PSG Wellington / Paarl Investment Opportunities in 2014 22 May 2014.
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Transcript of PSG Wellington / Paarl Investment Opportunities in 2014 22 May 2014.
PSG Wellington / PaarlInvestment Opportunities in 2014
22 May 2014
Page 2 | CONFIDENTIAL 0####
The world had (and still has) too much debt
2008 2008: MSCI ACWI = -40%...
Page 3 | CONFIDENTIAL 0####
Governments and central banks tried to get their economies going again
Keep interest rates low
Quantitative easing
Page 4 | CONFIDENTIAL 0####
1. Keep rates low to try stimulate growth19
98
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
1
2
3
4
5
6
7
US UK ECB BOJ
Source: I-Net Bridge
Page 5 | CONFIDENTIAL 0####
2. Print money to stimulate growth
Dr Bernanke explains Quantitative Easing
Page 6 | CONFIDENTIAL 0####
QE took the markets higher
Jan-
07
Mar
-07
May
-07
Aug-0
7
Oct-0
7
Dec-0
7
Mar
-08
May
-08
Jul-0
8
Sep-0
8
Dec-0
8
Feb-0
9
Apr-0
9
Jul-0
9
Sep-0
9
Nov-0
9
Jan-
10
Apr-1
0
Jun-
10
Aug-1
0
Nov-1
0
Jan-
11
Mar
-11
Jun-
11
Aug-1
1
Oct-1
1
Jan-
12
Mar
-12
May
-12
Jul-1
2
Oct-1
2
Dec-1
2
Feb-1
3
May
-13
Jul-1
3
Sep-1
3
Dec-1
3
Feb-1
4
Apr-1
440
50
60
70
80
90
100
110
120
130
140
QE1
QE2
QE∞
Source: I-Net Bridge. MSCI ACWI to 27 April 2014.
But what did this mean for us in SA?
Page 7 | CONFIDENTIAL 0####
SA was a beneficiary of money searching for yield
2012: R85bn into SA bonds1.5% 7%
Bonds, equities and the rand rallied, and became ‘expensive’
Page 8 | CONFIDENTIAL 0####
22nd May: Taper talkWhat happens when the taps get turned off?
Dec
-08
Feb
-09
Mar
-09
May
-09
Jun-
09Ju
l-09
Sep
-09
Oct
-09
Dec
-09
Jan-
10F
eb-1
0A
pr-1
0M
ay-1
0Ju
n-10
Aug
-10
Sep
-10
Nov
-10
Dec
-10
Jan-
11M
ar-1
1A
pr-1
1Ju
n-11
Jul-1
1A
ug-1
1O
ct-1
1N
ov-1
1D
ec-1
1F
eb-1
2M
ar-1
2M
ay-1
2Ju
n-12
Jul-1
2S
ep-1
2O
ct-1
2N
ov-1
2Ja
n-13
Feb
-13
Apr
-13
May
-13
Jun-
13A
ug-1
3S
ep-1
3O
ct-1
3D
ec-1
3Ja
n-14
Mar
-14
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
Page 9 | CONFIDENTIAL 0####
SA vulnerable to global central bank policyRand became oversold
Source: I-Net Bridge to 31 January 2014
Foreign flows – SA Bonds and Equities
Jan-
07
Apr-0
7
Jul-0
7
Oct-0
7
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Jan-
09
Apr-0
9
Jul-0
9
Oct-0
9
Jan-
10
Apr-1
0
Jul-1
0
Oct-1
0
Jan-
11
Apr-1
1
Jul-1
1
Oct-1
1
Jan-
12
Apr-1
2
Jul-1
2
Oct-1
2
Jan-
13
Apr-1
3
Jul-1
3
Oct-1
3
Jan-
14 (62,000)
(42,000)
(22,000)
(2,000)
18,000
38,000
58,000
6
7
8
9
10
11
12
Quarterly Foreign flows USDZAR
Fo
reig
n f
low
s (R
bn
)
US
D:Z
AR
Page 10 | CONFIDENTIAL 0####
SARB faced some tough choices
RAISED RATES
InflationWeakening rand
“The SARB face some very tough choices – A rate hike today, however unpleasant, might just be the saving grace for an economy in distress”
Investec Asset Management, 23 January 2014
Fragile five
Page 11 | CONFIDENTIAL 0####
South African markets - at a critical junction
Cheap international
money looking for returns
Big capital flows into EMs
(like SA)
Hides weak SA economic
fundamentals
Drives up the equity and
bond market prices
Artificially supports
Governments finances
What does this mean for investors?
Page 13 | CONFIDENTIAL 0####
Cash rates remain below inflation
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Source: I-Net Bridge, Investec Asset Management
Negative real cash rates to continue
Page 14 | CONFIDENTIAL 0####
Beating inflation not very easy
Source: Gavekal, February 2013
Riskxxx
x
x
x
xx
xx
xx x
Cash under the mattress
Cash at the bank
Short term treasuries
Domestic government bonds
Investment grade bonds
Real estate
High-yield and emerging market debt
Large-cap growth
Emerging markets
Small cap
Venture capital
Private equity
Large-cap value
Real return = 0%
Guaranteed losses unless world enters deflation
Page 15 | CONFIDENTIAL 0####
ALSI- Reached an all time high during the month of May
Source: I-Net Bridge
The FTSE/JSE All Share Index (in ZAR) (50 000)
Page 16 | CONFIDENTIAL 0####
SA Equities are expensive20-years to end April 2014 (17.5x)
Source: I-Net Bridge
Mean: 14.81
Std Dev: 2.48
Page 17 | CONFIDENTIAL 0####
But equities have delivered significant returns recentlyHowever there were huge divergences
Gol
d F
ield
s
Ang
loG
old
Mas
smar
t
Tru
wor
ths
Impa
la P
lat
ALS
I
MT
N
SA
B
Sas
ol
Ric
hem
ont
Ste
inho
ff
Nas
pers
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
-63%-53%
-30% -27% -26%
21%28%
40%48%
57%68%
103%
Top 10 Shares Next 11-20 Next 21-179 ALSI Total Return17%
18%
19%
20%
21%
22%
23%
24%
19.7%
3.5%(-1.8%)
21.4%
71% of the ALSI’s total return came from 5 stocks:
Naspers, Richemont, SABMiller, Sasol and MTN
10 shares contributed to 92% of the performance of the ALSI
Page 18 | CONFIDENTIAL 0####
“Past performance is not necessarily a guide to the future”
0
5
10
15
20
25
An
nu
alis
ed r
etu
rn (
%p
.a.)
Last 10 years Expected 10 year return
SA Property
SA Equity
SA Bonds
Cash
Page 19 | CONFIDENTIAL 0####
Unit Trust return extremes by sector
Money Market SA Variable Term SA MA Low Equity
SA MA Medium Equity
SA MA High Equity
SA Property average
SA Equity General
-40.00
-20.00
0.00
20.00
40.00
60.00Maximum return over 1 year
Minimum return over 1 year
Page 20 | CONFIDENTIAL 0####
Conclusion
• We are in unchartered territory
• Significant structural and valuation risk in most asset classes
Page 21 | CONFIDENTIAL 0####
Global imbalances mean caution is appropriate
Source: www.telegraph.co.uk
“If you have an unstable system, eventually something will cause it to collapse.”
- James Rickards
Page 22 | CONFIDENTIAL 0####
Conclusion
• We are in unchartered territory
• Significant structural and valuation risk in most asset classes
• Need to manage downside risk
• Now not the time to gamble
• Asset allocation is critical.
Thank youwww.investecassetmanagement.com
Page 24 | CONFIDENTIAL 0####
Disclaimer
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