Tuesday, 19 November 2013 - 20:00
Charts
Seed Weekly - Equity Market Returns
One of the main tools used at Seed to determine whether the local equity market is expensive or not is the ALSI’s historical PE ratio. We have seen that, over time, a low starting PE ratio has typically resulted in excellent returns to investors over a 5 year period, while a high starting PE has typically resulted in relatively poor 5 year returns.
Chart 1 below demonstrates this relationship, with each blue dot indicating a starting PE level and subsequent 5 year return (annualised). From this chart one can see the relationship between starting PE and subsequent return and that the market is currently extremely expensive.
Chart 1: Starting ALSI PE v Subsequent 5 Year Return
The logical (often rhetorical) question that we get asked after showing this information to clients or other investment professionals is, “I guess that means that you expect a significant market correction sooner rather than later?”
Intuitively we’d typically agree with this statement, but we delved a little deeper into what’s happened in the past in expensive markets (i.e. when the starting PE of the ALSI was above 17). It was interesting to note that on a 12 month horizon, investors had a similar chance of losing capital when the market was expensive (i.e. PE above 17) as across all market conditions (all observations). Chart 2 below indicates this phenomenon.
Chart 2: 12 Month ALSI Returns – Various Criteria
This analysis indicates that investors into local equity should expect negative 12 month returns approximately 1 in every 5 years if they don’t take heed of starting valuations. When the market is expensive (PE above 17), this ratio is similar. What is interesting is that when markets are expensive, the probability of good returns (i.e. in excess of 20% pa) falls right down to approximately 10%, compared to a 50% probability over all periods in the analysis (322 observations).
Chart 2 also indicates the power of investing when the market is cheap (i.e. PE below 10). In these periods investors have received a 12 month return below 10% less than 10% of the time compared to returns in excess of 20% (over 12 months) in 80% of the observed periods.
From this (admittedly simple) analysis we can conclude that while we don’t think there’s a heightened chance of a market crash when compared to history, investors should brace themselves for the high probability of sub optimal returns over the next 12 months. Investors should also be aware that should there be a fall in markets, it is highly likely that it will be larger than a typical correction.
As a result of this, and other, analysis the asset allocation Funds that Seed manages (namely Seed Flexible Fund and Seed Absolute Return Fund) are currently conservatively positioned, using local equity as a measure, compared to historical and strategic weightings.
Take care,
Mike Browne
www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966
Tue, 19 Nov 2013
Top News
Local markets
Losses in gold mining shares led a general slide on the JSE today, with the All Share finishing 0.64% lower on Tuesday. Full story
South African stocks edged up on Monday as a global equity rally helped lift investor favourites such as e-commerce firm Naspers, although nagging concerns about valuations kept gains in check.
Shares of Nampak rose 3.3 percent to 31.77 rand after the packaging firm said it would s Full story |
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President Cristina
Fernandez's new Cabinet picks confirmed a deepening of
Argentina's left-leaning economic model rather than a policy
switch needed to confront escalating inflation and dwindling
foreign currency reserves. Full storyTwo suicide bombings rocked Iran's embassy compound in Lebanon on Tuesday, killing at least 23 people including an Iranian cultural attaché and hurling bodies and burning wreckage across a debris-strewn street. Full storyRussian courts
granted bail to nine jailed foreign Greenpeace activists on
Tuesday, a turnaround in Russia's treatment of 30 people facing
trial over a protest against Arctic oil drilling. Full story |
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Markets | European shares fell in thin
trade on Tuesday as negative comments from U.S. billionaire
investor Carl Icahn drew attention to a mixed earnings. . . Full story | | The Dow Jones industrial
average climbed above 16,000 for a second day, bolstered by a
rally in Home Depot shares after stronger-than-expected
earnings.. . . Full story | | Britain's top share index slipped
on Tuesday, hurt by testing firm Intertek on worries
over a slowdown in its business, though analysts were. . . Full story | | World stock markets mostly
dipped on Tuesday after the OECD cut its global growth
forecasts, though expectations for continued stimulus from the
U.S. Federal. . . Full story |
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| Gold inched up on Tuesday,
stabilising after sharp losses seen in the previous session, as
investors gauged Federal Reserve officials' comments about the
outlook. . . Full story | | U.S. stocks opened flat at the
open on Tuesday after the Dow and S&P 500 hit record highs the
previous session, with a. . . Full story | | Testing firm Intertek led the
FTSE 100 lower on Tuesday on concerns over a slowdown in its
business, while doubts linger more broadly. . . Full story | | European shares eased on Tuesday,
with caution on stocks from U.S. billionaire investor Carl Icahn
and a retreat on Wall Street overnight encouraging. . . Full story |
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| South African electricity utility Eskom reduced power supply on Tuesday to mining giant BHP's aluminium smelters, in line with an agreement. . . Full story | | South African electricity utility Eskom declared a power "emergency" on Tuesday and urged key industrial customers to cut consumption to reduce. . . Full story | | A shareholder of South Africa's Adcock Ingram has filed a complaint with the Johannesburg Stock Exchange accusing the drugmaker's board of. . . Full story | | South African business confidence remained in negative territory in the fourth quarter of the year, with retailers particularly downbeat about prevailing. . . Full story |
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| Shareholders of South Africa's Afgri Ltd on Tuesday overwhelmingly voted in favour of a $258 million buyout by a investment firm. . . Full story | | South Africa's rand held steady against the dollar early on Tuesday, looking set for a fifth day of recovery from last. . . Full story | | South African fixed-line operator Telkom SA is in talks with some parties over the future of its struggling mobile business, its. . . Full story | | South Africa's rand firmed against the dollar on Monday as global markets were lifted by the prospect of ambitious economic reforms. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:00 | 45138.13 | -290.72 | -0.64% | JSE Top 40 | 17:00 | 40337.43 | -256.53 | -0.63% | JSE Gold | 17:00 | 1273.17 | -32.31 | -2.47% | JSE Financial | 17:00 | 32830.44 | -230.82 | -0.70% | JSE Industrial | 17:00 | 59321.43 | -277.27 | -0.47% | JSE Indust 25 | 17:00 | 51905.15 | -246.77 | -0.47% | JSE Resource | 17:00 | 51396.34 | -489.21 | -0.94% | DJ Futures | 19:58 | 15970.00 | 29.00 | 0.18% | DJ Ind | 19:58 | 16002.66 | 26.64 | 0.17% | SP 500 | 19:58 | 1792.89 | 1.36 | 0.08% | Nasdaq | 19:58 | 3950.06 | 0.99 | 0.03% | FTSE 100 | 18:35 | 6698.01 | -25.45 | -0.38% | DAX | 19:08 | 9193.29 | -32.14 | -0.35% | CAC40 | 19:08 | 4272.29 | -48.39 | -1.12% | Nikkei | 08:28 | 15126.56 | -37.74 | -0.25% | Shanghai | 09:28 | 2193.13 | -4.09 | -0.19% | Hang-Seng | 10:28 | 23657.81 | -2.25 | -0.01% | All Ords | 07:50 | 5347.80 | -30.10 | -0.56% | NZSE 50 | 06:48 | 4862.51 | -29.53 | -0.60% |
| | Name | Time | RP | Move | % Move | Gold $ | 19:59 | 1274.52 | -1.18 | -0.09% | Gold R | 19:58 | 12976.83 | 61.01 | 0.47% | Gold R/kg | 19:58 | 417152 | -1328 | -0.32% | Silver $ | 19:59 | 20.3300 | -.0670 | -0.33% | Platinum $ | 19:56 | 1414.80 | 8.30 | 0.59% | Palladium $ | 19:58 | 720.00 | 5.00 | 0.70% | R157 | 16:12 | 6.00 | .04 | 0.59% | R186 | 16:12 | 8.16 | .05 | 0.68% | R204 | 16:12 | 7.07 | .04 | 0.50% | R207 | 16:12 | 7.37 | .05 | 0.75% | Brent Crude | 19:58 | 107.90 | -.65 | -0.60% | Rand / Dollar | 19:59 | 10.1829 | 0.0584 | 0.58% | Rand / Pound | 19:55 | 16.3798 | 0.0990 | 0.61% | Rand / Euro | 19:55 | 13.7798 | 0.1043 | 0.76% | Rand / NZD | 19:58 | 8.5119 | 0.0811 | 0.96% | Rand / AUD | 19:55 | 9.5968 | 0.0819 | 0.86% | Yen / Dollar | 19:59 | 100.0930 | 0.1560 | 0.16% | Euro / Dollar | 19:58 | 0.7388 | -0.0018 | -0.24% | Dollar / Euro | 19:59 | 1.3536 | 0.0032 | 0.24% | Pound / Dollar | 19:55 | 0.6198 | -0.0007 | -0.11% |
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Click here for the Sharenet Spot Price page
The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
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19/11/2013 | 125 | 224 | 59 | 408 | 206,874,384 | R11,697,082,530 | 135200 | 1070657 | 18/11/2013 | 207 | 146 | 69 | 422 | 188,120,652 | R11,093,929,168 | 139213 | 288868 | 15/11/2013 | 240 | 137 | 56 | 433 | 211,662,580 | R15,291,376,748 | 150350 | 1153516 | 14/11/2013 | 225 | 138 | 59 | 422 | 179,559,279 | R12,128,964,567 | 132998 | 147293 | 13/11/2013 | 99 | 254 | 66 | 419 | 315,842,800 | R19,098,455,642 | 186921 | 1706239 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 40,337.43 | -256.53 | -0.63% | Industrial | 59,321.43 | -277.27 | -0.47% | Mid Cap | 59,672.98 | -497.47 | -0.83% | Small Cap | 49,987.28 | 22.18 | 0.04% | Resource 20 | 51,396.34 | -489.21 | -0.94% | Industrial 25 | 51,905.15 | -246.77 | -0.47% | Financial 15 | 12,347.04 | -116.09 | -0.93% | Financial & Ind. 30 | 54,951.77 | -271.49 | -0.49% | All Share | 45,138.13 | -290.72 | -0.64% | Oil & Gas | 38,893.70 | -381.40 | -0.97% | Mining | 30,887.35 | -297.39 | -0.95% | Gold Mining | 1,273.17 | -32.31 | -2.47% | Platinum Mining | 52.12 | -.48 | -0.91% | GENERAL MINING | 8,854.31 | -68.58 | -0.77% | Oil & Gas Producers | 20,912.42 | -205.07 | -0.97% | Basic Materials | 27,386.01 | -246.67 | -0.89% | Chemicals | 23,709.04 | -182.99 | -0.77% | Forestry & Paper | 27,959.43 | -131.35 | -0.47% | Industrial Metals | 23,115.91 | 29.46 | 0.13% | Industrials | 43,360.83 | -239.82 | -0.55% | General Industrials | 129.49 | -.55 | -0.42% | Consumer Goods | 56,064.55 | 83.85 | 0.15% | Automobiles & Parts | 8,695.52 | .00 | 0.00% | Household Goods | 279.97 | 1 | 0.54% | Health Care | 74,543.89 | -1060.47 | -1.40% | Beverages | 179.96 | .31 | 0.17% |
| | Index Name | RP | Move | % Move | Food Producers | 71,858.27 | 497.09 | 0.70% | Personal Goods | 1,030.12 | -.70 | -0.07% | Consumer Services | 10,255.17 | -109.83 | -1.06% | General Retailers | 63,190.61 | -865.11 | -1.35% | Travel & Leisure | 5,636.32 | 11.65 | 0.21% | Media | 205.22 | -1.31 | -0.63% | Support Services | 2,625.00 | 4.99 | 0.19% | Telecommunications | 9,364.74 | -99.64 | -1.05% | Financials | 32,830.44 | -230.82 | -0.70% | Banks | 55,311.80 | -591.78 | -1.06% | Non-life Insurance | 48,364.58 | -638.06 | -1.30% | Life Insurance | 31,705.86 | -296.66 | -0.93% | General Financial | 3,169.16 | -22.10 | -0.69% | Technology | 43,820.73 | -160.57 | -0.37% | SHARIAH TOP40 | 3,808.22 | -32 | -0.85% | FTSE/JSE SHARIAH ALL | 3,933.42 | -34 | -0.86% | COAL MINING | 18,267.90 | -254 | -1.37% | FTSE JSE Fledgling | 6,281.31 | -32 | -0.51% | FTSE/JSE Alt X | 1,103.16 | 10 | 0.92% | SA LISTED PROPERTY | 507.94 | | 0.67% | CAPPED PROPERTY | 430.74 | | 0.33% | RESOURCE | 28,083.40 | -271 | -0.96% | DIVIDEND PLUS | 216.46 | -2 | -1.06% | FTSE/JSE RAFI 40 | 8,934.30 | -74 | -0.82% | Capped Top 40 | 21,310.75 | -142 | -0.66% | Capped All Share | 22,851.71 | -149 | -0.65% | JSE TABACO | 7,080.42 | 16 | 0.23% |
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Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | ILV | ILLOVO SUGAR LIMITED | BUY | 18/11/2013 | NPN | NASPERS LIMITED | BUY | 18/11/2013 | TON | TONGAAT HULETT LTD | SELL | 18/11/2013 | LHC | LIFE HEALTHCARE GRP HLDG ... | HOLD | 18/11/2013 | RLO | REUNERT LIMITED | HOLD | 18/11/2013 |
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Results Expected** Expected | Company Name | Fin. Date | 20/11/2013 | AME | September 2013 (Interim) | 20/11/2013 | ATLATSA | September 2013 (Q) | 20/11/2013 | EHSV | September 2013 (Q) | 20/11/2013 | GFIELDS | September 2013 (Q) | 20/11/2013 | GFIELDSP | September 2013 (Q) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | ESORFRANK | 18/11/13 | 29/11/13 | 09/12/13 | ZAR 0.3800 | REX TRUE -N- | 18/11/13 | 06/12/13 | 17/12/13 | ZAR 0.6100 | REX TRUE | 18/11/13 | 06/12/13 | 17/12/13 | ZAR 0.6100 | NETCARE | 18/11/13 | 24/01/14 | 03/02/14 | ZAR 0.4050 | AFOVR-N | 18/11/13 | 06/12/13 | 17/12/13 | ZAR 0.3500 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | B-AFRICA | 30/07/13 | 15/11/13 | 25/11/13 | ZAR 7.0800 | REDEFINE | 31/10/13 | 15/11/13 | 25/11/13 | ZAR 0.3500 | DELPROP | 29/10/13 | 15/11/13 | 25/11/13 | ZAR 0.3251 | SPANJAARD | 31/10/13 | 15/11/13 | 25/11/13 | ZAR 0.1500 | AFGRI | 04/09/13 | 15/11/13 | 25/11/13 | ZAR 0.0330 |
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Upcoming AGMs** Code | Company Name | Date | Status | NT1 | Net 1 UEPS Technologies Inc. | 19/11/2013 | Confirmed | NT1P | Net 1 UEPS Technologies Inc. | 19/11/2013 | Confirmed | NT1PP | Net 1 UEPS Technologies Inc. | 19/11/2013 | Confirmed | RCL | RCL Foods Ltd. | 20/11/2013 | Confirmed | RBW1 | RCL Foods Ltd. | 20/11/2013 | Confirmed |
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