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Quarterly Press Conference

Quarterly Press Conference. 2009 OUTLOOK: INVESTING IN A SLOW-GROWTH WORLD. 27 January 2009. Peter Brooke Head of Macro Strategy Investments “ What do you do when bonds are junk and cash is trash?”. Cash is trash Bonds are junk What does that leave? Property Equity. Agenda.

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Quarterly Press Conference

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  1. Quarterly Press Conference 2009 OUTLOOK:INVESTING IN ASLOW-GROWTH WORLD 27 January 2009

  2. Peter BrookeHead of Macro Strategy Investments“What do you do when bonds are junk and cash is trash?”

  3. Cash is trash Bonds are junk What does that leave? Property Equity Agenda

  4. Asset Class ReturnsFor the 12 Months to 31.12.08 US Dollars Returns Rand Returns SA Equities SWIX SA Listed Property SA Bonds SA Cash Int’l Returns MSCI AC World Emerging Market Bonds Cash -21.7 -4.5 17.0 11.4 -21.3 -36.7 51.5 31.5 18.7 26.5 4.3 9.4 6.2 35.5 7.4 1.0 -42.1 -29.4 -13.5 -17.7 -41.9 -53.2 12.0 -2.8 Source: Macro Strategy Investments (OMIGSA)

  5. UK BoE Official Bank Rate Lowest rate since 1694!! Source Data: Bloomberg

  6. US 3mth Treasury Bills -4bps in December!! Source Data: Bloomberg

  7. ZIRP

  8. South Africa: Lots of cuts to come Source: Macro Strategy Investments (OMIGSA)

  9. bonds

  10. US 30 year bond yield Lowest level for 50 years 10-yr bond = 2.4% nominal return Source: Macro Strategy Investments (OMIGSA)

  11. Global bond yields 16.0 16.0 UK Govt 10 year bond (3.69) Germany Govt 10 year bond (3.25) 14.0 14.0 USA Govt 10 year bond (2.618) Japan Govt 10 year bond (1.23) 12.0 12.0 10.0 10.0 8.0 8.0 6.0 6.0 4.0 4.0 2.0 2.0 Weighted bond yield = 2.7% 0.0 0.0 1974 1979 1984 1989 1994 1999 2004 2009 Source Data: IRIS

  12. Inflation expectations Deflation in Japan, no inflation in US Source Data: Bloomberg

  13. Credit is already pricing in the Great Depression Source: Moody’s, The Yield Book, NBER, Morgan Stanley Research

  14. SA 10 year bond yield (%) Lowest level for 40 years Source: Macro Strategy Investments (OMIGSA)

  15. property

  16. Will be the best yielding investment in SA by endof 2009 Cyclical outlook poorbut better than equity Longer-term a freeoption on growth Building plans passed down 11% SA listed property Source: Macro Strategy Investments (OMIGSA)

  17. equity

  18. 2008 was a bad year Second worst year since 1925 Source Data: IRIS

  19. Leading to a de-rating Price Earnings Ratio All Share Total Ret. Earning Per Share Forward Div. Yield All Share Index Dec 2006 24915 2573 3.0% 1440 17.3x Dec 2007 28958 3067 3.2% 1994 14.5x Dec 2008 21509 2354 4.6% 2275 9.5x Ann. Change -25.7% -23.2% +14% -34% Source: Macro Strategy Investments (OMIGSA)

  20. Value has returned Dividend yield also the best for 18 years

  21. Earnings base still the major risk

  22. The world has entered one of the worst recessions in 100 years The extent of the deterioration has been dramatic The limited precedent makes timing unknown When the recovery comes market re-action will be extremely fast When does the economy stop free-falling? US ISM New Orders 90 80 70 60 50 40 30 20 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 US Non Farm Payrolls – Monthly change 800 600 400 200 0 -200 -400 -600 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

  23. Equities cheap relative to bonds

  24. Long-term perspective: Real Equities Source: Macro Strategy Investments (OMIGSA)

  25. Greed: Conviction of a New Era Capitulation and Contempt Caution Enthusiasm Denial Fear The Art – Investor’s Psychology Distribution of Returns Extremes more likely than most investors think

  26. Dividend, Bond & Cash Yields DIVIDEND YIELD (%) BOND YIELD(%) CASH YIELD (3 MONTH NCD)(%) COUNTRY INDEX U.S. S&P 500 3.2 2.4 0.1 EUROPE DJ STOXX 50 6.6 3.0 2.3 JAPAN NIKKEI 225 2.6 1.2 0.6 U.K. FTSE 100 5.7 3.5 1.1 S.A. JSE ALL SHARE 5.4 7.9 11.5 First time in 50 years that US Dividend yields > Bond yields Source Data: Bloomberg, 10-year bond yield, NB Dividend yields are probably optimistic

  27. Global cash and bond returns will be pitifully low Corporate bonds look interesting Equity returns look attractive in the medium term Bad macro & earnings vs. sentiment & valuation MSI Strategy Underweight: Government bonds, offshore cash Overweight: Offshore equity, SA property, SA cash Conclusion

  28. Asset Allocation View Real Return View Comment N SA Good long-term real return. Concerned about real earnings growth. N Equity 7.5% High yield of 9% with growth but cyclical fear. High barriers to entry = electricity & costs. Property 7.0% Looking interesting in the next year, but longer-term concerns about inflation. Bonds 2.5% Attractive in the short-term but rates will fall. Re-investment risk high. Cash 3.0% N Offshore Cheap compared to history but negative earnings momentum. Equity 8.0% No inflation risk in short-term but low nominal returns. Bonds 1.0% Cash 0.0% Downgraded as rates fall sharply. NB: These are long-term, real returns expected over the next five years

  29. Don’t chase last year’s winners We do not expect bonds to give the same level of return Offshore investments should be focused on equity Low interest rates are here for a while Now is a good time for “investors” to add to equity Good long-term real return from here Don’t downgrade your solution unless your risk profile has changed NOTE: This is a general view, for more information, please contact your financial adviser or broker The man in the street

  30. Regulatory Information Old Mutual Investment Group (South Africa) (Pty) Limited Physical Address: Mutualpark, Jan Smuts Drive, Pinelands, 7405 Telephone number: +27 21 509 5022 Old Mutual Investment Group (South Africa) (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group is a wholly owned subsidiary of Old Mutual (South Africa) Limited. Reg No 1993/003023/07. The investment portfolios may be market-linked or policy based. Investors’ rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance. Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price sensitive and unpublished information in relation to the Old Mutual Group are further restricted in their dealings in Old Mutual shares. All employees of Old Mutual Investment Group are remunerated with salaries and standard short-term and long-term incentives. No commission or incentives are paid by Old Mutual Investment Group to any persons. All inter-group transactions are done on an arms lengths basis. In respect of pooled, life wrapped products, the underlying assets are owned by Old Mutual Life Assurance Company (South Africa) Limited who may elect to exercise any votes on these underlying assets independently of Old Mutual Investment Group. In respect of these products, no fees or charges will be deducted if the policy is terminated within the first 30 days. Returns on these products depend on the performance of the underlying assets. Old Mutual Investment Group has comprehensive crime and professional indemnity insurance. For more detail, as well as for information on how to contact us and on how to access information please visit www.omigsa.com.

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