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 The Sharenet Daily 
Tuesday, 27 March 2012 - 20:00
Top News
SA Business
Company News
Company Results
World Markets (Spot Prices)
JSE Today
JSE Trading Statistics
Major Moves
Index Summary
Latest Consensus Changes / Results Expected
Recent Dividends / Ex Div
Upcoming AGMs
Stock Exchange News Service (SENS)

Bond Returns in an Inflation Targeted Environment

As multi-managers we focus most of our research in two areas:
• Selecting the best fund managers and blending them together
• Valuing asset classes to determine expected returns and risks going forward

This week we’ll take a closer look at valuing bonds.

As mentioned in previous weekly reports, bonds are essentially loans made by investors to the issuers (governments, parastatals, corporates) who promise to repay the bond back at a predetermined date with a predetermined interest rate. The return of the bond is therefore fairly simple to calculate. The initial yield will in a large part determine the total return (on a nominal basis) if the bond is held to maturity. Factors that will affect the total return will be any default (failure to pay either coupon or principal) and the reinvestment risk.

Reinvestment risk comes about when the coupons (interest payments) are paid to investors and need to be reinvested. Should prevailing yields be below the initial yield then the total return will be lower than the initial yield to maturity, but if they are higher, then investors will be able to enhance their return by reinvesting at the higher rate.

The chart below shows the relationship between the initial 10 year spot bond yield and the subsequent 5 year annual return. As can be seen, there is a tight relationship between the two variables with the initial yield explaining over 90% of the total return.

A large part of the Monetary Policy Committee’s (MPC) mandate is to keep inflation between 3% and 6%. While there is a ‘political’ mandate to encourage strong GDP growth (which will sometimes result in inflation staying higher for longer) there is at least the framework to bring inflation back should it move significantly above 6% for any extended period.

The inflation rate that is priced into the market for the next 5 years can be approximated by taking the difference between the long (nominal) bond rate and the inflation linked bond rate. Since the turn of the millennium the implied inflation rate has been between 4.5% and 6% nearly two thirds of the time. This range is intuitive as it sits in the upper portion of the MPC’s target range.

History shows that when the implied inflation rate was above 6% the average subsequent 1 year return from bonds is 18%. When the implied inflation rate is below 6% the average subsequent 1 year return from bonds is 9%. Naturally it is therefore better (in general) to invest into bonds when the inflation outlook is poor than when it is rosy. Taking a closer look at the numbers reveals an average 1 year return of only 6% when the implied inflation rate is below 5% and 25% when it’s above 7%.

Below is a cross section of the implied inflation rate and subsequent 1 year return from bonds. Notice the trend line:

We expect that this relationship will hold as long as inflation targeting is part of the MPC mandate. With actual inflation expected to sit between 3% and 6% (but more likely closer to 6%), periods where the market expects high inflation will generally be followed by periods where expectations moderate. Falling inflation expectations are good for bonds returns as the market prices in lower interest rates, which results in capital gains on fixed income investments.

As with any valuation model, the actual outcome will most likely differ from the model’s expected outcome, but the model does give a good indication of the type of return that one should reasonably expect going forward. Periods with high starting yields AND high implied inflation rates are good periods to be investing into bonds, with the converse also being true.

Kind regards,

Mike Browne
021 9144 966

Tue, 27 Mar 2012
Top News
South African stocks ended higher on Tuesday, extending gains for the third day after, the U.S. Federal Reserve signaled it would continue to support the world's largest economy with loose monetary policy.  Full story

South Africa's government bonds weakened for the first time in three days and the rand reversed earlier gains against the dollar on Tuesday, although the currency's carry trade appeal could boost it in the short term.  Full story
Former armed forces commander Ilker Basbug stormed from an Istanbul courtroom on Tuesday and denounced his trial on coup plot accusations as an assault on the entire military leadership and a "black stain" on the country's history.  Full story
A meeting of Syrian opposition groups on Tuesday that aimed to show they can unite to form an alternative to President Bashar al-Assad, was marred when a veteran dissident and Kurdish delegates walked out, saying their views were not being heard.  Full story
Syria has accepted a U.N.-sponsored peace plan, international envoy Kofi Annan said on Tuesday, as troops loyal to President Bashar al-Assad raided rebel forces who have taken refuge across the border in Lebanon.  Full story
Wall Street paused near four-year highs on Tuesday, while a number of large-cap stocks hit new highs as portfolio managers grabbed top performers. . .  Full story
Weak oil stocks dragged European shares lower on Tuesday, led by France's Total after it warned a massive gas leak at. . .  Full story
World stocks touched an eight-month high o n T uesday, while the dollar edged up from the previous day's losses a day after. . .  Full story
Heavyweight oil stocks dragged Britain's top shares lower on Tuesday, reversing earlier gains that had been driven by strength in banks and miners,. . .  Full story

Gold prices steadied on Tuesday as a fall in the euro pulled it from two-week highs earlier in the day on the back. . .  Full story
Hong Kong shares finished higher on Tuesday, with locally listed Chinese companies climbing for the first time in 10 sessions on short-covering after U.S.. . .  Full story
European shares rose on Tuesday, adding to the previous session's rebound after Federal Reserve Chairman Ben Bernanke said that easy monetary policy would remain. . .  Full story
Britain's FTSE 100 advanced in early trade on Tuesday, extending solid gains in the previous session as expectations of further monetary easing. . .  Full story
SA Business
South Africa on Tuesday cut its maize output forecast for the 2011/12 season by 3 percent, exactly in line with market expectations, after late-season drought weighed on yields.. . .  Full story
South Africa's Government Employees Pension Fund (GEPF) is considering investing around $22 billion outside the country to diversify its risks and some of that may go to other African countries and. . .  Full story
Singapore Airlines Ltd, the world's second largest by market value, said on Tuesday it paid a fine of 25 million rand to settle a South African investigation into price-fixing of flights. . .  Full story

Emerging economies must be given a fair shot at leading the institutions at the heart of global finance or they will end up going their own way, a challenger for the top job at the World Bank.. . .  Full story
Company News
The terms of the agreement are in the process of being renegotiated, including inter alia the consideration payable as well as. . .  Full story
Shareholders are advised that an agreement has been signed between Bonatla and Globus Investments (Pty) Ltd. ("Globus Investments") in terms of. . .  Full story
Simmer and Jack Mines is currently finalising its interim results for the six months ended 31 December 2011. Accordingly, shareholders are. . .  Full story
Top Fix shareholders are referred to the previous cautionary released on SENS on 7 February 2012 and are advised that discussions. . .  Full story

Resgen has signed an agreement to acquire land adjacent to the company's Boikarabelo mine and agreed to a put option under. . .  Full story
Shareholders are referred to the unaudited interim results for the six months ended 31 December 2011 released on SENS on 23. . .  Full story
Further to the announcement released on SENS yesterday, shareholders are advised that with effect from 26 March 2012, Mr DR Gain. . .  Full story
Shareholders were advised that Ellies expects that earnings per share and headline earnings per share for the year ended 30 April. . .  Full story
Company Results
Revenue improved to R387.3 million (R324.2 million) and gross profit jumped to R117.6 million (R97.4 million). However, operating profit dropped slightly to R22.7 million (R23.3 million), while loss for the period. . .  Full story
Revenue increased from R3 928.8 million to R4 229.5 million in 2011. Gross profit increased to R1 113 million (2010: R1 073 million) while operating loss of R233.2 million (2010:profit of. . .  Full story
Revenue. . .  Full story
World Markets (Spot Prices)
NameTimeRPMove% Move
JSE Overall17:0033858.22193.760.58%
JSE Top 4017:0029957.44160.880.54%
JSE Gold17:002460.139.980.41%
JSE Financial17:0024945.16278.531.13%
JSE Industrial17:0037608.52236.460.63%
JSE Indust 2517:0031530.16184.100.59%
JSE Resource17:0050060.4278.040.16%
DJ Futures19:5613170.00-34.00-0.26%
DJ Ind19:4113236.90-4.73-0.04%
SP 50019:561416.21-0.30-0.02%
FTSE 10017:355869.55-33.15-0.56%
All Ords07:374391.6036.400.84%
NZSE 5006:463483.9612.040.35%
NameTimeRPMove% Move
Gold/R kg19:564104519790.24%
Brent Crude19:56125.65-.59-0.47%
Rand / Dollar19:597.58170.00190.03%
Rand / Pound19:5512.0664-0.0069-0.06%
Rand / Euro19:5510.1109-0.0148-0.15%
Rand / NZD19:586.2337-0.0094-0.15%
Rand / AUD19:557.9485-0.0428-0.54%
Yen / Dollar19:5983.12700.28000.34%
Euro / Dollar19:550.74930.00090.12%
Dollar / Euro19:591.3341-0.0015-0.11%
Pound / Dollar19:550.62620.00030.05%

Click here for the Sharenet Spot Price page
The JSE Today

Trading Statistics
* Includes all listed instruments on the JSE
Major Moves Up
SharenameSaleMove% MoveVolume
1 GOLIATH  4508422.95.%273773
2 RANGOLD  2753514.58.%2064
3 KELLY  380298.26.%30204
4 DELTA  800557.38.%290101
5 MAS  1110555.21.%4000
6 PERGRIN  1125555.14.%12763
7 BRIMST-N  875404.79.%1000
8 METAIR  23661064.69.%55285
9 ELLIES   319134.25.%631499
10 CLOVER  1470513.59.%520496
11 REMGRO  134704603.54.%1350730
12 PALLINGHT  300103.45.%219395
13 WOOLIES  47431573.42.%5618608
14 CALGRO  465153.33.%4920
15 WINHOLD  12443.33.%27000
16 BARWORLD  95502752.96.%1142393
17 ARROW-B  529152.92.%122915
18 PIKWIK  1880512.79.%521639
19 FAMBRANDS  48131282.73.%18990
20 TRUWTHS  82502162.69.%1689255

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Major Moves Down
SharenameSaleMove% MoveVolume
1 PBT  175-23-11.62.%20543
2 ARB  410-40-8.89.%22027
3 EASTPLATS  327-22-6.30.%103050
4 JUBILEE  152-10-6.17.%867927
5 CADIZ  240-14-5.51.%24000
6 BRIMSTON  1100-50-4.35.%16000
7 TRUSTCO  110-5-4.35.%50740
8 ANOORAQ  335-15-4.29.%47163
9 COMAIR  145-5-3.33.%3841
10 ARGENT  760-22-2.81.%115400
11 TASTE  245-7-2.78.%102623
12 ESORFRANK  150-4-2.60.%8768
13 ADCORP  2730-70-2.50.%51380
14 S-OCEAN  209-5-2.34.%10282
15 SENTULA  225-5-2.17.%214715
16 LITHA  342-7-2.01.%225919
17 GRANPRADE  250-5-1.96.%400000
18 RAUBEX  1325-25-1.85.%307028
19 STEFSTOCK  1150-20-1.71.%157490
20 MUSTEK  609-10-1.62.%61675

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New Highs
SharenameSaleHighMove% MoveVolume
1 METAIR  236624001064.69.%55285
2 ELLIES   319330134.25.%631499
3 CLOVER  14701470513.59.%520496
4 WOOLIES  474347611573.42.%5618608
5 ARROW-B  529530152.92.%122915
6 INVICTA  640064011492.38.%21819
7 ASPEN  11590116862682.37.%1411710
8 NEDCOR  17222173443111.84.%628089
9 ARROW-A  65465560.93.%137504
10 RMIH  1725173560.35.%3678050
11 MONDIPLCP  73517495240.33.%302658
12 MONDILTDP  73507473160.22.%359585

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New Lows
SharenameSaleLowMove% MoveVolume
1 COMAIR  145145-5-3.33.%3841
2 EHSV  26602411-38-1.41.%146219
3 TELKOM  24602425-25-1.01.%1242239
4 DORBYL  159120-1-0.63.%86250

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Index Summary
Index NameRPMove% Move
Top 4029,957.44160.880.54%
Mid Cap47,832.34373.600.79%
Small Cap36,011.71190.890.53%
Resource 2050,060.4278.040.16%
Industrial 2531,530.16184.100.59%
Financial 159,453.89121.911.31%
Financial & Ind. 3035,215.75276.710.79%
All Share33,858.22193.760.58%
Oil & Gas 28,559.58318.591.13%
Mining 32,191.78-5.64-0.02%
Gold Mining2,460.139.980.41%
Platinum Mining61.40.550.90%
GENERAL MINING8,052.16-27.27-0.34%
Oil & Gas Producers 15,355.96171.301.13%
Basic Materials 27,569.428.490.03%
Chemicals 15,356.92-32.88-0.21%
Forestry & Paper 14,460.3396.890.67%
Industrial Metals 30,076.33180.320.60%
Industrials 33,106.91612.591.89%
General Industrials 91,701.782345.562.62%
Consumer Goods 32,265.53-77.45-0.24%
Automobiles & Parts 5,357.71240.034.69%
Household Goods180.7531.85%
Health Care 40,298.53468.031.18%
Beverages 106.02-1.07-1.00%
Index NameRPMove% Move
Food Producers 59,142.78479.420.82%
Personal Goods 475.011.000.21%
Consumer Services 63,672.91651.201.03%
General Retailers 53,633.25989.531.88%
Travel & Leisure 3,714.4637.511.02%
Support Services 2,437.08-39.17-1.58%
Telecommunications 68,871.47757.101.11%
Financials 24,945.16278.531.13%
Banks 47,323.43771.421.66%
Non-life Insurance 40,878.92298.610.74%
Life Insurance 19,961.89194.340.98%
General Financial 2,348.8734.331.48%
Technology 28,323.21-38.33-0.14%
SHARIAH TOP40 3,072.82130.43%
FTSE/JSE SHARIAH ALL3,183.05150.48%
COAL MINING27,349.464071.51%
FTSE JSE Fledgling 5,320.94-18-0.33%
FTSE/JSE Alt X 1,205.8390.74%
CAPPED PROPERTY 336.96-0.01%
RESOURCE 27,666.44430.15%
DIVIDEND PLUS197.5121.13%
FTSE/JSE RAFI 407,097.56500.70%
Capped Top 4015,824.56880.56%
Capped All Share17,129.85980.58%
JSE TABACO 4,957.96-25-0.51%

Click here for the Sharenet Index Summary page
Latest Consensus Changes**
CodeCompany NameStatusUpdated
Results Expected**
ExpectedCompany NameFin. Date
28 Mar 2012ANOORAQDecember 2011 (Final)
28 Mar 2012BLACKSTARDecember 2011 (Final)
28 Mar 2012CAPITECFebruary 2012 (Final)
28 Mar 2012CAPITEC-PFebruary 2012 (Final)
28 Mar 2012DONDecember 2011 (Interim)

Recent Dividends**
Share NameDec-DateLDTPay-DateAmount
ILIAD12-03-2712-04-1312-04-23R 0.2000
DELTA12-03-2712-04-1312-04-23R 0.2500
PUTPROP12-03-2312-04-1312-04-23R 0.1500
METAIR12-03-2312-04-1312-04-23R 0.7200
CASHBIL12-03-2012-04-0412-04-16R 2.9600
Ex Div**
Share NameDec-DateLDTPay-DateAmount
MWNT12-03-2612-03-2312-04-02R 55.0000
ABSABANK-P12-02-1012-03-2312-04-02R 28.2720
EXXARO12-02-2312-03-2312-04-02R 5.0000
MTN GROUP12-03-0712-03-2312-04-02R 4.7600
ABSA12-02-1012-03-2312-04-02R 3.9200

Upcoming AGMs**
CodeCompany NameDateStatus
REBRebosis Property Fund Ltd.28/03/2012Confirmed
RACRACEC Group Ltd.29/03/2012Confirmed
MMPMarshall Monteagle PLC29/03/2012Confirmed
MTEMarshall Monteagle PLC29/03/2012Confirmed
AMSPAnglo American Platinum Ltd.30/03/2012Confirmed

Stock Exchange News Service
27/03/201217:46GND/GNDP - Grindrod - Press announcement - Grindrod and Vitol to further
27/03/201217:36ACL164 - Absa Bank Limited - New Financial Instrument Listing
27/03/201217:35 Anglo American Plc - Publication of Offering Memorandum
27/03/201217:33 Pinnacle Technology Holdings Limited - Dealing in securities Director
27/03/201217:29 Erbacon Investment Holdings Limited - Debt restructure plan and trading
27/03/201217:29DBAGL6 - Deutsche Bank AG - Declared Distribution Announcement on Anglo Stub
27/03/201217:26DBAGL4 - Deutsche Bank AG - Declared distribution announcement on Anglo Stub
27/03/201217:18MNPNIF- Nedbank - Dividend distribution announcement in relation to the MNP
27/03/201217:17MNDNIF - Nedbank - Dividend distribution announcement in relation to the MND
27/03/201217:16SOLNIH - Nedbank - Dividend Distribution Announcement in relation to the SOL
27/03/201217:14SOLNNE - Nedbank - Dividend distribution announcement in relation to the SOL
27/03/201217:10 Hosken Consolidated Investments Limited - Exercise of options by
27/03/201217:07 Kaydav Group Limited - Audited results for the year ended 31 December 2011
27/03/201217:00 Sabmiller Plc - Notification of transactions of directors, persons
27/03/201216:48 Beige Holdings Limited - Dealings in securities by directors and
27/03/201216:47 Anglo American Plc - Publication of Final Terms
27/03/201216:37 Optimum - Update regarding the Consortium`s Expression of Interest to
27/03/201216:31 1time - Appointment to the Board of Directors
27/03/201216:12ABL/ABLP - African Bank Investments Limited - Dealing in securities by
27/03/201216:08 Conduit - Change to the Board of Directors - Resignation of Director
27/03/201215:35CGR11 - Calgro M3 Developments (Proprietary) Limited - New Financial
27/03/201215:30CCO - Capital & Counties Properties Plc - Appointment of Non-Executive Director
27/03/201215:24 Zaptronix Limited - Results of the Annual General Meeting
27/03/201214:48 Metrofile Holdings Limited - Dealing in securities by directors
27/03/201214:43 Bonatla - Voluntary Announcement with regard to Carbon Processing and
27/03/201214:42 Reunert Limited - Reunert brings high court application against Holdsworth
27/03/201214:34BRT/BRN - Brimstone Investment Corporation Limited - No change statement and
27/03/201213:55CCO - Capital & Counties Properties PLC - Notification of Major Interests in
27/03/201213:54 Rare Holdings Limited - Changes to the board of directors
27/03/201213:10 Bonatla - Detailed Cautionary Announcement in relation to the Disposal of
27/03/201213:04 Alert Steel Holdings Limited - Alert Steel plans rights offer to
27/03/201213:03 Alert Steel Holdings Limited - Capital and organisational restructure,
27/03/201213:00PMM01 - Premium Properties Limited - New financial Instrument Listing
27/03/201212:30 Simmer & Jack Mines, Limited - Trading Statement
27/03/201212:08 Spanjaard Limited - Resignation and appointment of company secretary
27/03/201212:07 Top Fix - Renewal of Cautionary Announcement
27/03/201212:00 Kelly Group Limited - Disclosure Of a significant holding in Kelly Group
27/03/201211:35 Delta EMD Limited - Audited group results and dividend declaration for
27/03/201211:28 Shoprite Holdings Limited - Disclosure of acquisition of securities
27/03/201211:01 Investec Property Fund Limited - Acquisition of British American
27/03/201211:00FCPD - Foord Compass Limited - Dealings by a Director
27/03/201210:47 Sea Kay - Publication of Interim Results for the six months ended 31
27/03/201210:10PREFEX - Prefex Co Limited - Listing of Prefex Securities
27/03/201210:06ABN39 - Absa Bank Limited - Interest Rate Reset
27/03/201210:03 Resgen - Resource Generation acquires additional properties and potential
27/03/201210:00 Iliad Africa Limited - Audited Condensed Consolidated Financial Results
27/03/201209:59ABCL1 - Absa Bank Limited - Interest Rate Reset
27/03/201209:55 Ububele - Interim results for the six months ended 31 December 2011
27/03/201209:33 Putprop Limited - Correction Announcement
27/03/201209:18 Jubilee Platinum Plc - Revised paragraph in Trading Statement
27/03/201209:14 Peregrine Holdings Limited - Dealings in securities by directors of major
27/03/201209:00GEN - General - Firm intention to make a mandatory offer to acquire ordinary
27/03/201208:56 Optimum Coal Holdings Limited - Changes to board of directors -
27/03/201208:30 Ellies Holdings Limited - Trading Statement
27/03/201208:00 LONRHO PLC - LONRHO PLC wins GBP10.2 million contract for school
27/03/201208:00 Jubilee Platinum Plc - Trading Statement
27/03/201207:34ABFN09 - Absa Bank Limited - Interest Rate Reset : ABFN09
27/03/201207:33ABFN08 - Absa Bank Limited - Interest Rate Reset : ABFN08
27/03/201207:32ABFN07 - Absa Bank Limited - Interest Rate Reset
27/03/201207:31ABFN06 - Absa Bank Limited - Interest Rate Reset: ABFN06
27/03/201207:30ABFN05 - Absa Bank Limited - Interest Rate Reset
27/03/201207:15 British American Tobacco p.l.c - Transaction in own shares
27/03/201207:13 Cadiz Holdings Limited - Resignation to the board of directors and
27/03/201207:05 Buildmax Limited - Results of general meeting

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