| MARKET MONITOR JUNE 2004 | |
|
Locally that little unit of currency known as the rand, has been surprisingly strong. Over the last two years, this has surprised most. This last week we saw the rand move to a very firm R6,15/US dollar. This even as the dollar has been firmer against other major currencies. Many South African companies have been battling to cope with the strong rand, with mines finding it the most difficult. Naturally share prices have come under pressure on reduced rand profits for many.
For the 12 months to end of May, the JSE All Share index gained 25,5%. The mid cap index put on a very credible 34%. But for the first 6 months of the year the JSE All Share index is down 2,5%.
The reality then is that ALL of the decent performance over the last 12 month stretch was made in 2003, while investors coming in at the beginning of 2004 have seen a flat performance so far.
Unfortunately with equities, as illustrated above, unlike say a loan investment, performance does not come back at a steady rate of return, but rather in lumpy intervals. At the extreme it is possible that all of a year's return can be made in one of the 12 month periods. This makes investing over a shorter period risky in the sense that capital prices can and do fluctuate.
Despite the gains in 2003, there is still reasonable value remaining in the local listed equity market, with many companies generating solid cash flows, with low debt levels, paying out increasing dividends, and rated at historical long term multiples. But it is very important to remain attentive to any possibility of downside risk.
I believe that a major risk to investment planning is merely extrapolating recent past performance of financial markets in constructing a portfolio over the next 5 years or more. If anything financial markets now have gotten more risky over time. This is especially the case over the last 5 - 10 years with interest rates coming down to multi year lows and with potential to steadily move up.
For the detailed Market Focus newsletter, please click here ?
I provide an investment counsel advisory service to high net worth investors. This is fee based and 100% independent.
Have a look at www.exsequor.co.za . Give me a call if you would like to discuss further.
Posted: 2004/06/30 17:19 View Archive | |