My hope that the lowering of interest rates by the European Central Bank to 0,75% would create the desperately needed economic stimulus, were almost immediately dashed when markets treated the news as yet another non-event. I guess we have already seen so many confidence-building squibs fizzle out that the cut was treated with indifference.

Yet, if you lived in Ben’s and my former home, the Netherlands, whose consumer price index currently stands at around 2,3%, and received a tiny 0,75% rate of return on your savings, you’d surely become agitated. Knowing the prudent Dutch investor, I imagine his hackles rising at the thought that the spending power of his money disappearing at a rate of 1,45% a year. The extent of gain or erosion of an investment is the difference between the rate of inflation and how much the investment yields. Even though 10-year Dutch bonds yield 2,04%, your money is being whittled away at a rate of 0,26% a year.

Before the damp squib dashed my expectations, I’d imagined the Netherland investor’s fiercely growing scowl, prompting him to do that he did a couple of years ago; swap his euros for rand-denominated investments. That was when keen foreign investment pushed the rand’s value to uncomfortably high levels. This did great harm to our exporters, but held the petrol price at a more reasonable level. That is where the ‘which side of the fence’ comes into play - import or export - simply translated into jobs vs cheaper foreign goods. Pity we can’t have both!

Was it a glimmer of hope at the end of the Europe-problem tunnel, that made our Netherlander begin switching out of rand, so dipping its value 26% against the dollar from August to December last year? Then after an 11% recovery did his further switches dip it by 10% from March to early June this year? Then again, perhaps rather than lights at the end of tunnels it was shenanigans within our government that frightened investors away.

Nevertheless, despite our wobbly, sometimes laughing-stock government, Foreign Direct Investment (FDR), a la Walmart’s purchase of a 51% stake in Massmart, in South Africa is attractive for several reasons. Problems in North African countries have detracted new foreign investment there. Unveiled dirty deeds at the crossroad by some Barclays bank execs in Europe’s erstwhile financial capital, has put an ink-blot over sterling. That’s why I think our Netherlander might take another look at rands. He knows that the one area that SA appears to excel is that those running the country’s finances are level-headed and well respected. It was after all tough banking laws which saved us from the 2008 banking shindig.

My suggestion is that the Netherlander takes a closer look at the South Africa share market, and if he does, so should you. This would especially apply if, as rumour suggest, our rates are cut next time around. Local rate cuts boost share markets while foreign demand pushes up share prices at the same time as providing a reasonable return. These days with a plethora of unit trusts and in my opinion even better options, ETFs, you don’t have to be a share-market guru to successfully invest.

Looking at the market as a whole, the JSE AlS40, is comprised of a collection of the top 40 shares that make up about 60% of trading. That index currently has an earning yield of 8,23%, a dividend yield of 2,99% and a p/e ratio of 12,15. Amongst ETFs, the Satrix Dividend Plus (Satrixdiv) has gained 121% since March 2009. Over the three years ended June the ETF had an annual compound return of 21,73% and now has an historical dividend yield 3,09%. The object of this exercise is investment yields, hence my choice of this ETF over the others.

As a loyal citizen, our Netherlander might rather be drawn towards his own share market. But as the Amsterdam index is currently 44% below its 2007 record high, compared with the JSE-Overall at 3,8% above its 2008 high, his choice is made easier. Instead he might look at Wall Street where the DJ-Industrial is 9% below its high, or Australia’s Sydney all share at a negative 38%. In fact the JSE has the only overall index that is above record highs.

In the accompanying chart I have used a candlestick plotting for the Satrixdiv and a bar plotting for the JSE Als40. Moving much in unison, differences occur with the Satrixdiv pick of high yielding dividend payers. I have overlaid three blue speed resistance lines that mostly encompass both plottings and head steadily upwards. To the Satrixdiv plotting, I have added a red zigzag which turned upwards on July 3. Not shown is the moving average convergence/divergence plotting which had just given a buy signal with an upward break through its signal line.

Jean Temkin


(Click on the chart to see it more clearly)