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BCI Global Investment Conference

6th June 2016

Junaid Bray, CFA (Head of Equities)

"An investor initiative in partnership with UNEP FI and the UN Global Compact"

FAIS Accreditation: Junaid Bray (RE5) is FAIS accredited.

Compliance Officer: Ms Bontle Matlou FSB approved number CO 3407: [email protected]: Tel 021 670 6570

An African investment firm with global standards

mailto:[email protected]

Argon Asset Management (Pty) Ltd is

a registered financial services provider

The rand has been on a long-term downward trend

A substantial part of this depreciation has been during the last 5 years (<R7 to >R15)

RandLong-term downward trend

2

Source: Bloomberg

Rand depreciation up to 23th May 2016

10 Years 5 Years 3 Years 1 Year

Depreciation 139.1% 125.6% 63.2% 31.5%

CAGR 9.1% 17.7% 17.7% 31.5%

USDZAR



Investing is much more complicated than simply making a currency call. There are multiple

factors to consider such as

– The company’s business model

– Industry dynamics (supply/demand, regulation, growth, market structure, etc)

– Commodity prices

Rand hedgesNot all rand hedges are born equal

3

Source: Bloomberg









4

Source: Bloomberg




5

Source: Bloomberg








While one could argue that the bulk of recent index returns were generated by rand hedges (given

their heavy weights in the ALSI and SWIX), going forward you have to take a call on the rand to

determine whether the trend repeats itself.

ZAR fluctuation is often due to external global factors

– The rand is one of the most liquid currencies and is often used as a global risk instrument and

proxy for EM sentiment, especially during periods of heightened risk aversion.

– The rand is subject to underlying changes in the value of the US$

Extremely difficult to forecast the randExternal global factors often at play

6

USDZAR vs US Dollar Index (Dollar vs Several Currencies) USDZAR vs Volatility Index

Source: Bloomberg



Long-term weakening trend

– Inflation differential

– Political risk

Credit rating downgrade

Extremely difficult to forecast the randArguments supporting a WEAKER rand

7

USDZAR

Source: Bloomberg



Long-term weakening trend, but:

– After periods of sharp depreciation, the rand has strengthened for the subsequent few

years

– Slower US rate hike trajectory

Extremely difficult to forecast the randArguments supporting a STRONGER rand

8

USDZAR

Source: Bloomberg



The rand is one of the cheapest currencies in the world based on PPP

Credit rating downgrade already priced in

Extremely difficult to forecast the randArguments supporting a STRONGER rand

9

ZAR – Purchasing Power Parity (Big Mac Index) EM Credit Default Swaps

Source: Bloomberg



Investment decisions cannot be based solely on companies benefitting from the tailwind of

currencies moving in their favour

Shares cannot simply be dumped into two buckets of rand hedges vs rand “dredges” - there are

much more complex factors to consider such as:


– Industry dynamics (supply/demand, regulation, growth, market structure, etc.)


Many shares that would traditionally be classified as non-rand hedges now have significant

offshore earnings, e.g. Supergroup, Retailers (Woolworths, Foschini, Truworths, Spar)

We take a bottom-up view on stock selection and therefore assess each stock from an individual

perspective in order to arrive at intrinsic value

Some defensive rand hedges trade at excessive valuations. Although their businesses are

defensive, investing at these levels may not be

Build a DIVERSIFIED portfolio of quality, well-run companies

Portfolio positioningFocus on bottom-up stock selection & diversification

10


a registered financial services provider11

FAIS disclosures

1) The intermediary

Argon Asset Management (Pty) Ltd (“ARGON”) is an authorised Financial

Services Provider; FSP no. 835

Physical Address:

1st floor, Colinton House Tel: +27 21 670 6570

The Oval, 1 Oakdale Road, Fax: +27 21 671 8252

Newlands 7700

2) Representative(s)

Name Qualification Experience

Junaid Bray CFA, B Bus Sc (Finance) , UCT 13 years

Category 1&2

Securities and Instruments: Money market instruments

Securities and Instruments: Shares

Securities and Instruments: Debentures and securitised debt

Securities and Instruments: Bond

Securities and Instruments: Derivative instruments

Participatory interests in Collective Investment Schemes

Deposit defined in the Bank act exceeding 12 months

Deposit defined in the Bank – 12 months or less

Fit and proper requirements

The Representative(s) comply with the fit and proper requirements per FAIS Act.

Responsibility for the Representative(s)

ARGON takes full responsibility for the actions of the Representative(s) carried out in

terms of the agreement concluded and has suitable guarantees in place, including

professional indemnity cover, amongst others.

3) Compliance Officer

Ms Bontle Matlou – CO 3407

Tel: +27 76 358 2693

Fax: 086 214 7356

E-mail: [email protected]

4) Key Individuals (responsible for the representatives):

Mr. Mothobi Seseli – Chief Executive Officer

5) Complaints handling procedure

Should you have complaints regarding advice given by the representative(s) or

their conduct, or any complaint relating to the services rendered by ARGON

please contact the Compliance Officer in writing at the addresses supplied in

section 1 or 3 above.

Upon receipt of a written complaint we will provide you with an

acknowledgement of receipt, within 48 hours and endeavour to resolve your

complaint as soon as possible. Should there be any delays in resolving your

complaint, we will advise you timeously.

If your complaint is not resolved to your satisfaction you may direct it, in

writing, to the Office of the Ombud for Financial Services Providers whose

details are set out below.

FAIS Ombud

PO Box 74571

Lynwood Ridge

0040

Telephone: +27 12 470 9080

Facsimile: +27 12 348 3447

E-mail Address: [email protected]


a registered financial services provider12

Contact details

Luyanda Joxo, CFA Jeremy Jutzen

Head of Institutional Business Client Relationship Officer

Tel +27 21 670 6576 Tel +27 21 670 6592

Fax +27 86 674 1100 Fax +27 86 242 9958

Cell +27 84 701 1271 Cell +27 83 703 8523

Email: [email protected] Email: [email protected]

Cape Town Office Johannesburg Office

1st floor, Colinton House, The Oval 7th floor, Fredman Towers, 13 Fredman Drive

1 Oakdale Road, Newlands, 7700 Sandton, 2146

General Tel +27 21 670 6570

www.argonassetmanagement.co.za

Facebook page / argonassetmanagement

LinkedIn / argonassetmanagement

Insurance notification

We have Professional indemnity and fidelity guarantee cover in place to indemnify us against negligence, theft, fraud, errors and

omissions.

http://www.argonassetmanagement.co.za/

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