The document analyzes global investment trends from March 2010, outlining key themes such as the backlash against banks, the rise of China, European economic issues, climate change concerns, and increasing interest in Africa as an investment destination. It emphasizes the challenges investors face in navigating market uncertainties and the importance of maintaining a long-term perspective rather than reacting to short-term market fluctuations. The text concludes with investment strategies under the current economic conditions, highlighting the need for caution and selective investment in equities over bonds and cash.

1. Taking stock – Davos 2010Alec Hogg March 2010

2. Global power nexus

3. Icy reception for some

4. Major theme #1Bank bashingSarkozy leads the charge in his official opening addressImplicationBanking shares appear to be high risk investment right now, but…

5. Major theme #2Rise of ChinaFront and centre in every discussion; represented by rising star, Vice President Li KeqiangImplicationMegatrend of power shift from West to East gaining momentum, aided by Crisis

6. Major theme #3European problems mountingGreek President George Papandreou trying his best but massive gap in credibility existsImplicationAncient problems of waste, corruption, state crowding, poor competitiveness in spotlight; Major realignment of currencies

7. Major theme #4Climate changeDespite Copenhagen’s failure, political will created through voter concern at threat to mankindImplicationMassive investment in alternatives to fossil fuels; realignment of costs to increase incentives for innovation

8. Major theme #5African awakeningContinent attracting serious interest as an investment destination; IMF forecasts it is the third growth story after China and IndiaVerdictSouth Africa the continental gateway, but Chinese won’t be the only competition for local firms

9. Looking ahead

10. Investment pointersBank bashing to hurt ST but re-rate sector long-termChina is re-writing rules for commoditised businessesWest’s structural problems to cause revaluation of subsidy distorted assets and currencies; but also lead to much increased competition globally Climate change will unleash human potential to solve energy problems – challenge fossil fuel dominance

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12. Thank you

13. Investment PerspectivesWayne McCurrie March 2010

14. Navigating choppy waters: Staying the course through market uncertaintyIt is tempting for nervous investors to make short-term moves out of uncertain markets and plan to re-enter when things are calmerHowever, 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

15. Navigating choppy waters: Staying the course through market uncertaintyInvestors sell at the bottom – When Bad News prevailsAnd buy at the top – When Good News prevailsTherefore essential to have some sort of guidance as to what to expect from marketsWhere we have been – where we are now – and where are we going to be in two years time

16. The Classic Investor CycleMAXIMUM RISKThis is the bestthing I have everdone !!What a goodchoice I made !!FUND INFLOWSThis is a really good investmentEUPHORIADon’t worry the marketis consolidatingTHINGSCANT GETBETTERDOUBTLook at lastyears good returnTemporary setbackI am a long terminvestorANXIETYEXCITEMENTMaybe I panicked !DENIALREVIVALWhy did I everbuy this ?FEAROPTIMISTICOPTIMISTICMAXIMUM REWARDDOUBTDEPRESSIONI really got badadviceWas it right tosell ??THINGS CANT GET WORSEPANICI will not do thisagain !!DESPONDENTMARKET CYCLECAPITULATEDESPERATEI must get out.Cash is KingFUND OUTFLOWS

17. Markets are NOT STUPID – THEY KNOW the existing news and circumstancesQuite frankly – the market is not ALL THAT interested in the current newsMarkets are (basically) only interested in what is GOING TO HAPPEN, not what is actually happeningMarkets will discount future anticipated eventsThat is why markets move sometimes contrary to expectations – They go up in bad time and down in good times.MARKETS MOVE ON THE DRUMBEATS OF TOMORROWHUMANS move on the drumbeats of yesterday and today

18. The Investment Clock Getting Guidance – “Road map”Markets and the economy ARE related (intricately) Therefore studying the economy and forecasting the future is VITAL in understanding marketsMARKETS MOVE ON THE DRUMBEATS OF TOMORROWHUMANS move on the drumbeats of yesterday and today

19. Navigating choppy waters: The economic cyclePEAKSLOWDOWNBOTTOMRECOVERYMAXIMUM RISKGOOD NEWSSTRONG GROWTHINFLATION LOWINTEREST RATES LOWTHINGS CAN’T GET ANY BETTERSTART OF DOWN TURNINFLATION RISINGINTEREST RATES RISINGINFLATION MODERATINGINTEREST RATES AT PEAKECONOMY IN TROUBLETHINGS CAN’TGET ANY WORSEINFLATION FALLINGINTEREST RATES DOWNGROWTH INPROVINGMAXIMUM REWARD

20. The investment clock – the basic economic cyclePeakExpansionSlowdownBottom20

21. The investment clock – inflation and growthFallingInflationRisingPeakExpansionFallingInflation RisingSlowdownBottomFallingInflationRising21

22. The investment clock – inflation and growthFallingInflationRisingPeakExpansionFallingGrowthRisingFallingGrowth RisingFallingGrowthRisingSlowdownBottomFallingInflationRising22

23. The investment clock – asset returnsFallingInflationRisingNeutralEquityPeakExpansionSellSellMaxUnderweightEquityMaxOverweightEquityFallingGrowthRisingFallingGrowthRisingBuyBuyBottomSlowdownNeutralEquityFallingInflationRising23

24. The investment clock – sector allocationsFallingInflationRisingNeutralEquityPeakExpansionSectorsNeutral FinancialsOverweight ResourcesNeutral IndustrialsSell BanksSectors Underweight FinancialsNeutral ResourcesUnderweight Cyclical IndustrialsOverweight Staple IndustrialsSell ResourcesSell CyclicalsSell ResourcesSell StaplesBuy BanksBuy ResourcesBuy IndustrialsSell BanksMaxUnderweightEquityMaxOverweightEquityFallingGrowthRisingFallingGrowthRisingBuy CyclicalsBuy ResourcesSectorsOverweight FinancialsNeutral ResourcesUnderweight IndustrialsSectorsNeutral FinancialsUnderweight ResourcesUnderweight All IndustrialsBuy BanksNeutralEquityBottomSlowdownFallingInflationRising24

25. InflationfallingrisingOverheatRecoveryrisingGrowthfallingContractionStagflationAverage return during the relevant phase since 1960Average annual asset class return since 1960Investment clock – back-tested asset class returns since 196025

26. The investment clock – where are we now?FallingInflationRisingNeutralEquityPeakExpansionSectorsNeutral FinancialsOverweight ResourcesNeutral IndustrialsSectors Underweight FinancialsNeutral ResourcesUnderweight Cyclical IndustrialsOverweight Staple Industrials2q 103q 101q 104q 114q 10MaxUnderweightEquityMaxOverweightEquity4q 092q 11FallingGrowthRisingFallingGrowthRising2q 083q 081q 111q 083q 09SectorsOverweight FinancialsNeutral ResourcesUnderweight IndustrialsSectorsNeutral FinancialsUnderweight ResourcesUnderweight All Industrials4q 081q 09NeutralEquity2q 09BottomSlowdownFallingInflationRising26

27. Some perspectives on marketsay and today

28. S&P 500 ten year performanceS&P 500 Composite – 1/29/2010Source: Thomson Reuters Datasrear

29. USA Share MarketMade very little money on USA shares for ten years

30. US equities close to fair valueS&P 500 current price/long-term average earningsCurrent price/long-term earnings

31. Local equity close to fair valueCurrent price/long-term sustainable earningsLong-term exit PE

32. Navigating in a high volatility environmentSam HoulieMarch 2010

33. 12 months ago.......we thought the world was about to end!!

34. …instead Global equities recovered strongly since March 2009MSCI World Index (in US$) (1133.3)The MSCI World gained 31% in 2009 and the MSCI EM gained a record 79%.Source: I-Net Bridge

35. The US market has recovered astonishingly quickly…..Source: Macquarie Research; Quarterly Strategy, 27 January 2010

36. 2009 highlights Central banks and governments threw money at the credit crisisGovernments increased spendingGovernments cut taxes and provided subsidies for the purchase of houses, cars and household appliancesCentral banks bought government bonds (Quantitative Easing)Source: Slate; Plexus Asset Management

37. 2009 highlights China helped pull the rest of the world out of recessionGDP growth “recovered” from 6.1% in the 1st quarter to 10.7% in the 4th quarter and is forecast to grow 9.4% in 2010China overtook Germany to be the world’s largest exporterChina overtook the US to become the world's largest car marketSource: JP Morgan

38. 2009 highlights The global recession ended in the 3rd quarterThe 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 SASource: Plexus Asset Management

39. 2009 highlights The dollar came under pressureThe dollar weakened on declining risk aversion and a resumption of the carry trade as the Fed drove rates down to 0.25%Commodities rallied with the oil price doubling and the gold price hitting a new high of $1220Commodity currencies also benefitted with the Brazillian Real up 33%, the Rand up 28%, the Aussie Dollar up 24% and the Norwegian Krone up 20%Source: Appraisal News Online, Plexus Asset Management

40. Commodity fund flow - December 2009 Cumulative inflows by yearUS$ billionsSource: JPMorgan and Bloomberg

41. ... but copper looks vulnerable to rising inventoriesSource: Citigroup Global Markets; 8 January 2010

42. China’s investment boom unprecedentedGFCF/GDP of various countriesSource: IMF, Pivot

43. Cement capacity in stratosphereSource: US Geological Survey, UN, Pivot

44. No surprises here - the market has leaped upward!The FTSE/JSE All Share Index (in ZAR) (26764.6)The JSE rose more than 100% in US$ since the beginning of March 2009 to December 2009-45.4%47.4%Source: I-Net Bridge

45. So we better see some earnings come through!Trailing PE: 17.4xEPS-growth: 30%*Forward PE: 13.4xExit PE 14.5xExpected Return: 12% (3% DY)SA Equities: Earnings GrowthSince 1960 to end February 2010, Rolling 12-month %-change * I-Net consensusSource: I-Net Bridge

46. Markets can go sideways for an extended periodDow Jones: 1975 to 1982

47. Increased volatility offers opportunities for stock pickersDow Jones: 1975 to 1982Cum.% p.a. %Warren Buffett, Berkshire Hathaway 676% 34%Sequoia Fund (Bill Ruane) 415% 28%

48. Increased volatility offers opportunities for stock pickingNumber of Doubles or Greater Over Rolling One-Year Period (Top 500 Companies)Number of Doubles or Greater Over Rolling Three-Year Periods (Top 500 Companies)Number of Doubles or Greater Over Rolling Three-Year Periods (Top 500 Companies)Source: Empirical Research Partners, Legg Mason Capital Management

49. Discovery Equity FundTop 10 Equity Holdings (% of fund)….the fund is VERY DIFFERENT to the market and the average fund

50. Discovery Equity Fund Cumulative performance as at 31 January 2010Source: MorningstarReturns are calculated on a bid-to-bid basis, net of fees, with gross income reinvested.

52. Summary – steadily shifting back into cautious mode“The central principle of investment is to go contrary to the general opinion” JM KeynesWe anticipate a great environment for stock pickingWe are buying quality and under-valued laggardsWe are attracted to stocks with resilient, depressed or below average profit marginsWe remain underweight Resources (except for paper, gold, energy and a fledgling position in steel)We are positioning for Rand weakness and are most attracted to non-commodity Rand hedges We remain concerned about the current momentumRisk-premia across a variety of stocks and asset classes are way too low and investors should be more discerning from this point forwardEquities should outperform bonds and cash. However, on a prospective basis, the return for equities could prove disappointing relative to current expectations

53. Equity markets almost always peak when rates are low, so moving in desperation away from low rates into substantially overpriced equities always ends badlyJeremy Grantham

54. Thank you

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