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Investment Strategy
Saturday, November 1, 2008
For the brave

The panic of October has created some excellent long-term investment opportunities. Some believe that our market could meander along in a general sideways move for a year or two until the big global economies begin to recover from the massive deleveraging underway.
On the whole, companies are in better shape. Certainly it was a horrendous October (in any case often in the past it has proved a tough month for markets). But last month was unquestionably one of the worst:
• The US S&P 500 Index gained 10.5% during the week (best in 34 years), but still lost 16.9% in October.
• The JSE All Share Index gained 13% last week, but was still down 12% for the month of October (-25.7% in dollars).
• There were some amazing share price jumps last week, led by MTN’s 47.3% gain, then Foschini’s 30%, Truworths 30% and Mr Price 27.6%.
• The rand depreciated by 15.6% against the dollar in October and by 6.2% against the euro.
• The All Bond Index declined slightly by 0.5% in October, but the inflation-linked Bond Index gained 3.1%.
• Among selected Emerging Markets, the MSCI China Index performed best (-22.7% in dollars), while the MSCI Russia Index was the worst performer (-35.3% in dollars).
• International Property shares got slaughtered, with the STANLIB International Property Fund down a whopping 27% in October in dollar terms (-13.5% in rand terms).
• The SA listed property index lost just 6.6% during October after gaining an impressive 8.4% last week.

Our market has been and still is offering superb value for brave and patient investors. Emerging Markets in general are offering great value on forward price-to-earnings ratios (PE’s) of 8.
Offshore developed market shares have also reached attractive levels.
We have seen the dry bulk shipping index declining 90%, indicating that world trade has almost ground to a halt, partly because of inadequate bank lending.
Bank-to-bank lending seems to be slowly returning as the cost of this lending gradually declines to more normal levels (not quite there yet).
 

Copyright © Insurance Times and Investments® Vol:21.10 1st November, 2008
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