3. The crisis was averted – but the problem not solved
Too much debt… …and not enough saving…
US DEBT (RELATIVE TO GDP) NET SAVING RATES
350 15
P U BL I C H O U SE H O L D S
C O RP O RA T E S FI N A N C I A L
300
G SE 10 PRIVA TE
250
% OF GDP
% OF GDP
5 TOTA L
200
150 0
100
-5
PUBLIC
50
NBER RECESSIONS SHADED
-10
0
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015
Source: Morgan Stanley Research; 14 July 2011
Page 3 | CONFIDENTIAL
07007
4. Stress in Europe
Source: BofA Merrill Lynch Global Equity Strategy, Bloomberg
Page 4 | CONFIDENTIAL
07007
9. SA/Emerging markets – a great decade
ALSI ($) versus Emerging Markets ($)
5500 1400
5000
1200
4500
4000
1000
3500 All Share Index
3000 800
2500
600
2000
1500
400
1000 Emerging Markets
500 200
Dec-97
Dec-99
Dec-01
Dec-03
Dec-95
Dec-96
Dec-98
Dec-00
Dec-02
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Jun-95
Jun-96
Jun-97
Jun-98
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
FTSE/JSE All Share (US$) MSCI Emerging Market Index (US$)
Source: I-Net Bridge to 31 August 2011
Page 9 | CONFIDENTIAL
07007
10. We all went offshore ten years ago
30.00% SA Equities
outperform
20.00% Global
Equities,
rolling 5yr
10.00% annualised
0.00%
-10.00%
Global Equities
outperform SA
-20.00% Equities, rolling 5yr
annualised
-30.00%
-40.00%
Mar-76
Mar-84
Mar-92
Mar-96
Mar-04
Mar-80
Mar-88
Mar-00
Mar-08
Jul-77
Jul-81
Jul-89
Jul-97
Jul-01
Jul-09
Jul-85
Jul-93
Jul-05
Nov-78
Nov-86
Nov-94
Nov-98
Nov-06
Nov-82
Nov-90
Nov-02
Nov-10
The four most dangerous words in investing:
SA Equiy relative to Global Equity performance (rolling 5-yr annualised)
This time it’s different!
Page 10 | CONFIDENTIAL
07007
14. Not so cheap on 10yr average earnings
S&P through-the-cycle PE ratio
50 S&P THROUGH-THE-C YC LE PE RATIO*
* GRAHAM-DODD PRICE-EARNINGS, BASED 46.1
45
ON 10YR REAL AVERAGE EARNINGS
40
35
LONG-TERM
PE RATIO
30 AVERAGE: 16.4
25
20
15
12.2
10
6.8
5 4.9 5.5
12M TRAILING PE
0
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Source: Morgan Stanley Research; 14 July 2011
Page 14 | CONFIDENTIAL
07007
15. SA Equities...looks fair but again earnings is the risk
ALSI trailing P/E
25
20
ALSI expensive
15
10
5
ALSI cheap
Mar-60
Mar-04
Mar-62
Mar-64
Mar-66
Mar-68
Mar-70
Mar-72
Mar-74
Mar-76
Mar-78
Mar-80
Mar-82
Mar-84
Mar-86
Mar-88
Mar-90
Mar-92
Mar-94
Mar-96
Mar-98
Mar-00
Mar-02
Mar-06
Mar-08
Mar-10
ALSI trailing P/E Mean +/- 1 Std dev
Source: I-Net Bridge to September 2011
Page 15 | CONFIDENTIAL
07007
16. SA equities…expensive vs global equities
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
Jul-74
Jul-77
Jul-83
Jul-89
Jul-92
Jul-98
Jul-04
Jul-07
Jul-71
Jul-80
Jul-86
Jul-95
Jul-01
Jul-10
Jan-70
Jan-73
Jan-79
Jan-85
Jan-88
Jan-94
Jan-00
Jan-03
Jan-09
Jan-76
Jan-82
Jan-91
Jan-97
Jan-06
ALSI PE relative to MSCI World PE -1 Standard Deviation
Mean +1 Standard Deviation
Page 16 | CONFIDENTIAL
07007
21. Steadily holding our cautious mode
● The domestic equity market is over-valued – earnings are high
● We anticipate a great environment for stock picking…we are holding defensive
positions, cheap stocks and Rand hedges
● We are attracted to stocks with resilient, depressed or below average profit margins
● We are positioning for continued Rand weakness
● Global risks (Sovereign debt etc) are not going away and the economic recovery will be
muted
WE ARE DEFENSIVELY POSITIONED
● Markets have not sold off enough to warrant a broad scale acceptance of risk
Page 21 | CONFIDENTIAL
07007
23. Disclaimer
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.
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.
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.
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.
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.
Investec Asset Management is an authorised financial services provider.
Page 23 | CONFIDENTIAL
07007
