Transcript Chris Gilmour

Absa Investments
MARKET OUTLOOK
Chris Gilmour
Investment Analyst
Absa Asset Management Private Clients
“Better ‘Ole”
Copyright Bruce Bairnsfather 1915
New and different phase
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US corporate earnings growth no longer surprising on upside
Watch Apple closely-comprises 5% of the S&P 500
Remove Apple and US earnings growth will be flat
S&P 500 companies derive ~40% of earnings from offshore
US economy gaining traction slowly
Market growth needs to be aligned with economic growth
SA corporate earnings still strong but declining
Commodity prices vulnerable to economic shocks
European sovereign debt situation still festering
Barclays Capital View
 Barry Knapp:
 “We believe that a sustainable period of equity market multiple
expansion is unlikely until the Fed begins normalizing policy, despite the
seemingly inevitable correction that will accompany the early stages of
exit strategies.”
 “To be clear though, if we make it through 2012 without another round
of unconventional monetary policy easing we would view that as an
important step out of the post-crisis financial repression deleveraging
period, thereby increasing the likelihood of a sustainable period of rising
PE multiples. A pullback associated with investor concerns about
monetary policy tightening would be a buying opportunity, but it’s a bit
premature to consider your options in reaction to a correction that hasn’t
occurred yet.”
“Consumer Spending - Retail Sales Growth
Retail sales growth
slowing?
Consumer Sector
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Very pervasive in the SA economy-60% of GDP
Retail sales growth appears to be running out of steam
But should remain positive while interest rates stay low
Consumer confidence still improving
New jobs – around 500k - will also support income growth
Debt servicing costs remain low....
But levels continue to rise
Credit growth rising but still modest
Unsecured credit growth strong but small part of overall
Extraneous costs impacting on consumer
Certain retailers looking expensive
Retailers vs the Alsi
JSE Alsi over 15 years
Reaching new highs
grudgingly and struggling
to break on through
Alsi Year to Date
Index up 2.6% YTD not incl
dividends (11 Apr)
Value Re-appearing in Alsi
Financial & Industrial PE ratio
FII much more
Expensive than the
ALSI and also above
Long term mean.
The Alsi & Earnings Growth
Earnings
growth
coming off
The Alsi, Earnings, Divis & Inflation
Earnings and dividend
growth supports the
growth in the Alsi itself
Alsi PE vs S&P 500 PE
JSE vs US Market
JSE Alsi, based to 100 in 2000
and converted into USD (Blue
line) vs SA CPI (Red line),
also based to 100 in 2000
S&P 500, based to 100 in
2000 (Blue line) vs US CPI
(Red line), also based to
100 in 2000
Typical Asset Allocation
Asset Classes
Equities-overweight. Offers the best returns
Bonds-at weight
Cash-underweight
Foreign-underweight
Money Market-parking bay for equity opportunities when they arise
Conclusion
 Resources stocks now at very attractive levels
 Prefer gold exposure via the ETF
 But platinum stocks looking pricey and risky
 Banks looking better-had a nice run recently
 Sasol appears to be very good value
 GDP stocks-BAW, BVT, IPL-varied outlook
 Retailers-mixed picture
 Construction in the doldrums for the next two years
 Average PE on the Alsi below LT average-good value
 No compelling reasons to be overweight offshore
 Bonds have had a nice run but less scope left now
 Yield seekers-prefs or listed property funds
Investment Quotes
 “The financial markets generally are unpredictable. So that one has to
have different scenarios... The idea that you can actually predict what's
going to happen contradicts my way of looking at the market”- George
Soros
 “If past history was all there was to the game, the richest people would be
librarians” - Warren Buffett
 “If you have trouble imagining a 20% loss in the stock market, you
shouldn't be in stocks” - John Bogle (Vanguard Fund)
 “The four most dangerous words in investing are 'This time it's different‘”Sir John Templeton
Keep calm
THANK YOU