Tuesday, 22 September 2015 - 20:00
Charts
Seed Weekly - Currency Valuation
We have written many reports on the local currency, as it is an emotive topic that is on the lips of many clients and investors. With the allocation to global assets becoming an ever more important consideration in constructing a properly diversified portfolio, and dramatically relaxed exchange controls that effectively mean that most South Africans aren’t limited in their ability to take assets offshore, it is important not to allocate assets offshore in a haphazard way.
We see the valuation of the currency as part of the decision to taking assets offshore. The other key consideration is the valuation of the assets that are being invested into (i.e. global equity, global property, global bonds, etc).
South Africans have seen a consistent devaluation of the rand over the past four and a bit years and the question is, “how much further can it go?” My mother always taught me that ‘can’ is a very loaded word, and it is with this mind-set that we make our decisions. Theoretically the rand could go to R100/$ (US dollar), and I’m sure that as long as we have higher inflation than the US it will go to that level at some point in the (distant) future! For the purposes of our investment decision making process, however, we typically take a 5 year view and look at a range of probable outcomes.
Going back more than 30 years we have constructed a model, below, that indicates the ‘fair value’ (solid black line) of the rand vs the US dollar using the Purchasing Power Parity (PPP) method (as described in previous reports). Around this fair value we show the actual exchange rate (solid blue line) as well as range of what we consider to be ‘normal’. With the rand recently briefly hitting R14/$ earlier this month, we have now breached what would be considered a normal variation from fair value.
According to this model, fair value to the US dollar is currently R10.36. With South Africa facing structural headwinds, we don’t think that the rand will trade at fair value any time soon, but also agree that investors shouldn’t expect consistent continued depreciation in excess of 5% pa (current inflation differential).
A blow out of 2001 proportions would see the rand trading at over R20/$ in April 2016! As can be seen from the above chart this would require an extremely frightful set of circumstances – but wouldn’t be unprecedented. Should we see the rand strengthening as it did from early 2009 (tail end of the Global Financial Crisis) to early 2011 we’d expect it to trade below R9/$ towards the end of 2017. Naturally these two scenarios are extremely different, but are the bounds within which we operate (rather than worrying what would happen if the rand weakened to R100/$).
Practically, in our local Multi Asset Funds (Seed Flexible and Seed Absolute Return Funds), we have maintained our global allocation near 25%, the Reg 28 (pension fund guidelines) limits. One of the reasons for this decision is that our research indicates that an optimal strategic allocation for investors (saving for retirement in South Africa) to global assets is around 30% – 40%. In this context 25% remains underweight so we’d need global assets (and global currencies versus the rand) to have a much poorer outlook before significantly reducing this allocation. Notwithstanding the above, we will look to use significant further rand weakness to hedge out some of the global currency while retaining exposure to the underlying global equities that are offering much better prospects than local assets.
Take care,
Mike Browne
Tel +27 21 914 4966
Fax +27 21 914 4912
Email info@seedinvestments.co.za
Seed is hiring: Visit the Seed Analytics LinkedIn profile to view vacancies.
www.seedinvestments.co.za
Tue, 22 Sep 2015
Top News
South Africa's rand slipped more than 1.5 percent against a firmer greenback on Tuesday, extending its losses to a 1-1/2 week trough as expectations of a rate hike in the United States soured risk sentiment. Full story
South Africa is considering building an oil refinery that will process Iranian crude to bolster its petrol supply and reduce its dependence on foreign companies, a government official said on Tuesday. Full story |
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The European Union approved a plan on Tuesday to share out 120,000 refugees across its 28 states, overriding vehement opposition from four ex-communist eastern nations. Full storyPope Francis ended his Cuba trip on Tuesday and headed to the United States with a message of reconciliation for the former Cold War foes while avoiding controversy on the U.S. trade embargo or human rights on the Communist-run island. Full storyMilitant Islamist groups are not believed to be using the refugee influx into Europe to smuggle in militants who could carry out attacks, the head of Denmark's country's intelligence service (PET) said on Tuesday. Full story |
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Markets | Falling commodities prices and
worries about China's economy pulled stocks sharply lower on
Tuesday, while bond yields declined and the dollar rose to. . . Full story | | Gold fell 1 percent on Tuesday
as renewed expectations that the Federal Reserve will raise
interest rates for the first time in nearly. . . Full story | | Hong Kong stocks ended modestly higher
on Tuesday, buoyed by improved sentiment in global markets
while investors focused on an upcoming meeting. . . Full story | | China stocks rebounded for the
second day on Tuesday, in a further sign of improving investor
sentiment that may help the market gradually. . . Full story |
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| Gold retreated from the
previous session's near three-week high on Monday as strength in
stocks and the dollar dampened a rally fueled by. . . Full story | | Hong Kong stocks sagged on Monday,
weighed down by broad weakness in markets amid lingering worries
about global economic growth.. . . Full story | | China stocks rose on Monday,
supported by demand for more speculative small-cap shares, but
trading remained thin as investors waited for more clues. . . Full story | | Stocks on major markets
slipped on Friday and bond prices rose, pushing yields sharply
lower, after the U.S. Federal Reserve on Thursday clung. . . Full story |
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SA Business | South African private education group Curro Holdings has acquired its first school outside its home market, the company said on Tuesday, signalling it wants to expand into the rest of the. . . Full story | | South Africa's rand slipped more than one percent to a one-week low against the dollar as revived bets of a rate hike by the end of 2015 in the United States. . . Full story | | Strikes cost South Africa 6 billion rand ($453 million) in wages in 2014, lower than the previous year despite a record five-month strike in the mining sector, a report published by. . . Full story |
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| A company formed by genome pioneer Craig Venter will offer clients of a South Africa-based insurance company whole exome sequencing - sequencing all protein-making genes in the human genome - at a price that marks yet another dramatic decline in the cost of gene sequencing, the two companies said on Tuesday.. . . Full story |
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Company News | The board of directors announces the resignation of David AndrT, as a director of Orion, with effect from 22 September 2015.. . . Full story |
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Company Results | Revenue increased to R1.1 billion (R1 billion). Gross profit rose to R251.3 million (R223.5 million) and operating profit before interest increased. . . Full story | | Revenue for the year lowered to R80.9 million (R83.8 million). Results from operating activities rose to R11.0 million (R8.3 million). Profit. . . Full story | | Revenue for the period increased to R510.3 million (2014: R481.1 million). Gross profit rose to R76.5 million (2014: R68.5 million), net. . . Full story | | Gross revenue for the year jumped to R1.313 billion (2014: R876.9 million), profit for the year attributable to owners of the. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:00 | 49853.09 | -884.05 | -1.74% | JSE Top 40 | 17:00 | 44523.72 | -856.20 | -1.89% | JSE Gold | 17:00 | 961.64 | -13.44 | -1.38% | JSE Financial | 17:00 | 42809.76 | -371.92 | -0.86% | JSE Industrial | 17:00 | 73262.55 | -1125.67 | -1.51% | JSE Indust 25 | 17:00 | 65569.53 | -1068.77 | -1.60% | JSE Resource | 17:00 | 33841.24 | -1633.47 | -4.60% | DJ Futures | 19:48 | 16137.00 | -319.00 | -1.94% | DJ Ind | 19:58 | 16251.03 | -259.16 | -1.57% | SP 500 | 19:58 | 1932.36 | -34.61 | -1.76% | Nasdaq | 19:58 | 4724.56 | -104.39 | -2.16% | FTSE 100 | 16:54 | 5955.31 | -153.40 | -2.51% | DAX | 18:08 | 9570.66 | -377.85 | -3.80% | CAC40 | 18:08 | 4428.51 | -156.99 | -3.42% | Nikkei | 18/09 | 18070.21 | -362.06 | -1.96% | Shanghai | 09:28 | 3185.62 | 29.08 | 0.92% | Hang-Seng | 10:28 | 21796.58 | 39.65 | 0.18% | All Ords | 08:35 | 5130.80 | 34.40 | 0.67% | NZSE 50 | 07:48 | 5696.79 | 13.27 | 0.23% |
| | Name | Time | RP | Move | % Move | Gold $ | 19:59 | 1125.76 | -7.46 | -0.66% | Gold R | 19:58 | 15403.03 | 147.71 | 0.97% | Gold R/kg | 19:58 | 495127 | 4576 | 0.93% | Silver $ | 19:59 | 14.7750 | -.3990 | -2.63% | Platinum $ | 19:59 | 935.91 | -30.59 | -3.17% | Palladium $ | 19:58 | 610.80 | -2.20 | -0.36% | R186 | 16:59 | 8.42 | .07 | 0.84% | R204 | 16:59 | 7.61 | .07 | 0.86% | R207 | 16:59 | 7.89 | .03 | 0.45% | Brent Crude | 19:48 | 48.22 | .75 | 1.58% | USD / ZAR | 19:59 | 13.6794 | 0.2169 | 1.61% | GBP / ZAR | 19:55 | 20.9856 | 0.1284 | 0.62% | EUR/ ZAR | 19:55 | 15.2135 | 0.1430 | 0.95% | NZD/ ZAR | 19:58 | 8.6132 | 0.1062 | 1.25% | AUD / ZAR | 19:55 | 9.6890 | 0.0799 | 0.83% | USD / JPY | 19:59 | 119.9840 | -0.5360 | -0.44% | EUR / USD | 19:59 | 1.1122 | -0.0066 | -0.59% | GBP / USD | 19:59 | 1.5366 | -0.0140 | -0.90% |
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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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22/09/2015 | 102 | 251 | 52 | 405 | 285,903,696 | R18,621,337,591 | 268688 | 923034 | 21/09/2015 | 138 | 201 | 45 | 384 | 218,555,168 | R15,740,089,650 | 209503 | 305674 | 18/09/2015 | 156 | 215 | 46 | 417 | 495,767,717 | R33,070,189,858 | 274145 | 1707587 | 17/09/2015 | 226 | 129 | 69 | 424 | 436,170,201 | R42,599,041,838 | 307939 | 1879857 | 16/09/2015 | 237 | 121 | 57 | 415 | 312,106,760 | R32,295,633,095 | 327264 | 1985275 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 44,523.72 | -856.20 | -1.89% | Industrial | 73,262.55 | -1125.67 | -1.51% | Mid Cap | 65,392.92 | -681.24 | -1.03% | Small Cap | 57,091.83 | -353.45 | -0.62% | Resource 20 | 33,841.24 | -1633.47 | -4.60% | Industrial 25 | 65,569.53 | -1068.77 | -1.60% | Financial 15 | 15,932.28 | -178.25 | -1.11% | Financial & Ind. 30 | 69,853.10 | -1062.92 | -1.50% | All Share | 49,853.09 | -884.05 | -1.74% | Oil & Gas | 8,253.88 | -211.63 | -2.50% | Mining | 20,077.04 | -975.20 | -4.63% | Gold Mining | 961.64 | -13.44 | -1.38% | Platinum Mining | 19.34 | -1.29 | -6.25% | GENERAL MINING | 6,022.36 | -313.08 | -4.94% | Oil & Gas Producers | 44,379.56 | -1137.94 | -2.50% | Basic Materials | 19,924.47 | -768.90 | -3.72% | Chemicals | 20,540.19 | -245.01 | -1.18% | Forestry & Paper | 45,155.76 | -1157.13 | -2.50% | Industrial Metals | 5,339.45 | -613.96 | -10.31% | Industrials | 43,036.85 | -236.17 | -0.55% | General Industrials | 155.32 | -.98 | -0.63% | Consumer Goods | 70,838.91 | -1242.31 | -1.72% | Automobiles & Parts | 6,883.95 | -22.65 | -0.33% | Household Goods | 560.07 | 1 | 0.20% | Health Care | 9,044.93 | -129.62 | -1.41% | Beverages | 250.70 | -6.01 | -2.34% |
| | Index Name | RP | Move | % Move | Food Producers | 8,633.64 | -35.66 | -0.41% | Personal Goods | 1,039.21 | -16.78 | -1.59% | Consumer Services | 15,321.99 | -301.23 | -1.93% | General Retailers | 7,915.63 | -32.11 | -0.40% | Travel & Leisure | 5,738.60 | -40.39 | -0.70% | Media | 367.97 | -10.71 | -2.83% | Support Services | 3,031.98 | 29.88 | 1.00% | Telecommunications | 8,951.59 | -2.30 | -0.03% | Financials | 42,809.76 | -371.92 | -0.86% | Banks | 7,296.18 | -19.84 | -0.27% | Non-life Insurance | 57,935.41 | -252.67 | -0.43% | Life Insurance | 37,983.27 | -805.46 | -2.08% | General Financial | 4,494.81 | -61.20 | -1.34% | Technology | 65,782.55 | -44.99 | -0.07% | SHARIAH TOP40 | 3,170.52 | -77 | -2.36% | FTSE/JSE SHARIAH ALL | 3,384.57 | -76 | -2.20% | COAL MINING | 7,648.26 | -349 | -4.36% | FTSE JSE Fledgling | 6,602.99 | -18 | -0.27% | FTSE/JSE Alt X | 1,505.25 | -5 | -0.32% | SA LISTED PROPERTY | 644.37 | | 0.09% | CAPPED PROPERTY | 570.67 | | -0.05% | RESOURCE | 18,232.34 | -885 | -4.63% | DIVIDEND PLUS | 196.87 | -3 | -1.38% | FTSE/JSE RAFI 40 | 8,884.99 | -189 | -2.09% | Capped Top 40 | 23,725.55 | -448 | -1.85% | Capped All Share | 25,286.64 | -448 | -1.74% | JSE TABACO | 9,318.66 | -234 | -2.45% |
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Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | RMI | RAND MERCH INS HLDGS LTD | SELL | 18/09/2015 | SAB | SABMILLER PLC | HOLD | 17/09/2015 | RMH | RMB HOLDINGS LIMITED | HOLD | 17/09/2015 | TRU | TRUWORTHS INTERNATIONAL L... | BUY | 15/09/2015 | MPC | MR PRICE GROUP LIMITED | SELL | 15/09/2015 |
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Results Expected** Expected | Company Name | Fin. Date | 23/09/2015 | BLACKSTAR | June 2015 (Interim) | 23/09/2015 | BOWCALF | June 2015 (Final) | 23/09/2015 | COGNITION | June 2015 (Final) | 23/09/2015 | IPSA | March 2015 (Final) | 23/09/2015 | KIBO | June 2015 (Interim) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | SILVERB | 21/09/15 | 09/10/15 | 19/10/15 | ZAR 0.0500 | SVF | 18/09/15 | 25/09/15 | 09/10/15 | ZAR 0.5703 | REMGRO | 17/09/15 | 06/11/15 | 16/11/15 | ZAR 2.5900 | SVFB | 17/09/15 | 25/09/15 | 09/10/15 | ZAR 2.5625 | PUTPROP | 16/09/15 | 09/10/15 | 19/10/15 | ZAR 0.1500 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | SHOPCONV | 03/09/15 | 17/09/15 | 05/10/15 | ZAR 325.0000 | BIDVEST | 31/08/15 | 17/09/15 | 28/09/15 | ZAR 4.8300 | IMPERIAL | 25/08/15 | 17/09/15 | 28/09/15 | ZAR 4.4500 | ASTRAPAKP | 03/09/15 | 17/09/15 | 28/09/15 | ZAR 4.1407 | PSGFIN PREF | 31/08/15 | 17/09/15 | 28/09/15 | ZAR 3.9079 |
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Upcoming AGMs** Code | Company Name | Date | Status | BSS | BSI Steel Ltd. | 22/09/2015 | Confirmed | RDI | Rockwell Diamonds Inc. | 23/09/2015 | Confirmed |
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