Remgro") on Tuesday, 20 September 2011, relating. . . Full story |
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Company Results | Revenue for the interim period increased to R30.6 million (2010: R26.6 million). Gross profit rose to R20.2 million (2010: R19.2 million), operating profit grew to R2 million (2010: loss of R370 000), while profit attributable to ordinary shareholders was higher at R1.2 million (2010: loss of R265 000). Furthermore, headline earnings per share improved to 0.5cps (2010: loss of 0.1cps).
Dividend
No dividend has been declared for the interim period.
Prospects
The core focus will c. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:00 | 31654.31 | 204.32 | 0.65% | JSE Top 40 | 17:00 | 28370.97 | 205.36 | 0.73% | JSE Gold | 17:00 | 2835.37 | 40.62 | 1.45% | JSE Financial | 17:00 | 21456.79 | -28.01 | -0.13% | JSE Industrial | 17:00 | 33652.73 | 10.03 | 0.03% | JSE Indust 25 | 17:00 | 28458.18 | -8.37 | -0.03% | JSE Resource | 17:00 | 52010.99 | 929.88 | 1.82% | DJ Futures | 19:20 | 11842.00 | 85.00 | 0.72% | DJ Ind | 19:45 | 11937.53 | 128.74 | 1.09% | SP 500 | 20:00 | 1256.30 | 18.05 | 1.46% | Nasdaq | 20:00 | 2702.67 | 65.21 | 2.47% | FTSE 100 | 17:35 | 5548.06 | 59.41 | 1.08% | DAX | 21/10 | 5970.96 | 204.48 | 3.55% | CAC40 | 21/10 | 3171.34 | 87.27 | 2.83% | Nikkei | 21/10 | 8678.89 | -3.26 | -0.04% | Shanghai | 21/10 | 2317.28 | -14.09 | -0.60% | Hang-Seng | 21/10 | 18025.72 | 42.62 | 0.24% | All Ords | 07:38 | 4313.60 | 110.20 | 2.62% | NZSE 50 | 21/10 | 3281.16 | -8.61 | -0.26% |
| | Name | Time | RP | Move | % Move | Gold | 19:59 | 1654.70 | 13.55 | 0.83% | Gold/Rand | 20:00 | 13004.78 | -189.76 | -1.44% | Gold/R kg | 20:00 | 418104 | -7046 | -1.66% | Silver | 19:59 | 31.7200 | .3900 | 1.24% | Platinum | 19:59 | 1541.50 | 32.75 | 2.17% | Palladium | 19:59 | 638.50 | 25.25 | 4.12% | R157 | 17:06 | 6.72 | .03 | 0.45% | R204 | 17:06 | 7.80 | .06 | 0.78% | Brent Crude | 19:56 | 112.37 | 1.36 | 1.23% | Rand / Dollar | 19:59 | 7.8593 | -0.1827 | -2.27% | Rand / Pound | 19:55 | 12.5439 | -0.2766 | -2.16% | Rand / Euro | 19:55 | 10.9600 | -0.2143 | -1.92% | Rand / NZD | 19:58 | 6.3696 | -0.0831 | -1.29% | Rand / AUD | 19:55 | 8.2513 | -0.0787 | -0.94% | Yen / Dollar | 19:58 | 76.0250 | -0.2140 | -0.28% | Euro / Dollar | 19:55 | 0.7168 | -0.0039 | -0.54% | Dollar / Euro | 19:59 | 1.3946 | 0.0077 | 0.56% | Pound / Dollar | 19:55 | 0.6245 | -0.0024 | -0.38% |
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The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
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24/10/2011 | 202 | 153 | 78 | 433 | 232,839,226 | R11,475,126,036 | 94041 | 2536503 | 21/10/2011 | 229 | 115 | 82 | 426 | 271,192,784 | R13,189,349,713 | 86643 | 2328221 | 20/10/2011 | 135 | 221 | 63 | 419 | 294,228,087 | R15,078,423,816 | 109795 | 2678896 | 19/10/2011 | 217 | 130 | 88 | 435 | 322,639,850 | R14,892,217,983 | 109924 | 2334961 | 18/10/2011 | 155 | 172 | 86 | 413 | 271,999,318 | R11,918,290,678 | 101576 | 2533023 |
Index Summary Index Name | RP | Move | % Move | Top 40 | 28,370.97 | 205.36 | 0.73% | Industrial | 33,652.73 | 10.03 | 0.03% | Mid Cap | 41,888.13 | 109.82 | 0.26% | Small Cap | 31,661.36 | 16.42 | 0.05% | Resource 20 | 52,010.99 | 929.88 | 1.82% | Industrial 25 | 28,458.18 | -8.37 | -0.03% | Financial 15 | 8,017.90 | -21.86 | -0.27% | Financial & Ind. 30 | 31,317.81 | -36.59 | -0.12% | All Share | 31,654.31 | 204.32 | 0.65% | Oil & Gas | 27,621.70 | 529.44 | 1.95% | Mining | 33,813.35 | 587.27 | 1.77% | Gold Mining | 2,835.37 | 40.62 | 1.45% | Platinum Mining | 63.27 | .08 | 0.13% | GENERAL MINING | 8,332.67 | 177.21 | 2.17% | Oil & Gas Producers | 14,851.68 | 284.67 | 1.95% | Basic Materials | 28,484.67 | 465.78 | 1.66% | Chemicals | 12,892.29 | 51.46 | 0.40% | Forestry & Paper | 11,923.81 | 244.74 | 2.10% | Industrial Metals | 27,542.81 | -112.32 | -0.41% | Industrials | 27,473.69 | 218.90 | 0.80% | General Industrials | 77,652.08 | 1063.21 | 1.39% | Consumer Goods | 30,017.51 | -149.01 | -0.49% | Automobiles & Parts | 3,725.03 | 11.32 | 0.30% | Household Goods | 144.90 | -4 | -2.81% | Health Care | 34,115.49 | 119.34 | 0.35% | Beverages | 99.80 | -1.01 | -1.00% |
| | Index Name | RP | Move | % Move | Food Producers | 51,001.22 | -89.18 | -0.17% | Personal Goods | 441.35 | 2.59 | 0.59% | Consumer Services | 55,571.29 | 609.58 | 1.11% | General Retailers | 45,213.63 | 129.13 | 0.29% | Travel & Leisure | 3,465.20 | .51 | 0.01% | Media | 82.66 | 1.25 | 1.54% | Support Services | 2,249.12 | 10.67 | 0.48% | Telecommunications | 64,399.54 | -720.10 | -1.11% | Financials | 21,456.79 | -28.01 | -0.13% | Banks | 39,752.98 | 70.63 | 0.18% | Non-life Insurance | 33,584.99 | 121.24 | 0.36% | Life Insurance | 15,936.19 | -122.48 | -0.76% | General Financial | 2,150.79 | -5.73 | -0.27% | Technology | 23,410.21 | -88.29 | -0.38% | SHARIAH TOP40 | 3,048.05 | 35 | 1.17% | FTSE/JSE SHARIAH ALL | 3,106.18 | 34 | 1.10% | COAL MINING | 23,089.24 | 185 | 0.81% | FTSE JSE Fledgling | 4,518.13 | 17 | 0.37% | FTSE/JSE Alt X | 1,174.93 | 55 | 4.94% | SA LISTED PROPERTY | 387.17 | | -0.14% | CAPPED PROPERTY | 321.31 | | 0.17% | RESOURCE | 28,710.09 | 506 | 1.79% | DIVIDEND PLUS | 169.02 | 0 | 0.20% | FTSE/JSE RAFI 40 | 6,541.22 | 37 | 0.57% | Capped Top 40 | 14,903.69 | 93 | 0.63% | Capped All Share | 15,983.02 | 98 | 0.62% |
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Latest Consensus Changes** Code | Company Name | Status | Updated | NED | NEDBANK GROUP LTD | HOLD | 19 Oct | OCT | OCTODEC INVESTMENTS LIMIT... | SELL | 19 Oct | SBK | STANDARD BANK GROUP LIMIT... | HOLD | 19 Oct | AIP | ADCOCK INGRAM HLGS LD | HOLD | 19 Oct | IPF | INVESTEC PROPERTY FUND LT... | HOLD | 19 Oct |
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Results Expected** Expected | Company Name | Fin. Date | 25 Oct 2011 | SANYATI | August 2011 (Interim) | 26 Oct 2011 | AQUARIUS | September 2011 (Q) | 26 Oct 2011 | AQUARIUSCVT | September 2011 (Q) | 26 Oct 2011 | KAIROS | August 2011 (Interim) | 26 Oct 2011 | PSV | August 2011 (Interim) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | OCTODEC | 11-10-21 | 11-11-11 | 11-11-21 | R 0.6430 | PREMIUM | 11-10-21 | 11-11-11 | 11-11-21 | R 0.5580 | CLICKS | 11-10-20 | 12-01-20 | 12-01-30 | R 0.8800 | FAMBRANDS | 11-10-20 | 11-12-08 | 11-12-19 | R 0.8000 | OASIS | 11-10-20 | 11-11-04 | 11-11-14 | R 0.4710 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | SHFINV-PREF | 11-09-06 | 11-10-21 | 11-10-31 | R 3.5500 | NTC PREF | 11-10-03 | 11-10-21 | 11-10-31 | R 3.3842 | EOH | 11-09-12 | 11-10-21 | 11-10-31 | R 0.4800 | ELBGROUP | 11-09-21 | 11-10-21 | 11-10-31 | R 0.4000 | OPTIMUM | 11-08-25 | 11-10-21 | 11-10-31 | R 0.3000 |
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Upcoming AGMs** Code | Company Name | Date | Status | SER | Seardel Investment Corporation Ltd | 24/10/2011 | Confirmed | SRN | Seardel Investment Corporation Ltd | 24/10/2011 | Confirmed | HCI | Hosken Consolidated Investments Ltd | 24/10/2011 | Confirmed | PKH | Protech Khuthele Holdings Ltd | 24/10/2011 | Confirmed | IFH | IFA Hotels - Resorts Ltd | 25/10/2011 | Unconfirmed |
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