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Market View

Unit Trust investing should generally be viewed on a medium to long term basis. Our market view seeks to reflect this, and is updated when we perceive that conditions warrant it. View previous market reports below.

04 Nov 2008 : We are well positioned for a rally although we don't think we have seen the last of the bear market.

Barry Shamley, manager of the Equinox Managed Portfolios writes that October was a terrifying month for investors in most asset markets around the world. Normally this kind of fear is a good indicator of when to start buying. Although we don’t believe we have seen the last of this bear market we are certainly well positioned for a rally.

After trading as much as 25% lower on the month the JSE Overall index ended ‘just’ -12% lower. Leading us lower was the Resource index which lost -17.4% and this sector potentially holds the most opportunity in the short term. Financials lost -14% while Industrials only lost -2.9%.

Globally developed markets did no better. The S&P 500 lost -16.8% and the FTSE lost -10.7%. The NIKKEI sold off -23.8% to levels last seen in 1982. The ZAR sold off dramatically reaching R11.87/$ at one point but ended the month at R9.75/$. The Dollar strength led to pressure on all commodity prices with Copper losing -35.6% and Brent crude -33.9%. Gold was down -17.6% despite its safe haven status.

The key theme for the month was the coordinated global central bank action with many countries either cutting rates or introducing measures in order to unlock the credit markets and try restore confidence to the global financial system. There was a mass exodus from emerging markets reflected in the moves in countries like Brazil and Russia which lost -24.85% and -36.2% respectively.

Shipping markets saw horrendous moves with the Baltic Dry Index losing another 71% in October and now over 92% down from its high in May this year (see below). This was partially as a result of the credit markets seizing with Letters of Credit not being made available as well as short term views about the market for commodities.

Treasury secretary Hank Paulson began dispensing the cash made available through the TARP package by providing certain banks with capital injections. In addition to this rates were cut by another 50 bp to 1%. All these measures seemed to bring some confidence back to markets as can be seen by their performance towards the end of the month as well as the VIX Index,(also known as the fear gauge).

The VIX measures the cost of buying options, (protection) and an increasing level reflects increasing fear and uncertainty (see below). The other positive development was the TED spread coming lower. This measure (discussed in last month’s letter) measures availability of credit between banks. The TED spread has come back over 40% from 4.63 to 2.65 which is a very positive development.

Locally we experienced a fairly mixed performance with Resources and Banks both down over 10% but well off their intra month lows. The ZAR weakness assisted some of our dual listed industrial counters such as SAB and Richemont while investors took heart from the sizeable directors buying of MTN shares during the month.

The unbundling of BAT shares from Richemont and Remgro also provided a wonderful unlock of value for investors in these companies while adding a new giant in the form of British American Tobacco to the Top 40 index. While retailers also participated n the month end rally it seems more likely that this was a short squeeze and we will most likely see further downgrades to their earnings in the coming months as a result of margin contraction.

We have taken some exposure to markets in the past month as it seems likely we have seen a bottom in the short term and a rally into year end seems likely after the recent capitulation. At this point we do not think we have seen the bottom of the bear market but reasonable returns should be possible in coming months.

Barry Shamley
Equinox Portfolio Manager
November 4th 2008

Previous Market Views

Click on title to view.

02 Oct 2008	Barry Shamley believes that there is a reasonable chance of a bear market rally from current levels, but that it is prudent to limit equity exposure for the time being
04 Sep 2008	Key investment events during August were the improvement in US market sentiment and the drop in the oil and other commodity prices.
03 Aug 2008	Current rand strength has been attributed to SA's significant relative yield and speculation that local interest rates may have peaked, leading to the possibility of an economic recovery sooner than many offshore markets.
04 Jul 2008	Although there is a reasonable chance of a bounce in equity markets we have not yet seen full scale capitulation yet with the US VIX index which measures volatility not yet at its highs earlier this year.
03 Jun 2008	Bad debt due to non-payment of loans is expected to increase more than previously forecast. Some financial institutions and retailers could be facing losses as opposed to just declining earnings.
12 May 2008	The rally is getting narrower and fund managers are having a harder time spotting the winners.
04 Apr 2008	Economic outlook: The bottom line is that a slowdown in the US and Euro Zone effects everybody.
04 Mar 2008	The fundamentals do not paint a pretty picture and although there is a possibility that emerging markets do pull the global economy through this difficult period we will err on the side of caution and will reinvest only on pullbacks.
10 Feb 2008	We believe we are in the midst of a bear market squeeze/short cover rally. It is not possible to time this but we believe we are fairly close to the top. There is a reasonable chance of another downleg or sell off
07 Jan 2008	2008: Political uncertainty in SA and the rest of Africa seems to be increasing, which may dampen appetite for the continent. Investment risks have increased significantly, volatility will remain high and equity markets will not be for the faint hearted.
03 Dec 2007	Many markets have been quite close to key long term ‘Bull’ market support lines and we remain cautious in this regard.
06 Nov 2007	Consensus amongst market commentators is that the housing recession is set to run longer and deeper than everyone expected and probably only bottom in late 2008.
05 Oct 2007	Although equity markets have rebounded strongly the risk of a US recession still looms at the back of everyone minds but until it is confirmed by economic data investors are choosing to see the glass half full for the time being.
08 Sep 2007	August 2007, a historic month. The JSE all share index was 15% down from its July 2007 high at mid-month and bounced back dramatically to end up 0.35%.
03 Aug 2007	August Market View: Ongoing concerns in the credit markets, and corrections caused by a mass 'flight to safety'. We remain very defensive in the short term but still positive for equities on a long term view.
03 Jul 2007	Although July is off to a better start markets are likely to continue to be range bound and we will exercise caution until we are comfortable we are out of the danger zone.
04 Jun 2007	Mixed economic data interpreted positively for now
07 May 2007	Invested for now, but concerns over the increasing risks in China remain.
05 Apr 2007	Johannesburg Securites Exchange surprises many by reaching 27 267
06 Mar 2007	Message to investors: Exercise caution in these volatile markets.
06 Feb 2007	Markets rarely go up in a straight line, but the outlook based on fundamentals is encouraging
03 Jan 2007	Will an election year in the US affect SA markets? Other key issues include US inflation and the oil price...
06 Dec 2006	While we remain in our bull uptrend, many risks remain, which need to be carefully monitored.
06 Nov 2006	Equities flavour of the month but profit taking spree and lower US growth will be monitored closely.
04 Oct 2006	Increased offshore exposure and sector shift away from commodities
06 Sep 2006	August was characterized with many potential threats all of which failed to materialize.
01 Aug 2006	The vulnerable rand, reduced local consumption and consolidation of commodity prices leads us to a more cautious outlook
03 Jul 2006	While Equinox is ambivalent about global equity markets, the combination of a weaker rand and firm commodity prices seems to suggest that some sectors of the JSE may continue to do reasonably well.
08 Jun 2006	How serious is this correction? There is good technical evidence to suggest that the current correction could be deeper and longer than has been the case in the last three years.
08 May 2006	Controlled capital account deficit and continued high commodity prices key to South African equity performance
05 Apr 2006	The risk reward trade-off is becoming steadily less favourable.
06 Mar 2006	Correction or consolidation?
07 Feb 2006	Correction looming?
19 Jan 2006	Decreasing confidence in the US dollar and a growing perception that real underlying inflation in the US is higher than claimed seem to be fuelling the price of gold.
06 Dec 2005	Markets take a breather before moving higher
04 Nov 2005	SA economy in a relatively strong position
06 Oct 2005	September was another very strong month for South Africa and the majority of other world equity markets.
05 Sep 2005	The global equity markets continue to display a quite remarkable capacity to ignore bad news and, in fact, seems to use bad news as an excuse to surge ahead with new vigor.
05 Aug 2005	Ten good reasons why the JSE will continue to perform
05 Jul 2005	What are the possible consequences of increasing oil prices, a manic property market and Jacob Zuma fallout? Read here to find out...
03 Jun 2005	Risks receding but do not throw caution to the wind
06 May 2005	Mixed signals in the current market
05 Apr 2005	In the current complex and treacherous market it is possible that investors may panic, but there are still signs that our markets will strengthen.
05 Mar 2005	Markets trending higher, but we remain concerned about medium term implications of slowdown in US and China
04 Feb 2005	Cautious outlook in preparation for a weaker rand
21 Jan 2005	Markets Increasingly Nervous
18 Jan 2005	A Switch into Cash to Preserve Capital
03 Dec 2004	In the short term the momentum seems set to continue for most global equity markets, SA included - but it is fragile and a change in sentiment could result in a sharp correction.
05 Nov 2004	Current equity bull markets look set to persist – but for how long?
06 Oct 2004	Another great month for the JSE and globally, and SA's positives are many. We will remain fully invested ... but watchful.
03 Sep 2004	Industrial and financial shares seem set to move somewhat higher over the next several months. US could improve further to year-end. Take part in the rally - but with caution.
04 Aug 2004	Continued expectations that global equity markets will have an extended period of large rallies followed by large declines...use of hedging strategies may well become more critical
07 Jul 2004	Testing times these are...a good time to diversify out of rands, possible slight global rally ahead, select SA equities still offer value
01 Jun 2004	We continue to recommend a defensive approach to the markets, although good values still present in SA industrial and financial shares.
05 May 2004	Cautious on the outlook for world markets. We will remain in defensive portfolio positions.
12 Mar 2004	Caution required - should the SA all share index break its current uptrend, we will recommend some changes to our portfolios to make them more defensive.
06 Mar 2004	The world is enjoying strong economic growth and a general increase in asset prices - perhaps we should enjoy the party while it lasts..
15 Jan 2004	We will remain with our current portfolio selections for now - but will be very watchful for adverse developments.
01 Dec 2003	SA equity markets are likely to continue to offer reasonable investment opportunities in select shares but the overall market may well struggle to make headway.
11 Nov 2003	Since our last market view there have been a number of global developments that impact on our investment view going forward.
04 Sep 2003	Global bond yields affect intl equities. Bonds and property have peaked. SA equities favoured.
11 Jul 2003	Increase allocation to SA equities exposed to the domestic economy
21 May 2003	Remain cautious. Property unit trusts and South African shares which focus on the domestic economy remain the preferred investments.
07 Apr 2003	A short war? Maybe.... but it looks like a useful market rally anyway.
02 Apr 2003	SA equity markets continue to take their lead from offshore markets
17 Feb 2003	Remain cautious for now. Possible 'relief rally' ahead.
13 Dec 2002	Rand will remain strong. Property and Retail sectors look very good. Gold has possibilities. Global equities uncertain.
01 Nov 2002	Markets have been experiencing extreme volatility but seem to have reached a temporary bottom.
05 Sep 2002	Revisiting our medium term views - short-term movements in the global and local markets remain difficult to read and anticipate.
25 Jul 2002	A powerful rally on Wall Street after the carnage of the past few weeks. Where to now for global equity markets?
25 Jun 2002	Global equity markets are ripe for a short term rally. Bearish sentiment is over done for now. For speculative investors, we recommend taking an investment in funds exposed to the US equity markets.
31 May 2002	Given world uncertainties, some caution is called for. Continue to favour South African equities rather than offshore funds. Non-resource and non rand hedge shares remain attractive. Lock in profits on gold funds.
12 Apr 2002	Favour SA equities rather than offshore funds. Industrials and, possibly, small cap funds seem poised to out-perform.
18 Jan 2002	Volatility persists. Maintain equity positions for now. Avoid bonds and resources.
11 Oct 2001	While volatility will persist, this is a good time to be investing (cautiously) on a long term view
13 Sep 2001	Don't sell into the panic.
21 Aug 2001	Maintain Current Equity Exposure
23 May 2001	Continue Upweighting Equity Exposure
19 Apr 2001	Upweight Equity Exposure
15 Mar 2001	No Change in Recommendation
24 Nov 2000	No Significant Change in Recommendations For Now
11 Oct 2000	Recommendation change to cash : Global volatility catches up with SA
03 Oct 2000	Maintain Full Equity Weighting despite oil price and Euro volatility.
28 Aug 2000	Maintain upweight exposure: Global volatility has reduced and upside potential is seen.

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