It looks as if the All Share index will end 2010 about 1000 points short of topping the all time peak attained in 2007. Nevertheless the bulls claim that this is the perfect platform from which to soar off and up into the New Year. Indeed share prices can and do go just about anywhere but some of us old curmudgeons believe that when valuations do so, there are messages to be read. An All Share dividend yield of 2.2%pa is not attractive.
A consequence of the compression of interest rates into an ever narrower band above zero is that the differences between the various yields offered by different products become smaller. I have uttered this particular piece of stockbroker heresy before but repeat that the 2-year RSA retail bond paying 7.50%pa seems attractive for those who feel that inflation will not be a threat in that period and that Governor Marcus will continue to lean on the “repo down” lever.
A few years ago Analyst O’Neill decided that Brazil, Russia, India and China displayed sufficiently similar economic and social characteristics that a pithy term would be useful when referring to this class of significant but not yet fully developed countries. He coined the acronym BRIC as a sort of collective noun. It has now turned into some sort of club which this week invited SA to join. Why this is important or good is not immediately obvious but it sure made the rand improve yet further and at R6.75/$, the latest annual GDP figure of R2.6tr converts to $380bn.which places us around 20th on the world leader board – next to Switzerland! Many other developing nations appear much higher up the board with scores of more than double this figure so they are puzzled and hurt at being ignored by the self-appointed BRIC selectors. Now our own President Zuma was hanging out in China just recently, so we can conclude that he must have been handing out glossy pamphlets highlighting the many attractive snow-free venues available in SA for future BRIC luncheon dates. It obviously worked.
Tidemarks tries to avoid making forecasts even on tempting occasions like the start of the year. As usual, the proper analysts are moaning that this time it is harder than ever to see what the future holds. Nonsense. Any dive into the future always carries exactly the same degree of difficulty – impossible. However, I do think that next year’s implementation of the long promised change to the way that dividends are to be taxed may cause alarm and despondency amongst investors.
Basically the switch from the current 10% Secondary Tax on Companies to a 10% Withholding Tax on Shareholders should provide work only for accountants and similar species. The amount of tax collected by the National Treasury as dividends flow from companies to local shareholders ought not to alter materially. However, there are numerous potential sources for confusion and misinformation lurking in this landscape, and just one alarmist headline could easily lead to panic. As already discussed, dividend yields are thin enough and any threat of further trimming will be unpopular. My belief is that companies will need to declare their dividends both pre- and post the Withholding Tax and I, for one, expect that the post-tax figure will be the one to use when comparing prior years and dividends. As I said, there are ample sources for confusion.
But I am not confused when I wish all my readers a very happy, safe and healthy New Year. Prosperous will be good too.
Even while the Proteas were making a total mess of the test at Kingsmead the local newspaper was treating Sharks fans to pictures of their boys stripped down and training in the equally muggy stadium next door. Seriously guys, it is still December, just.
James Greener
31st December 2010.
