STANLIB Weekly Focus

STANLIB keeps you in touch with the latest investment news:

Morningstar Performances (02/02/2012) 
Weekly Focus (06/02/2012) 

Executive Summary

Market Comment:

• With "risk on" so far in 2012, money has been flowing back into emerging markets and their currencies, as well as into commodities  -  out of cash and to a lesser extent bonds.
  
• Hence the JSE Resources sector did best in January (see chart in main report) with a return of 8.1% (11.9% in dollars).  MSCI EM refers to MSCI Emerging Markets, which did 7.6% in rands (11.4% in dollars), more than double the developed world MSCI World Index’s return of just 1.5% in rands (5% in dollars).
  
• Even our ALBI (All Bond Index) beat the MSCI World Index with a return of 2.1%.
  
• Emerging market currencies have bounced back sharply from a bad 2011, helping the dollar returns of their stock markets (see chart in main report).
  
• The best dollar return came from Egypt (28.9% in January!!)  -  typically the biggest market in an Africa equity fund  -  while India (the 5th biggest emerging stock market, after SA) gained a whopping 21% in dollars (7.3% from its currency).
  
• Resource shares are getting a lot of attention so far in 2012, despite the rand’s 6.5% gain so far against the dollar.  The JSE Resources Index is up 9.7% so far in 2012, beating the ALSI’s 7.3% return.
  
• Better-than-expected global manufacturing numbers out last week are further positives for resource shares, as was the superb US employment report on Friday (private sector job creation in January was almost 100,000 higher than expected).   Of course, investors know by now that the resource sector is the most volatile of all and therefore some caution is always called for.

US Market Analyst, Elaine Garzarelli….expects shares to “rock”

• Whilst acknowledging that corrections of 4-7% are expected and normal in a cyclical bull market, Elaine notes that her quantitative stock market indicator composite rose to 82% last week, which is the most bullish reading in a while.  A level below 30% is bearish.
  
• The stock market is a discounting mechanism and the poor news from 2011 has been, for the most part, discounted in share prices.  “We believe shares should keep rocking now that European bond rates are declining, the US economy is growing and earnings are healthy”.
  
• She expects operating earnings for the S&P 500 Index to reach 102 in 2012. At a 14 to 15 PE multiple, fair value is 1430 to 1545, a 7% to 15% gain from here.
  
• Meanwhile she says US economic releases of late continue to indicate that the 2nd half of 2011 bounce is continuing into the 1st quarter of 2012.
  
• Housing continues to be one of the major risks in the US.  So far no definite floor has been seen in prices and this is the most negative aspect of the US economy.
  
• Portugal  (debt unsustainably high)and Greece are also risks.

Other Investment Factors

• BCA Research warns that Portugal’s debt situation is approaching unsustainability, meaning that Portugal will at some stage require a debt restructuring, just like Greece
• The main development in China in recent weeks, notes Citigroup, has been some reduction in the worries about a hard landing (growth below 6%), resulting from stronger data in December.  Manufacturing growth year-on-year rose to 12.8% from 12.4% the previous month, while retail sales growth reached 18.1%, up from 17.3% in November.  This was helped by a rise in urban per capital disposable income of 14.1% and rural per capita income of 17.9%.
  
• Star veteran 63 year old Fidelity fund manager, Anthony Bolton, who is now based in Hong Kong, managing an equity portfolio investing in Chinese small cap shares, mid caps and large caps, remains bullish on Chinese shares.
  
• Of the 83 Januarys in the history of the US S&P 500 Index since 1929 (excluding 2012), 51 have been up, 2 have been flat and 30 have been down.  Of the 51 positive Januarys, 42 have been followed by gains for that calendar year, a ratio of 82%.
  
• Also, as we’ve noted before, the direction of the US equity market in January has accurately predicted the direction of the full year in 14 out of the past 15 presidential election years.
  
• When one looks at “Seasonal global stock market returns for the past 23 years” (courtesy of Macquarie Research), one notes that February has on average been a small up-month for the MSCI All Countries World Index and has been the 3rd best month (after December and April) for the MSCI Emerging Markets Index, on average up 2% over 23 years.
  
• Bank of America/Merrill Lynch sees 2012 as a positive transition year for US large cap shares, especially the mega caps like Walmart. Many mega caps have gone nowhere for 5 to 11 years and seem uninteresting and forgotten;  but on the charts, it looks like 2012 will see a lot of breakouts on the upside, with 20-30% upside potential from current levels. 

Snippets of Info

• SA is a net food exporter, selling abroad 30% more agricultural goods than it imported, at least in 2010.  Agricultural exports grew by 10% between 2008 and 2010, amounting to $6.8bn.  During the same period, agricultural imports grew by less than 1% ($5.2bn).  Agricultural exports were 5% of SA’s total exports in 2010 and imports were 2% of total imports.
  
• The Netherlands was our biggest export destination in 2010 (10% of our agricultural exports).
  
• Argentina is our biggest source of agricultural imports (12% in 2010), though declining.
  
• Facebook is looking to list on the stock market this year, with an estimated market value (once it lists in May) of $80bn, less than half Google’s current market value of $189bn, but much bigger than LinkedIn’s $7bn value.
  
• Facebook, which brought in $3.2bn (up 69% year-on-year) in advertising revenue last year, already employs 3,200 people, although only 1/10th of Google’s 32,500 people.  It has a handsome operating profit margin of 47%.

Economic Weekly

• Locally, SA private sector credit rose a little more than expected in December, up 6.2%y/y.
  
• Consumer credit jumped by R15.8bn, but was distorted by a R5bn reclassification of credit card debt.
  
• In January 2012, the Kagiso PMI manufacturing index rose more than expected to 53.2, compared with a disappointing 49.4 in December 2011.
  
• Offshore, in January 2012, the US unemployment rate fell to a surprise 8.3%, from 8.5% in December.
  
• Greece has been given a deadline for tomorrow afternoon, to tell the EU whether they accept the painful terms of a new bailout deal (an additional Euro3.3bn in austerity).