Happy New Year! I would like to wish you and your family everything of the best for 2009.

2008: A summary

Well, 2008 has finally ended. From an investment point of view, it was a huge (and historic) disappointment.
•    During the year, the domestic bond market was the best performing asset class, with a total return of 17.0%. All of that gain was achieved in the second half of 2008, after a dismal first half performance. The improvement in the past 6 months has been helped by the sharply lower oil price, an improved inflation outlook and expectations of lower interest rates. This has generally been the case globally.
•    In contrast, the SA equity market declined by a massive 23.2% (total return) in 2008. This makes 2008 the second worst annual (calendar) equity performance since 1960, and hence a very rare occurrence. During September/October it certainly looked like 2008 would actually be the worst year since 1960, but a slightly better performance in November (+1.3%) and December (+1.5%) helped to provide some stability towards the year-end. Interestingly, if one had managed to avoid the negative returns that occurred in September (-13.2%) and October (-11.6%), your annual equity performance would actually have been a small positive. What a difference a few weeks can make!

Outlook for 2009

•    The current economic, business and investment environment remains extremely challenging. Approximately 60% to 70% of the world economy is currently in recession, including the US, Germany, UK, and Japan.
•    South African corporate earnings are under pressure, with room for further disappointment. Most major companies are now focused on cost containment and there are increased retrenchments.
•    The noticeable improvement in the outlook for inflation, coupled with the general slump in economic activity has allowed most central banks around the world, including South Africa, to cut interest rates. Further rate cuts are anticipated in South Africa during 2009.
•    At the same time, most countries, including South Africa, are embarking on a programme of increased government spending, especially in the form of infrastructural development.
•    The combination of further rates cut and increased economic stimulus should provide the basis for a solid economic recovery into 2010. Consequently, while we remain cautious on the outlook for most asset class, especially equities, in the short-term (6 - 8 months). As the year progresses and it becomes clearer that the global economy recovery is actually taking hold, the outlook will be more positive.

At Keystone Wealth, 2008 was a year of new beginnings. We had our first calendar year of trading with 2 businesses merged into one. All things considered, it was an excellent growing and learning year. We are, however, very aware that although we may have done things really well in some areas, we have not done so well in other areas. To this end we will be sending you a client questionnaire/feedback form. The goal of this form is for us to understand you and your expectations better, and this in turn will help us improve our service to you.

We’ve also designed and launched a new website: www.keystonewealth.co.za. Please have a look at it and let us know your thoughts.