A Review FTSE/JSE All-Share Index of South Africa

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South Africa has a population of about 48 million. After years of apartheid rule the country held multi-racial elections in 1994 leading to the rule by the African National Congress (ANC). Since that time the country’s economy has grown although modestly. While blacks led by the late Nelson Mandela were able to gain political power from the minority whites, infighting and other issues have continued to adversely impact economic growth and preventing the country from realizing its full potential.

The South African economy is the largest in Africa with a GDP of about $353.9 billion in 2013. The GDP is projected to grow by 2.7% according to The World Bank.

The following is a brief overview of the South African economy from CIA’s The World Factbook site:

South Africa is a middle-income, emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors and a stock exchange that is the 15th largest in the world. Even though the country possesses modern infrastructure that support a relatively efficient distribution of goods to major urban centers throughout the region, unstable electricity supplies retard growth. The global financial crisis reduced commodity prices and world demand. GDP fell nearly 2% in 2009 but has recovered since then. Unemployment, poverty, and inequality remain a challenge, with official unemployment at nearly 25% of the work force. Eskom, the state-run power company, has built two new power stations and installed new power demand management programs to improve power grid reliability. South Africa’s economic policy has focused on controlling inflation, however, the country has had significant budget deficits that restrict its ability to deal with pressing economic problems. The current government faces growing pressure from special interest groups to use state-owned enterprises to deliver basic services to low-income areas and to increase job growth.

Source: The World Factbook, CIA

South Africa’s major exports are gold, diamonds, platinum, other metals and minerals, machinery and equipment and major imports are machinery and equipment, chemicals, petroleum products, scientific instruments, foodstuffs. Its major trading partners are China, India, Germany, Saudi Arabia, the US and Japan.

The benchmark stock index of South Africa is the FTSE/JSE Africa All Share Index. The index is a market capitalization weighted index and represents 99% of the full market capital value of all all the listed companies on the Johannesburg Stock Exchange. There are 165 constituents in the index and the top 10 holdings account for about 60% of the total. Nearly one-fourth of the index is comprised of firms in the basic resources sector.

The following chart shows the performance of the index from 2008 thru 2013 in local currency:

Click to enlarge

FTSE JSE All Share Index 5 year Return

Source: FTSE

The historical returns by year for this index can be found here and the total returns can be found here.

The top holdings in the FTSE/JSE All-Share Index are listed below with the ADR tickers and current dividend yields:

1.Company: BHP Billiton (BBL)
Current Dividend Yield: 3.68%
Sector: Mining

2.Company: Compagnie Financiere Richemont AG
Sector: Personal Goods

3.Company: SABMiller PLC (SBMRY)
Current Dividend Yield: 1.04%
Sector: Beverages

4.Company: Naspers (NPSNY)
Current Dividend Yield: 0.32%
Sector: Media

5.Company: MTN Group (MTNOY)
Current Dividend Yield: 8.01%
Sector: Mobile Telecom

6.Company: Anglo American PLC (AAUKY)
Current Dividend Yield: 3.46%
Sector: Mining

7.Company: Sasol (SSL)
Current Dividend Yield: 3.63%
Sector: Oil & Gas Producers

8.Company: British American Tobacco PLC (BTI)
Current Dividend Yield: 4.26%
Sector: Tobacco

9.Company: Standard Bank Group (SGBLY)
Current Dividend Yield: 4.20%
Sector: Banking

10.Company: Old Mutual Plc (ODMTY)
Current Dividend Yield: 3.40%
Sector: Life Insurance

Note: Dividend yields noted above are as of Mar 7, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Related ETF: 

  • iShares MSCI South Africa Index Fund (EZA)

Disclosure: No Positions

Also see:

  1. South Africa’s FTSE/JSE All-Share Index Returns By Year
  2. South Africa FTSE/JSE All Share Index: Historical Total Returns Chart

Knowledge is Power: Special Russia Posts Edition

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Here are some links to past articles on Russia from this site:

  1. Is It Time To Invest In Russia?
  2. Comparing the Returns of Russian and U.S. Equities 1865 to 1917
  3. The Top Five Banks of Russia 2013
  4. Interesting Facts about the Russian Economy
  5. Russia’s Top Import and Export Partners

Market Vector Russia ETF (RSX) – 5 Year Return:

 

Russia ETF 5 Year Return

 Source: Google Finance

Also checkout:

The Full List of Russian ADRs trading on the US markets.

Disclosure: No Positions

Why Invest In Stocks For The Long Term

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Equity investing should always be for the long-term. Investing for the short-term rarely yields better returns considering the impact of taxes, costs, etc. Not to mention one can easily lose money since markets can be highly volatile in the short-term. Long-term can be defined as holding investments for 5 years or more. Holding periods of 10 to 20 years can significantly reduce volatility and can generate higher total returns due to price appreciation over the longer period and the effect of compounding due to dividend reinvestment.

The key to holding stocks for the long-term is to select stocks from sectors that are stable, easy to understand and have long-term growth potential. Examples of such sectors are consumer staples, utilities, chemicals, etc. Sectors that are not the best fit for long-term investments are internet technology which includes dot-coms in the social networking, data storage,  e-tailing, semiconductors, software, and other areas, biotechnology, hot growth fast-food, etc.  Companies that take advantage of some fads such as single-serve coffee machines, building a bear toy in a shop at the mall, crazy expensive yoga pants for women created by some smart Canadian should be avoided as well.

The following chart shows the performance of three U.S. asset types over the short and long-terms:

Click to enlarge

Long Term Stocks Yield Good Returns

Source: Time’s ability to smooth out market volatility, J.P. Morgan Asset Management, UK

The total returns of US equities, Treasuries, and a 50/50 blended portfolio over 1 year and 20 years is interesting to analyze.  For one year periods stocks returned between 51% and -37% over the previous year. But over the twenty year periods the variation range fell to 18% to 6%. In addition, stocks also yielded positive returns over 20-year periods. Bonds and the blended portfolio also performed better over 20-year periods with the blended portfolio having the least volatility.

For the period shown, the annual average total return was higher for stocks with 10.8% compared to pure bonds and the blended portfolio. The key takeaway is in the short-term volatility is higher and returns are unpredictable while the opposite is true in the long run.

Ten U.S. stocks to hold for the long-term are listed below with their current dividend yields:

1.Company:Colgate-Palmolive Co (CL)
Current Dividend Yield:  2.21%
Sector: Household Products

2.Company:Procter & Gamble Co (PG)
Current Dividend Yield: 3.09%
Sector: Household Products

3.Company: The Coca-Cola Co (KO)
Current Dividend Yield: 3.25%
Sector:Beverages

4.Company:The Clorox Co (CLX)
Current Dividend Yield: 3.26%
Sector:Household Products

5.Company: Kellogg Co (K)
Current Dividend Yield: 3.07%
Sector:Food Products

6.Company:Airgas Inc (ARG)
Current Dividend Yield: 1.83%
Sector: Chemicals

7.Company:PPG Industries Inc (PPG)
Current Dividend Yield:  1.29%
Sector: Chemicals

8.Company:AT&T Inc (T)
Current Dividend Yield: 5.61%
Sector: Telecom

9.Company: ConocoPhillips (COP)
Current Dividend Yield: 4.27%
Sector: Oil, Gas & Consumable Fuels

10.Company: Southern Co (SO)
Current Dividend Yield: 4.80%
Sector: Electric Utilities

Note: Dividend yields noted above are as of Feb 28, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

Five Reasons To Invest In Auto Parts Stocks

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The automotive industry is one of the largest industries in the U.S. It can be considered as the second largest industry after the real estate industry. The U.S. government considers the auto industry to be highly important for the country even going to the extent of bailing out the industry a few years ago.

Some interesting facts on the U.S. auto industry are listed below:

  1. In January 2014, auto makers employed over 844,000 workers.
  2. Automobile dealers and parts sellers in the retail trade employed over 2.9 million workers.
  3. The U.S. is home to 13 auto makers . Honda, General Motors, Ford, Chrysler,Toyota, Nissan, Hyundai-Kia, BMW, Daimler, Mazda, Mitsubishi, Subaru, Volkswagen all have manufacturing facilities in the country.
  4. In 2011, the industry accounted for between 4% to 5% of GDP.
  5. Auto suppliers produced goods worth $171 billion in 2011 accounting for about 3% of U.S. total manufacturing.
  6. Many of the biggest U.S. firms such as IBM, GE, HP, Dow, Microsoft, Intel and Oracle depend on the auto industry with half the companies in the Dow Jones Index depending on the industry for revenue.
  7. 20 U.S. states have more than 100,000 auto jobs and 47 states have more than 10,000 auto-related jobs.
  8. According to the industry association, 8 million Americans and their families depend on the auto industry for their livelihoods.

From a global perspective also, the auto industry is significant for economic growth. Outside of the U.S., all the other major economies of the world including Canada, India, China, Brazil, Germany, Japan have big auto industries. In fact, of the G-20 countries, only Saudi Arabia does not have automobile production  according to industry data.

Sources:  U.S. Department of Labor, U.S. Commerce Department, Auto Alliance

Investing in auto sector stocks is a wise move given the details noted above. However instead of investing in auto makers investors are better off going with auto parts makers for a many reasons. Like the old story about getting rich by selling picks and shovels during a gold rush, auto parts makers offer attractive opportunities to profit from the boom in the auto industry.

Five reasons to invest in stocks of Auto Parts Makers are listed below:

1. Auto sales has been rising globally since the dark days of the financial crisis. In the U.S. auto sales has rebounded strongly since 2008-09. The following chart shows stable to rising car and light truck sales since 2012:

Click to enlarge

US Auto Sales

Source: Market Data Center, The Wall Street Journal

The graph below shows the yearly change in light vehicle sales from 2009 to 2012:

LV- sales Year over Year

Source: Auto Alliance

Automakers are expected to announce February sales figures on March 3rd. But according to estimates by Cars.com, the February sales is projected to be up by 1.1% over the same month last year making it the best February sales since 2008.

2.Lending for auto loans by banks and finance companies have increased in recent years. With the economy recovering auto lending should increase further. Auto lending and auto sales are highly correlated since most folks buy cars on loans. In fact, even subprime lending standards are projected to decline this year leading to higher auto sales.Lenders are able to take advantage of ultra-low interest rates despite higher than normal default rates.

3. The majority of Americans depend on autos for transportation. While public transportation is good in bigger cities such as New York, DC, Chicago, etc. in other cities and towns across the land public transportation is virtually non-existent. In rural areas there is no public transportation at all. Hence autos will not disappear any time soon and will be the main mode of transportation for the foreseeable future in this country.

4. The transportation infrastructure in the country is simply built for autos. The interstate highway system, the hotel industry, the fast food industry, the malls, the ubiquitous suburbs in every city are all built around cars. Public policy and government investments also favor the continued dominance of the car industry. Even during the height of the great recession billions of state funds were spent on highway development, maintenance and expansions and not on alternative means of transportation such as building subway systems, trams, trains, etc.

5.Unlike the auto makers, auto parts makers do not have worry about many issues such as giving heavy discounts to push their products, having to deal with legacy costs such as healthcare and pension costs for retirees, constantly having to  invest in research and development, the need to introduce new models  every year, etc. In addition, replacement parts are bought by existing auto owners as well and hence the parts makers do not necessarily have to entirely depend on new auto sales for growth.

Five foreign auto parts makers are listed below for further research:

1.Company: Valeo SA (VLEEY)
Current Dividend Yield: 1.40%
Country: France

The second largest French auto-parts maker recently reported strong second half-earnings due to rising demand in China and North America. The company’s stock has more than doubled in the past 12 months.

2.Company: Magna International Inc (MGA)
Current Dividend Yield: 1.47%
Country: Canada

Magna is the world’s second largest diversified auto-parts maker.

3.Company: Denso (DNZOY)
Current Dividend Yield: 1.30%
Country: Japan

Rising U.S. auto sales is benefiting Japanese auto parts makers according to a Bloomberg news report last month. Denso is the world’s biggest diversified auto-parts maker based on sales.

4.Company: Continental AG (CTTAY)
Current Dividend Yield: 1.20%
Country: Germany

5.Company: Autoliv Inc (ALV)
Current Dividend Yield: 2.16%
Country: Sweden

Note: Dividend yields noted above are as of  Feb 28, 2014. Data is known to be accurate from sources  used. Please use your own due diligence before making any investment decisions.

Disclosure: Long DNZOY