Even with the short trading week the JSE maintained its recent record of swooping and climbing, trying to scare investors to “run for the hills”. That very phrase was used as the headline for a piece of investment research on the emerging markets, produced by a London research firm. They rate South African “materials” shares as a serious underweight but are more relaxed about our “domestic” shares – placing them at 10% overweight. So the hills they are recommending are not that high then?
This prompted me to dig out one of my own valuation charts for the JSE Financial and Industrial index. For the first time since 2000, the pe ratio on this index has moved above 15 times. This is expensive territory and has been brought about by a combination of the run in the market and a gentle but notable slowdown in the rate of earnings growth in the companies comprising this index. Their earnings are up just 25% year on year, compared to the 35% pa growth rate we saw for the 12 month period ending in September 2005. Now 25% is still a fantastic growth rate but some colleagues are suggesting that companies are finding it increasingly difficult to maintain margins if not turnover. This very profitable consumer season must surely be attracting numbers of competitors into the businesses.
So what I am suggesting is that in fact our domestic sectors are pretty pricey and perhaps one should be picking out one or two higher hills and plot one’s heading for them. As for our rand hedge materials shares, I don’t share that “underweight” view. Last week there was an emerging market currency “scare”, which began with someone taking a dislike to the Icelandic krona. The contagion was muted but evident and the rand this week has lost at least 1% against all the majors; except against the US dollar – which of course has its own problems. Resources are a good hedge against the rand.
A French research house has leapt into the limelight with a precise date for the start of the US (and therefore world) market melt-down. In the week starting March 20th the Iranians will apparently begin to price their oil in euros and the US will cease publication of their M3 money-supply statistic. Reaction to this last piece of news has varied from the phlegmatic “it isn’t very useful anyway” to the rabid “the Fed is too scared to show us how much money they are creating”. The French fellows are dismayed by these and other pieces of news and have put the chance of a collapse of the world as we know it, during that week, at 80%. No, I don’t know what that means either.
Whatever happens, South Africans will take no notice until at least the Wednesday because we have one of those Tuesday public holidays (Human Rights Day) that everyone (well at least me) adds to the weekend to take a decent long break.
We are starting that time of year when these four-day weeks come thick and fast.
Thick, but not fast are the words on most broker’s lips these days as the JSE has admitted to a major glitch in getting the February month-end statements and portfolios out to clients. They were due last Monday but we may get them by next week if we are lucky.
Isn’t it tempting fate and Eskom to have an ODI under floodlights at Newlands today?
James Greener
3rd March 2006
