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 The Sharenet Daily 
Tuesday, 22 July 2014 - 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)

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Seed Weekly - The US Equity Risk Premium

BCA Research agrees with the general consensus that US equities are fully priced or indeed even possibly slightly overvalued. They do say, however, that “Nevertheless, this does not mean the bull market is about to end. In fact, history has shown that valuation is a bad market-timing tool; equities can stay in over- or under-valued territory potentially for decades.”

At the same time it is important for investors to always have a good understanding of the valuation of the market in order assess the level of risk. While there are numerous ways to look at the overall valuation of equities, one methodology is to look at the equity risk premium (ERP). The thinking here is that investors demand a premium in the yield for investing into a more volatile asset such as a listed share when compared to the yield on a government bond.

The yield that an investor receives on a government bond – for instance a 10 year bond – is generally considered risk free because of the low probability of default. Because an investment into the shares of a company has a much higher degree of risk, it stands to reason that the yield demanded is higher than bonds – hence the equity risk premium. It is because of this premium in yield and the compounding effect of earnings that investors in equities will typically be rewarded with excess returns over time.

The maths then to calculate this equity risk premium is fairly simple – it is the difference between the 12 month forward earnings yield and the yield on the 10 year government bond.

This premium, however, has not been a fixed number over time as depicted in the chart below for the S&P 500. At certain times investors become more exuberant and demand a very low, or at times discount in the yield versus bonds. At other times investors become very nervous about risk assets and demand a high yield (i.e. lower valuation) relative to the lower risk bonds.

In the 1980s to 1990s, the average equity risk premium on the US market was 80 basis points, which was very low because the stock market was overinflated and overvalued for more than a decade. Then into the late 1990 and early 2000 there was a major shift where investors no longer demanded a premium for investing into equities and in the years to just before the global financial crisis, investors demanded an approximate 200 basis point premium over 10 year bonds.

With prices plummeting into the global financial crisis, yields moved higher and the equity risk premium spiked to over 600 basis points, but has since been dropping. The big question, however, is just what should this equity risk premium number be?

The current yield on the US 10 years bond is around 2.5%. Assuming that the long run number should be 3.5% and that investors demand an additional 3% equity risk premium, this means that shares should trade at a yield of 6.5%. This yield implies a price to earnings (PE) ratio of 15.4 (i.e. 1/6.5%). Currently the US stock market, as defined by the S&P 500, is trading on a forward PE of 15.7, which means that on these assumptions it is in equilibrium territory.

Investors can therefore take comfort that on this basis, overall valuations are reasonable but this does not guarantee that prices will not be volatile.

Kind regards,

Ian de Lange

021 914 4966

Tue, 22 Jul 2014
Top News
South Africa's rand firmed against the dollar on Tuesday, taking impetus from benign U.S. inflation numbers and reports that striking metalworkers were mulling a new wage deal to end a three-week stoppage.  Full story

South African stocks gained smartly on Tuesday after stumbling in the previous session as risk appetite returned to global markets, spurred by cooperation from Ukraine's pro-Russian separatists over the downed Malaysian Airlines plane.  Full story
U.S. Secretary of State John Kerry urged Hamas on Tuesday to pursue a negotiated end to its conflict with Israel after what he said were constructive talks with Egyptian officials about their ceasefire proposal.  Full story
Israel pounded targets across the Gaza Strip on Tuesday, saying no ceasefire was near as top U.S. and United Nations diplomats pursued talks on halting the fighting that has claimed more than 600 lives.  Full story
A train carrying the remains of many of the 298 victims of Malaysia Airlines flight MH17 arrived in a Ukrainian government-held city on Tuesday on the first leg of their final journey home to be reclaimed by their families.  Full story
European shares bounced back on Tuesday on some strong earnings reports and after signs of cooperation between Russia and other nations in investigating the. . .  Full story
Gold fell on Tuesday as tensions eased in the Crimean region after pro-Russian rebels in Ukraine handed the flight recorder and victims' remains. . .  Full story
Global equity markets and the dollar rode a rebound in risk appetite on Tuesday, lifting the S&P 500 to a record high, helped. . .  Full story
Britain's top share index rallied on Tuesday, lifted by technology group ARM, which posted higher profits and beat analysts' expectations.. . .  Full story

European shares rose on Tuesday on some strong earnings reports and signs of improved cooperation from Ukraine's pro-Russian rebels over the Malaysian Airlines plane. . .  Full story
U.S. stocks rose on Tuesday as inflation data was seen keeping the Federal Reserve in an equities-friendly tone, while hopes rose for an. . .  Full story
U.S. stocks are modestly higher at the open on Tuesday as a cascade of earnings landed and inflation was tame, while hopes rose. . .  Full story
European equities bounced back on Tuesday partly in response to signs of improved cooperation from Ukraine's pro-Russian rebels who have agreed to hand. . .  Full story
SA Business
South Africa's largest union will consider the latest government wage proposal, it said on Tuesday, raising hopes of an end to. . .  Full story
The main employer body in South Africa's metals and engineering federation has accepted a government proposal to raise wages by as. . .  Full story
The central bank's monthly leading business cycle indicator crept up 0.1 percent in May, largely driven by increased job advertising space. . .  Full story
South Africa's Kumba Iron Ore, a unit of Anglo American, said on Tuesday earnings fell 16 percent in the six months. . .  Full story

Indian generics firm Lupin, some U.S. drugmakers looking for a tax-saving deal in Europe and private equity funds are planning to bid for a range of older drugs being auctioned by GlaxoSmithKline (GSK) , five sources familiar with the matter said.. . .  Full story
South Africa's Treasury auctioned 2.35 billion rand ($221 million) worth of its R2030, R2041 and R2044 bonds on Tuesday.. . .  Full story
World Markets (Spot Prices)
NameTimeRPMove% Move
JSE Overall17:0051931.33510.520.99%
JSE Top 4017:0046789.06509.361.10%
JSE Gold17:001549.18-11.28-0.72%
JSE Financial17:0038054.33348.740.92%
JSE Industrial17:0067431.67438.500.65%
JSE Indust 2517:0059620.00431.130.73%
JSE Resource17:0060384.641077.041.82%
DJ Futures19:3217056.00-20.50-0.12%
DJ Ind19:5817117.8966.160.39%
SP 50019:581984.5710.940.55%
FTSE 10017:356795.3466.900.99%
All Ords08:415534.005.300.10%
NZSE 5007:285133.876.970.14%
NameTimeRPMove% Move
Gold $19:591306.98-4.83-0.37%
Gold R19:5813812.31-93.03-0.67%
Gold R/kg19:58443967-2616-0.59%
Silver $19:5920.9670.07400.35%
Platinum $19:591484.10.650.04%
Palladium $19:59873.50-.18-0.02%
Brent Crude19:58107.54-.14-0.13%
Rand / Dollar19:5910.5711-0.0295-0.28%
Rand / Pound19:5518.0002-0.0736-0.41%
Rand / Euro19:5514.2349-0.1040-0.73%
Rand / NZD19:589.1612-0.0495-0.54%
Rand / AUD19:559.9300-0.0114-0.11%
Yen / Dollar19:58101.47100.06700.07%
Euro / Dollar19:550.74220.00300.41%
Dollar / Euro19:581.3469-0.0056-0.42%
Pound / Dollar19:550.58590.00040.07%

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The JSE Today

Trading Statistics
* Includes all listed instruments on the JSE
Major Moves Up
SharenameSaleMove% MoveVolume
1 TELEMASTR  1153035.29.%11950
2 EASTPLATS  118619119.20.%10567
3 CONVERGE  1081516.13.%57366
4 ROCKWELL  4304511.69.%24326
5 OANDO  201158.06.%12500
6 SYCOM  28491786.66.%4271
7 AQUARIUS  465255.68.%1955199
8 DISTELL  141996995.18.%16164
9 MRHLD  24901044.36.%3098281
10 HCI  177007214.25.%179809
11 TRUWTHS  72302784.00.%3184361
12 ASSORE  3530012923.80.%46478
13 SASFIN  55002003.77.%2428
14 FAIRVEST  14553.57.%192
15 ELBGROUP  44001503.53.%24311
16 RESILIENT  63662093.39.%290429
17 HOWDEN  45141503.33.%26135
18 ALTRON-P  2659843.26.%1396797
19 CONDUIT  16053.23.%26100
20 TELKOM  49961563.22.%1787818

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Major Moves Down
SharenameSaleMove% MoveVolume
1 STEINH-N  165-96-36.78.%9309323
2 VUNANI  150-27-15.25.%31920
3 DIPULA-A  970-90-8.49.%150
4 ELLIES   293-22-6.98.%1992402
5 RANGOLD  252-18-6.67.%45537
6 DAWN  1105-45-3.91.%2539
7 AECI  12050-450-3.60.%44482
8 PSG-KST  721-26-3.48.%228361
9 DIGICOR  199-6-2.93.%2324737
10 CLIENTELE  1700-50-2.86.%7580
11 ADAPTIT  820-24-2.84.%41679
12 JASCO  109-3-2.68.%59428
13 ROLFES  376-10-2.59.%20028
14 BLACKSTAR  1262-33-2.55.%3670
15 PALLINGHT  420-10-2.33.%204174
16 PETMIN  210-5-2.33.%308955
17 POYNTING  340-8-2.30.%48479
18 MAZOR  215-5-2.27.%1000
19 RIPLC  930-19-2.00.%269164
20 SAPPI  4400-88-1.96.%2140659

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New Highs
SharenameSaleHighMove% MoveVolume
1 EASTPLATS  1186118919119.20.%10567
2 HCI  17700180687214.25.%179809
3 SASFIN  550055002003.77.%2428
4 RESILIENT  636663902093.39.%290429
5 TELKOM  499650411563.22.%1787818
6 MPACT  31103190862.84.%561166
7 MRPRICE  20250204995502.79.%781294
8 REMGRO  23551236455512.40.%972262
9 PERGRIN  22982300482.13.%447053
10 RMBH  556456061071.96.%969360
11 LIFEHC  44704524801.82.%3200085
12 BILLITON  37122372256231.71.%1509623
13 FIRSTRAND  43154362671.58.%8079165
14 EOH  95009709850.90.%248755
15 TRADEH  15801580100.64.%58649
16 PNR-FOODS  1190012570-101-0.84.%191418
17 SAPPI  44004638-88-1.96.%2140659

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New Lows
SharenameSaleLowMove% MoveVolume
1 STEINH-N  165157-96-36.78.%9309323
2 ELLIES   293285-22-6.98.%1992402

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Index Summary
Index NameRPMove% Move
Top 4046,789.06509.361.10%
Mid Cap65,882.42316.730.48%
Small Cap54,358.6839.540.07%
Resource 2060,384.641077.041.82%
Industrial 2559,620.00431.130.73%
Financial 1514,669.44147.781.02%
Financial & Ind. 3063,548.71477.390.76%
All Share51,931.33510.520.99%
Oil & Gas 47,806.65854.371.82%
Mining 35,864.86604.661.71%
Gold Mining1,549.18-11.28-0.72%
Platinum Mining47.34.571.22%
GENERAL MINING10,550.25215.492.09%
Oil & Gas Producers 25,704.75459.381.82%
Basic Materials 31,569.07482.981.55%
Chemicals 24,639.42-407.56-1.63%
Forestry & Paper 33,013.07135.040.41%
Industrial Metals 18,895.10255.891.37%
Industrials 46,699.34664.011.44%
General Industrials 149.782.111.43%
Consumer Goods 62,535.85-240.28-0.38%
Automobiles & Parts 8,525.69-113.22-1.31%
Household Goods369.22-7-1.82%
Health Care 85,424.88758.340.90%
Beverages 210.07.420.20%
Index NameRPMove% Move
Food Producers 79,612.38114.380.14%
Personal Goods 1,059.29-10.09-0.94%
Consumer Services 12,473.83198.921.62%
General Retailers 67,561.071027.261.54%
Travel & Leisure 5,695.22-21.87-0.38%
Media 283.605.291.90%
Support Services 2,811.6010.190.36%
Telecommunications 10,749.73198.241.88%
Financials 38,054.33348.740.92%
Banks 67,194.16547.560.82%
Non-life Insurance 50,990.82229.700.45%
Life Insurance 35,970.88409.911.15%
General Financial 3,914.2350.011.29%
Technology 45,751.66386.450.85%
SHARIAH TOP40 4,429.60721.64%
FTSE/JSE SHARIAH ALL4,551.17641.42%
COAL MINING17,503.781620.93%
FTSE JSE Fledgling 6,806.7870.11%
FTSE/JSE Alt X 1,219.31-4-0.33%
RESOURCE 32,950.005621.73%
DIVIDEND PLUS226.8521.08%
FTSE/JSE RAFI 4010,309.481121.10%
Capped Top 4024,756.302681.09%
Capped All Share26,291.742570.99%
JSE TABACO 8,121.9840.06%

Click here for the Sharenet Index Summary page
Latest Consensus Changes**
CodeCompany NameStatusUpdated
Results Expected**
ExpectedCompany NameFin. Date
25/07/2014ANGLOJune 2014 (Interim)
25/07/2014ANGLO-PJune 2014 (Interim)
25/07/2014IMARAApril 2014 (Final)
28/07/2014HULAMINJune 2014 (Interim)
28/07/2014HULAMINAJune 2014 (Interim)

Recent Dividends**
Share NameDec-DateLDTPay-DateAmount
TRUSTCO30/06/1425/07/1422/08/14NAD 0.0275
PRESCIENT30/06/1425/07/1404/08/14ZAR 0.0260
ARGENT27/06/1417/10/1427/10/14ZAR 0.0700
NIVEUS27/06/1408/08/1418/08/14ZAR 0.2800
HUDACO27/06/1408/08/1418/08/14ZAR 1.5500
Ex Div**
Share NameDec-DateLDTPay-DateAmount
ILRPREF130/06/1418/07/1428/07/14ZAR 12.5638
RANLD26/06/1418/07/1428/07/14ZAR 2.2500
AME12/06/1418/07/1428/07/14ZAR 2.0000
NAMPAK 6.523/06/1418/07/1428/07/14ZAR 0.0650
AMECOR01/07/1418/07/1428/07/14ZAR 0.0600

Upcoming AGMs**
CodeCompany NameDateStatus
MDCMediclinic International Ltd.23/07/2014Confirmed
FBRFamous Brands Ltd.24/07/2014Confirmed
MDIMaster Drilling Group Ltd.24/07/2014Confirmed
ECSEcsponent Ltd.25/07/2014Confirmed
RDIRockwell Diamonds Inc.25/07/2014Confirmed

Stock Exchange News Service
22/07/201417:13JSE LIMITED - Index Change Advice - 20140730 Redefine Properties Shares In Issue...
22/07/201416:30HOLDSPORT LIMITED - Directors dealings in securities
22/07/201416:25NEDBANK LIMITED - Interim Dividend - KIONII
22/07/201416:22CALGRO M3 DEVELOPMENTS LIMITED - New Listing CGR15
22/07/201416:20OLD MUTUAL PLC - Form 8.3 Disclosure
22/07/201416:00OLD MUTUAL PLC - Form 8.3 Disclosure
22/07/201415:45INDWA INVESTMENTS LIMITED - INA435-Listing of Tap Issue
22/07/201415:45FREEDOM PROPERTY FUND LTD - Cautionary announcement, assessment and adoption of ...
22/07/201415:45OLD MUTUAL PLC - Form 8.3 Disclosure
22/07/201415:40LIFE HEALTHCARE GROUP HOLDINGS LTD - Life Healthcare increases its shareholding ...
22/07/201415:16REDEFINE PROPERTIES LIMITED - Posting of notice of general meeting announcement
22/07/201415:00CLIENTELE LIMITED - Notice to shareholders in terms of section 45(5) of Companie...
22/07/201414:55ELLIES HOLDINGS LIMITED - Provisional reviewed group results for the year ended ...
22/07/201414:30SABMILLER PLC - Altria Financial Data Disclosure
22/07/201413:54AFRICA ETF ISSUER LTD (RF) - LISTING OF ADDITIONAL AfricaPalladium debentures Af...
22/07/201413:30INVESTEC BANK LIMITED - Investec Bank Lmited Dividend Announcement on KIOIHD
22/07/201413:20INVESTEC BANK LIMITED - ESPIBE - Adjustment to the issue size of ESPIBE- Equity ...
22/07/201413:18LONMIN PLC - Directorate Change
22/07/201413:05INVESTEC BANK LIMITED - HotEds - New listing - AGLIHM, BILIHL, BTIIHD, CFRIHC, N...
22/07/201412:53GLENCORE PLC - GLN - Satisfaction of Conditions in relation to the Sale of Las B...
22/07/201412:40TORRE INDUSTRIES LIMITED - Notice in terms of Section 45(5) of the Companies Act...
22/07/201411:50BARLOWORLD LIMITED - BAW12 and BAW13-Interest Rate Reset
22/07/201411:45BARLOWORLD LIMITED - BAW10-Interest Rate Reset
22/07/201411:32BARLOWORLD LIMITED - BAW3 and BAW6-Interest Rate Resets
22/07/201411:21GROWTHPOINT PROPERTIES LIMITED - GRT03-Interest Rate Reset
22/07/201411:15SYNTHESIS FUNDING LIMITED - New Financial Instrument Listing - SY1131
22/07/201410:59NEWFUNDS COLLECTIVE INVEST SCHEME - RAFFIN-Additional Listing of NewFunds eRAFI ...
22/07/201410:26INVICTA HOLDINGS LIMITED - Notification in terms of section 122 (3) of the Compa...
22/07/201410:00THE THEKWINI WAREHOUSING CONDUIT (RF) LTD - New Financial Instrument Listing - T...
22/07/201410:00THE THEKWINI WAREHOUSING CONDUIT (RF) LTD - New Financial Instrument Listing - T...
22/07/201410:00BNP PARIBAS ARBITRAGE ISSUANCE B.V. - ZA081 - New listing instrument
22/07/201409:50WILSON BAYLY HOLMES-OVCON LIMITED - WBHO launches sponsored ADR programme
22/07/201409:30ROYAL BAFOKENG PLATINUM LIMITED - Trading statement for the six months ended 30 ...
22/07/201409:00TAWANA RESOURCES NL - Environmental and Social Impact Assessment awarded for Mof...
22/07/201408:02VILLAGE MAIN REEF LIMITED - Operational Update for the Quarter Ended 30 June 201...
22/07/201408:01GLENCORE PLC - GLN - Notification of major interest in shares
22/07/201408:00ANGLO AMERICAN PLC - Kumba Iron Ore Limited interim results 2014
22/07/201408:00KUMBA IRON ORE LIMITED - Reviewed condensed consolidated interim results for the...
22/07/201408:00A E C I LIMITED - Trading statement
22/07/201407:05BRITISH AMERICAN TOBACCO PLC - Transaction in own shares

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