While the last quarter of the tax year [December to February this year] has been fairly flat for most of the international equity markets [the European market has been negative] – the year 1 March 2009 to 28 February 2010 has produced very pleasing results for this asset class. Our local South African market showed a gross positive return of 43,58%; the FTSE UK market was up by 51,65% in its own currency [Sterling]; the Dow Jones up by 55,81% in US$’s and the Euro Stoxx 50 climbed 67,67% in Euro’s.
However – before you rush in to the share markets … be careful! Most of us in the industry believe that much of the bounce we have seen results from an “oversold” position where prices dropped well below what they should have. Few, if any of us, believe that the results bear testimony to a long-term return to the bull markets that ran rampant from 2003 to the final quarter of the calendar year in 2008.
After such a heavy bruising for equity investors in 2008 it is natural and appropriate to be cautious. The fact is that all of us, in taking stock [pun intended] of the recent past, must moderate our expectations going forward and realise that a return to the euphoria of the 5 year period mentioned above is not simply unlikely – but rather completely unrealistic. While I personally do not believe we will see another big dip in the offshore equity markets [the so called “W” shaped recovery] any time soon, I have no doubt that periodic profit taking and market jitters will temper the continued recovery of share prices for quite some time.
Sandy D’Arcy and I recently attended a workshop in which one of the speakers pointed to Steel production as a useful barometer in gauging the state of the global economy. This is not only because several different resources are used in its production [thus impacting on the mining sectors] but also because of its many different applications in the global economy. The table on the left is extracted from an article in “Steel Business Briefing” – an online publication for the Steel Industry [www.steelbb.com] – with statistics from the World Steel Association.
The significant increase in crude steel production would seem to be a clear signal of rising demand which will impact on many sectors of the global economy – not the least of which being vehicle manufacturing and consequently vehicle sales [another useful barometer].
Currencies remain in unpredictable territory – at least for the short term. The graph below illustrates just how significant the moves have been in recent times. Our own currency continues to be stronger than is useful to our economy – but with the World Cup in the ensuing months and the fact that overseas interest rates will likely remain very low for some time to come – we don’t expect our currency to weaken dramatically in the short term. In fact it will probably strengthen through to mid-year and then drift out as the year closes. Of course – most of us live in Africa – where anything is possible and so making our lives that much richer [maybe not our pockets] than those living in the “First World”.
Hats off to all of our investors who stayed the course after the 2008 crash and remained invested through 2009 – you have been rewarded even though some of you may not fully have recovered your start positions as yet. To those who heeded the advice given in our previous newsletters and made investments in 2009 – enjoy the early rewards but be patient over the year ahead.
An interesting aside – our end February 2010 reports were a little delayed by a computer “gremlin” that defied early attempts to remedy. Our brand new high tech server, to which all investor data had been migrated at the end of February, stubbornly refused to display the currency symbol of the British Empire [the pound sterling] and instead displayed a tiny box with a question mark in the middle of it. All other currency symbols displayed correctly. Seems it knew that sterling was the worst performing currency relative to the Rand and was determined to make that point!
John Wallace – March 2010.
