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Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
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Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
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Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
Investment Cycles
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Investment Cycles
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Investment Cycles
Investment Cycles
Investment Cycles
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Investment Cycles
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Investment Cycles

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Davos and Investment Presentation Cycles

Davos and Investment Presentation Cycles

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  • 1. Taking stock – Davos 2010<br />Alec Hogg <br />March 2010<br />
  • 2. Global power nexus<br />
  • 3. Icy reception for some<br />
  • 4. Major theme #1<br />Bank bashing<br />Sarkozy leads the charge in his official opening address<br />Implication<br />Banking shares appear to be high risk investment right now, but…<br />
  • 5. Major theme #2<br />Rise of China<br />Front and centre in every discussion; represented by rising star, Vice President Li Keqiang<br />Implication<br />Megatrend of power shift from West to East gaining momentum, aided by Crisis<br />
  • 6. Major theme #3<br />European problems mounting<br />Greek President George Papandreou trying his best but massive gap in credibility exists<br />Implication<br />Ancient problems of waste, corruption, state crowding, poor competitiveness in spotlight; Major realignment of currencies<br />
  • 7. Major theme #4<br />Climate change<br />Despite Copenhagen’s failure, political will created through voter concern at threat to mankind<br />Implication<br />Massive investment in alternatives to fossil fuels; realignment of costs to increase incentives for innovation<br />
  • 8. Major theme #5<br />African awakening<br />Continent attracting serious interest as an investment destination; IMF forecasts it is the third growth story after China and India<br />Verdict<br />South Africa the continental gateway, but Chinese won’t be the only competition for local firms <br />
  • 9. Looking ahead<br />
  • 10. Investment pointers<br />Bank bashing to hurt ST but re-rate sector long-term<br />China is re-writing rules for commoditised businesses<br />West’s structural problems to cause revaluation of subsidy distorted assets and currencies; but also lead to much increased competition globally<br /> Climate change will unleash human potential to solve energy problems – challenge fossil fuel dominance<br />
  • 11. More info?<br />Subscribe to Boardroom Talk via www.moneyweb.co.za<br />Contact alec@moneyweb.co.za<br />Follow daily updates via www.twitter/alechogg<br />“Friend” me at www.facebook/alechogg<br />Listen in nightly at 6pm on SAFM (104-107FM)<br />
  • 12. Thank you<br />
  • 13. Investment Perspectives<br />Wayne McCurrie<br /> March 2010<br />
  • 14. Navigating choppy waters: Staying the course through market uncertainty<br />It is tempting for nervous investors to make short-term moves out of uncertain markets and plan to re-enter when things are calmer<br />However, it is very difficult to time the moves out of and back into the market, and you could end up taking needless losses and missing out on significant gains<br />
  • 15. Navigating choppy waters: Staying the course through market uncertainty<br />Investors sell at the bottom – When Bad News prevails<br />And buy at the top – When Good News prevails<br />Therefore essential to have some sort of guidance as to what to expect from markets<br />Where we have been – where we are now – and where are we going to be in two years time<br />
  • 16. The Classic Investor Cycle<br />MAXIMUM RISK<br />This is the best<br />thing I have ever<br />done !!<br />What a good<br />choice I <br />made !!<br />FUND INFLOWS<br />This is a really <br />good investment<br />EUPHORIA<br />Don’t worry the market<br />is consolidating<br />THINGS<br />CANT GET<br />BETTER<br />DOUBT<br />Look at last<br />years good return<br />Temporary setback<br />I am a long term<br />investor<br />ANXIETY<br />EXCITEMENT<br />Maybe I panicked !<br />DENIAL<br />REVIVAL<br />Why did I ever<br />buy this ?<br />FEAR<br />OPTIMISTIC<br />OPTIMISTIC<br />MAXIMUM REWARD<br />DOUBT<br />DEPRESSION<br />I really got bad<br />advice<br />Was it right to<br />sell ??<br />THINGS CANT <br />GET WORSE<br />PANIC<br />I will not do this<br />again !!<br />DESPONDENT<br />MARKET CYCLE<br />CAPITULATE<br />DESPERATE<br />I must get out.<br />Cash is King<br />FUND OUTFLOWS<br />
  • 17. Markets are NOT STUPID – THEY KNOW the existing news and circumstances<br />Quite frankly – the market is not ALL THAT interested in the current news<br />Markets are (basically) only interested in what is GOING TO HAPPEN, not what is actually happening<br />Markets will discount future anticipated events<br />That is why markets move sometimes contrary to expectations – They go up in bad time and down in good times.<br />MARKETS MOVE ON THE DRUMBEATS OF TOMORROW<br />HUMANS move on the drumbeats of yesterday and today<br />
  • 18. The Investment Clock Getting Guidance – “Road map”<br />Markets and the economy ARE related (intricately) <br />Therefore studying the economy and forecasting the future is VITAL in understanding markets<br />MARKETS MOVE ON THE DRUMBEATS OF TOMORROW<br />HUMANS move on the drumbeats of yesterday and today<br />
  • 19. Navigating choppy waters: <br />The economic cycle<br />PEAK<br />SLOWDOWN<br />BOTTOM<br />RECOVERY<br />MAXIMUM RISK<br />GOOD NEWS<br />STRONG GROWTH<br />INFLATION LOW<br />INTEREST RATES LOW<br />THINGS CAN’T <br />GET ANY BETTER<br />START OF DOWN TURN<br />INFLATION RISING<br />INTEREST RATES RISING<br />INFLATION MODERATING<br />INTEREST RATES AT PEAK<br />ECONOMY IN TROUBLE<br />THINGS CAN’T<br />GET ANY WORSE<br />INFLATION FALLING<br />INTEREST RATES DOWN<br />GROWTH INPROVING<br />MAXIMUM REWARD<br />
  • 20. The investment clock – the basic economic cycle<br />Peak<br />Expansion<br />Slowdown<br />Bottom<br />20<br />
  • 21. The investment clock – inflation and growth<br />FallingInflationRising<br />Peak<br />Expansion<br />FallingInflation Rising<br />Slowdown<br />Bottom<br />FallingInflationRising<br />21<br />
  • 22. The investment clock – inflation and growth<br />FallingInflationRising<br />Peak<br />Expansion<br />FallingGrowthRising<br />FallingGrowth Rising<br />FallingGrowthRising<br />Slowdown<br />Bottom<br />FallingInflationRising<br />22<br />
  • 23. The investment clock – asset returns<br />FallingInflationRising<br />Neutral<br />Equity<br />Peak<br />Expansion<br />Sell<br />Sell<br />Max<br />Underweight<br />Equity<br />Max<br />Overweight<br />Equity<br />FallingGrowthRising<br />FallingGrowthRising<br />Buy<br />Buy<br />Bottom<br />Slowdown<br />Neutral<br />Equity<br />FallingInflationRising<br />23<br />
  • 24. The investment clock – sector allocations<br />FallingInflationRising<br />Neutral<br />Equity<br />Peak<br />Expansion<br />Sectors<br />Neutral Financials<br />Overweight Resources<br />Neutral Industrials<br />Sell Banks<br />Sectors <br />Underweight Financials<br />Neutral Resources<br />Underweight Cyclical Industrials<br />Overweight Staple Industrials<br />Sell Resources<br />Sell Cyclicals<br />Sell Resources<br />Sell Staples<br />Buy Banks<br />Buy Resources<br />Buy Industrials<br />Sell Banks<br />Max<br />Underweight<br />Equity<br />Max<br />Overweight<br />Equity<br />FallingGrowthRising<br />FallingGrowthRising<br />Buy Cyclicals<br />Buy Resources<br />Sectors<br />Overweight Financials<br />Neutral Resources<br />Underweight Industrials<br />Sectors<br />Neutral Financials<br />Underweight Resources<br />Underweight All Industrials<br />Buy Banks<br />Neutral<br />Equity<br />Bottom<br />Slowdown<br />FallingInflationRising<br />24<br />
  • 25. Inflation<br />falling<br />rising<br />Overheat<br />Recovery<br />rising<br />Growth<br />falling<br />Contraction<br />Stagflation<br />Average return during the relevant phase since 1960<br />Average annual asset class return since 1960<br />Investment clock – back-tested asset class returns since 1960<br />25<br />
  • 26. The investment clock – where are we now?<br />FallingInflationRising<br />Neutral<br />Equity<br />Peak<br />Expansion<br />Sectors<br />Neutral Financials<br />Overweight Resources<br />Neutral Industrials<br />Sectors <br />Underweight Financials<br />Neutral Resources<br />Underweight Cyclical Industrials<br />Overweight Staple Industrials<br />2q 10<br />3q 10<br />1q 10<br />4q 11<br />4q 10<br />Max<br />Underweight<br />Equity<br />Max<br />Overweight<br />Equity<br />4q 09<br />2q 11<br />FallingGrowthRising<br />FallingGrowthRising<br />2q 08<br />3q 08<br />1q 11<br />1q 08<br />3q 09<br />Sectors<br />Overweight Financials<br />Neutral Resources<br />Underweight Industrials<br />Sectors<br />Neutral Financials<br />Underweight Resources<br />Underweight All Industrials<br />4q 08<br />1q 09<br />Neutral<br />Equity<br />2q 09<br />Bottom<br />Slowdown<br />FallingInflationRising<br />26<br />
  • 27. Some perspectives on marketsay and today<br />
  • 28. S&amp;P 500 ten year performance<br />S&amp;P 500 Composite – 1/29/2010<br />Source: Thomson Reuters Datasrear<br />
  • 29. USA Share Market<br />Made very little money on USA shares for ten years<br />
  • 30. US equities close to fair value<br />S&amp;P 500 current price/long-term average earnings<br />Current price/long-term earnings<br />
  • 31. Local equity close to fair value<br />Current price/long-term sustainable earnings<br />Long-term exit PE<br />
  • 32. Navigating in a high volatility environment<br />Sam Houlie<br />March 2010<br />
  • 33. 12 months ago.......we thought the world was about to end!!<br />
  • 34. …instead Global equities recovered strongly since March 2009<br />MSCI World Index (in US$) (1133.3)<br />The MSCI World gained 31% in 2009 and the MSCI EM gained a record 79%.<br />Source: I-Net Bridge<br />
  • 35. The US market has recovered astonishingly quickly…..<br />Source: Macquarie Research; Quarterly Strategy, 27 January 2010<br />
  • 36. 2009 highlights Central banks and governments threw money at the credit crisis<br />Governments increased spending<br />Governments cut taxes and provided subsidies for the purchase of houses, cars and household appliances<br />Central banks bought government bonds (Quantitative Easing)<br />Source: Slate; Plexus Asset Management<br />
  • 37. 2009 highlights China helped pull the rest of the world out of recession<br />GDP growth “recovered” from 6.1% in the 1st quarter to 10.7% in the 4th quarter and is forecast to grow 9.4% in 2010<br />China overtook Germany to be the world’s largest exporter<br />China overtook the US to become the world&apos;s largest car market<br />Source: JP Morgan<br />
  • 38. 2009 highlights The global recession ended in the 3rd quarter<br />The recession in the developed world ended in the 3rd quarter but unemployment remains high at 9.7% in the US, 10.0% in Europe and 24.3% in SA<br />Source: Plexus Asset Management<br />
  • 39. 2009 highlights The dollar came under pressure<br />The dollar weakened on declining risk aversion and a resumption of the carry trade as the Fed drove rates down to 0.25%<br />Commodities rallied with the oil price doubling and the gold price hitting a new high of $1220<br />Commodity currencies also benefitted with the Brazillian Real up 33%, the Rand up 28%, the Aussie Dollar up 24% and the Norwegian Krone up 20%<br />Source: Appraisal News Online, Plexus Asset Management<br />
  • 40. Commodity fund flow - December 2009 Cumulative inflows by year<br />US$ billions<br />Source: JPMorgan and Bloomberg<br />
  • 41. ... but copper looks vulnerable to rising inventories<br />Source: Citigroup Global Markets; 8 January 2010<br />
  • 42. China’s investment boom unprecedented<br />GFCF/GDP of various countries<br />Source: IMF, Pivot<br />
  • 43. Cement capacity in stratosphere<br />Source: US Geological Survey, UN, Pivot<br />
  • 44. No surprises here - the market has leaped upward!<br />The FTSE/JSE All Share Index (in ZAR) (26764.6)<br />The JSE rose more than 100% in US$ since the beginning of March 2009 to December 2009<br />-45.4%<br />47.4%<br />Source: I-Net Bridge<br />
  • 45. So we better see some earnings come through!<br />Trailing PE: 17.4x<br />EPS-growth: 30%*<br />Forward PE: 13.4x<br />Exit PE 14.5x<br />Expected Return: 12%<br /> (3% DY)<br />SA Equities: Earnings GrowthSince 1960 to end February 2010, Rolling 12-month %-change <br />* I-Net consensus<br />Source: I-Net Bridge<br />
  • 46. Markets can go sideways for an extended period<br />Dow Jones: 1975 to 1982<br />
  • 47. Increased volatility offers opportunities for stock pickers<br />Dow Jones: 1975 to 1982<br />Cum.% p.a. %<br />Warren Buffett, Berkshire Hathaway 676% 34%<br />Sequoia Fund (Bill Ruane) 415% 28%<br />
  • 48. Increased volatility offers opportunities for stock picking<br />Number of Doubles or Greater Over Rolling One-Year Period (Top 500 Companies)<br />Number of Doubles or Greater Over Rolling Three-Year Periods (Top 500 Companies)<br />Number of Doubles or Greater Over Rolling Three-Year Periods (Top 500 Companies)<br />Source: Empirical Research Partners, Legg Mason Capital Management<br />
  • 49. Discovery Equity FundTop 10 Equity Holdings (% of fund)<br />….the fund is VERY DIFFERENT to the market and the average fund<br />
  • 50. Discovery Equity Fund Cumulative performance as at 31 January 2010<br />Source: Morningstar<br />Returns are calculated on a bid-to-bid basis, net of fees, with gross income reinvested.<br />
  • 51.
  • 52. Summary – steadily shifting back into cautious mode<br />“The central principle of investment is to go contrary to the general opinion” <br />JM Keynes<br />We anticipate a great environment for stock picking<br />We are buying quality and under-valued laggards<br />We are attracted to stocks with resilient, depressed or below average profit margins<br />We remain underweight Resources (except for paper, gold, energy and a fledgling position in steel)<br />We are positioning for Rand weakness and are most attracted to non-commodity Rand hedges <br />We remain concerned about the current momentum<br />Risk-premia across a variety of stocks and asset classes are way too low and investors should be more discerning from this point forward<br />Equities should outperform bonds and cash. However, on a prospective basis, the return for equities could prove disappointing relative to current expectations<br />
  • 53. Equity markets almost always peak when rates are low, so moving in desperation away from low rates into substantially overpriced equities always ends badly<br />Jeremy Grantham<br />
  • 54. Thank you<br />
  • 55. Disclaimer<br />All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity.  We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity.  No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation.  We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions.  We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate.  Any representation or opinion is provided for information purposes only.  <br />Investec Asset Management will not be held liable or responsible for any direct or consequential loss or damage suffered by any party as a result of that party acting on or failing to act on the basis of the information provided by or omitted from this document.  This document may not be amended, reproduced, distributed or published without the prior written consent of Investec Asset Management.<br />In the event that specific collective investment schemes in securities (unit trusts) are mentioned please refer to the relevant fact sheet in order to obtain all the necessary information in regard to that unit trust.  <br />Collective Investment Schemes in Securities (CIS) are generally medium to long-term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. Commission and incentives may be paid and if so, would be included in the overall costs. Forward pricing is used. <br />Certain Investec Asset Management funds are offered as long-term insurance policies issued by Investec Assurance Limited, a registered insurer in terms of the Long-term Insurance Act.<br />Investec Asset Management is an authorised financial services provider.<br />
  • 56. Questions and Answers?<br />

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