2007 was good year for investors

Isaac Moledi

Isaac Moledi

What was your investment performance like in 2007? Was it an exciting year in terms of taking part in both local and global investment markets?

Some experts believe that last year was at times a little bit too exciting for the average investor - especially those who have grown complacent in the last four years.

Investors enjoyed one of the biggest equity bull markets this country has experienced.

But last year, says Paul Cluer, managing director of Foord Unit Trusts, was a year when those well-known (and mostly forgotten) emotions associated with investing - greed, fear, confusion, panic, despair, complacency and euphoria - all came to the fore at different times.

"Having been in a strong upswing phase since early May 2003, the local equity market as measured by the FTSE/JSE All Share Index (ALSI) climbed a respectable 19percent in 2007," says Cluer.

At its December 2007 close, the ALSI was nearly four times higher than its low in May 2003.

Cluer says the 2007 gains appear rewarding when one considers the returns earned in preceding years.

But he says a fuller picture becomes evident when one examines the performance of the underlying sector indices.

Resources heavily dominated by Anglo American, BHP Billiton, Sasol and the big platinum shares, rose 26percent for the year to December.

Industrials rose a market-average 16percent while financial shares, severely affected by four interest rate hikes on top of a 2 percent rise in 2006, lagged behind and were flat. But there was not only a discrepancy in the returns to the three major market sectors. Cluer says individual blue chip shares also displayed a significant disparity in share-price moves. For instance, BHP Billiton rose 61percent, Sasol +31percent, Imperial declined 36percent, Bidvest -10percent and RMB Holdings declined 11percent.

"These statistics show volatility was pervasive. The JSE experienced several sharp down and up moves, including a 13percent fall in July and August on the back of the sub-prime banking crisis in the US."

Cluer says allocations to economic sectors and the selection of individual shares made all the difference. But this was against the backdrop of economic indicators which included the prime overdraft rate which was raised in four consecutive 0,5 percent increments, moving from 12,5percent to 14,5percent.

The inflation rate, measured by headline inflation, climbed to 8,4percent year-on-year for the 12months ended November (compared to 5,4 percent for the same period last year).

The rand was slightly stronger against the US dollar, though fluctuating between R6,50 and R7,50 during the year, but ended weaker against the euro.

Cluer says the main reason can be attributed to the nearly 50 percent weighting of the ALSI to volatile resource shares, which did well in 2007. He sees 2008 as a year to be cautious and to review asset allocations.

"In reviewing your investments, be aware that the last several years' good growth on the JSE, and good performance by the rand, may have created an imbalance between your South African domestic investments and your rand-hedge/international investments.

"Because share markets can, and do go down, it is important to review your short-term needs for liquidity and cash," says Cluer.