PSG Team WVS | 200 Nelson Mandela Drive, Bloemfontein, 9301 | PO Box 12337, Brandhof, 9324 | Tel: +27 (87) 820 7451 | Fax: +27 (51) 401 5660 | aneka.janeke@psg.co.za

PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider. FSP 728.

For months it seemed that nothing could stop Eurozone government bond yields from falling, but in a little over two weeks, German 10-year yields have risen to 0.55% from a record low of 0.05%. The speed at which these yields have risen is remarkable and has reversed the decline of the previous three and a half months.

Part of this reversal may be explained by a declining fear of deflation in Europe due to rising oil prices. Another explanation is that the treasury market overheated due to the European Central Bank’s government-bond purchase program. Speculators bought Eurozone bonds at yields they regarded as unreasonably low, purely on the expectation that they will sell them to the ECB at an even lower rate.

The speed of the sell-off may have been a bit alarming, but the reversal is a welcome return to normal conditions. Bond yields were also supported by Bond Kings Bill Gross and Jeffrey Gundlach, who recently called betting against Bunds the short of the lifetime, due to the unsustainability of negative interest rates.

Yields are not only rising in Europe: Australia, for example, even saw yields jump when the Australian Central Bank cut rates this week, the reverse of what normally happens. Bond market measures of expected inflation have risen sharply since bottoming earlier in 2015 in the Eurozone, US, Japan and the UK.

In America, big corporates are racing to issue bonds as time is running out to lock in borrowing costs while they are still near record lows. The yield on the 30-year Treasury Note, a benchmark for everything from corporate debt to mortgages, has risen by 52 basis points since the start of April to 2.99%, touching the highest level in five months. The average yields on investment-grade debt have also risen, climbing to 3.08%.

In conclusion, it seems that treasury markets have moved back to a normal, positive rating environment and if some analysts are to be believed, we may be at the start of a bond bear market.

Have we reached the stage where global infrastructure investment starts to accelerate?

Last month we looked at developments on the ground and particular in China with the “New Silk Road” project. In an article called “Emerging Markets: The Great Unravelling?”, Jawad S. Mian states the following: “If I am correct in my view that China is in the early stages of a new long-term bull market, then emerging markets as a whole will not be left behind for too long. The economic integration modelled by China, with Xi’s vision of a ‘New Silk Road’, holds the promise to provide a structural tailwind.”

Tailwinds that can only grow stronger, with Asia’s third largest economy, India, drawing our attention - as new Prime Minister, Narendra Modi, embarks on his new government flightpath with a focus on reforms and infrastructure spending. According to India’s Finance Minister, Arun Jaitley, they will spend an additional $11.35bn compared to the previous year and infrastructure spending will rise 43% over the next five years.

In an article released by Reuters, “Urbanising India best bet for Chinese steel” (5 May 2015), India plans a scale of mass urbanisation based on the forecast that India’s population will more than double by 2050. They will construct 100 “smart” cities by 2022, with an estimated cost of $1 trillion.

According to the World Steel Association, India will be the biggest consumer of steel in both 2015 and 2016, with demand increasing to 6.2% and 7.3% respectively. India’s imports increased 71% by fiscal year-end March, with most of the imports coming from China.

Modi also implements a more open policy in attitude and culture to attract industries and foreign investors, whereas in the past it was described as a level of “sadism”.

According to the International Monetary Fund’s World Economic Outlook released in April, India’s economic growth will climb to 7.5% versus China’s 6.8%.

May 2015

NEWSLETTERThe End of Low-Yielding Treasuries?

Aneka JanekeEditor

PSG Team WVS | 200 Nelson Mandela Drive, Bloemfontein, 9301 | PO Box 12337, Brandhof, 9324 | Tel: +27 (87) 820 7451 | Fax: +27 (51) 401 5660 | aneka.janeke@psg.co.za

PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider. FSP 728.

How do we capitalise on this growth story over the next 5 to 10 years? A clear beneficiary would be BHP Billiton.

BHP Billiton creating value through South32 demerger

BHP Billiton announced plans for a demerger in August 2014 and in March 2015 the company’s Board of Directors recommended that shareholders vote in favour of a demerger of its assets into a new company to be called South32.

Shareholders approved of these plans on the 6th of May. South32 will be listed on the 18th of May in the UK, Australia and South Africa. Analysts are valuing South32 at $12bn - $13.3bn, which compares with BHP Billiton’s market capitalisation of $132.7bn.

The demerger of South32 will simplify BHP Billiton’s portfolio as its current 41 assets would be reduced to a core portfolio of 19. The demerger will enable the company to focus on its petroleum, copper, iron ore, coal and potash assets, which together generated 96% of the Group’s Underlying Earnings Before Interest and Tax in 2014. The company will remain listed on the JSE but will have no operational interests in South Africa.

South32 will become the world’s largest producer of manganese ore, one of the world’s largest ferronickel suppliers and a top source of silver and manganese alloy. It will also have a significant presence in alumina, aluminium and coal, operating in Southern Africa, Australia and Columbia. The company will also start with a strong balance sheet, will have access to a $1.5bn credit facility and in December 2014, 90% of its earnings came from assets operating in the bottom half of the industry cost curve.

According to BHP Billiton’s Chairman, Jac Nasser, the spin-off will create more value for shareholders than other options, including asset sales. The only criticism which emerged on the demerger plan was its cost of $738 million.

What impact will the demerger have on current shareholders?

Shareholders will retain their existing shareholding in a simplified BHP Billiton and eligible shareholders will also receive a share in South32 for every BHP Billiton share they hold.

Shareholders will continue to receive dividends from BHP Billiton and they will benefit from any dividends from South32. BHP Billiton does not plan to rebase its dividend following the demerger, implying a higher pay-out ratio.

Conclusion

BHP Billiton remains a quality long-term investment with the ability to outperform peers because of its diverse and quality assets, cost profile and strong balance sheet. The demerger will enable the company to focus on its core assets, unlocking further value for shareholders.

South32, on the other hand, is inheriting some high-quality assets that have been well maintained and there is already speculation doing the rounds that seasoned acquirers such as Mick Davis of X2 and Ivan Glasenberg of Glencore may be interested in the company’s assets.

Hannes BarnardPSG Stock Broker

April 2015

PSG Team WVS | 200 Nelson Mandela Drive, Bloemfontein, 9301 | PO Box 12337, Brandhof, 9324 | Tel: +27 (87) 820 7451 | Fax: +27 (51) 401 5660 | aneka.janeke@psg.co.za

PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider. FSP 728.

Is 40 te laat om vir aftrede te begin spaar?Ons weet almal hoe voordelig dit is om vroeg in jou loopbaan te begin spaar, veral vir jou aftrede. Om oor ‘n lang tydperk geld weg te sit en daarmee saam die voordeel van saamgestelde groei te hê, sal verseker dat jy gemaklik kan aftree. Saamgestelde rente het op lang termyn ‘n grondige invloed op ons finansies en verseker dat ons ‘n groot som tot ons beskikking het wanneer dit tyd word om af te tree. Ongelukkig vind baie mense uit wanneer hulle aftree dat hul neseier nie naastenby groot genoeg is om hulle deur hul sogenaamde goue jare te dra nie.

Volgens Sanlam neem slegs 30% van afgetredenes dat hulle genoeg kapitaal vir die res van hul lewens het, meer as ‘n derde het reeds hul enkel bedrag uikering uitgeput (gewoonlik binne twee jaar na aftrede) en byna ‘n kwart van afgetredenes het finansiële afhanklikes.

Hoe kan jy in die lig van die skokkende syfers verseker dat jy goed voorbereid is op die onvermydelike dag van jou aftrede, veral as jy in jou veertigs of vyftigs is en nou eers aan `n neseier begin dink?

Anele Mbuya, senior bemarkingsaktuaris by Old Mutual, sê: “Wanneer jy besef dit is kritiek om vir jou aftrede te spaar, moet jy `n finansiële afviseur raadpleeg. Finansiële afviseurs sal raad hê oor watter spaarinstrumente of produkte jy kan gebruik om `n neseier op te bou, die persoon sal ook bepaal hoeveel jy per maand moet spaar on jou situasie te verbeter.”

Karin Muller, hoof van groeimark- oplossings by Sanlam Persoonlike Finansies, herhaal hoe belangrik dit is om met `n finansiële adviseur te gesels. “Begin met `n finansiële plan. As deel van jou finansiële plan kan jy sekere besluite neem om jou posisie te verbeter, soos om moontlik langer te werk.”

Nie alleen het jy dan langer tyd om te spaar nie, maar kan jou geld ook langer groei. Uitgestelde aftrede sal jou aftreeplan waarskynlik beinvloed. As hulle die keuse het, besluit baie mense om langer in hul huidige pos aan te bly, terwyl ander verkies om hul pas te verlangsaam en eerder ‘n deeltydse pos teen laer betaling te aanvaar.

“As mense nie hul aftrede kan uitstel nie, kan hulle steeds langer wag voordat hulle hul aftree-inkomste begin gebruik deur `n alternatiewe inkomstebron te vind. Ons sien die neiging elders ter wêreld, waar mense loopbaanveranderings maak wanneer hulle aftree - party werk korter ure, of werk dan vir ondernemings soos nie-regerings-organisasies”,: sê Muller.

Maar kan jy dieselfde mate van finansiële vryheid tydens jou aftrede as gedurende jou werksjare hê? Jeanette Marais, direkteur vir verspreidings en kliëntedienste by Allan Gray, se om dieselfde vlak van inkomste te hê (70% van jou laaste

salaris), as jy eers op 40 begin spaar, moet jy nagenoeg 23% van jou salaris spaar of ‘n beleggingsinkomste van 11.5 persentasiepunte meer as inflasie behaal. Albei klink erg, maar as jy ‘n belegginsopbrengs van 7.5 persentasiepunte bokant inflasie kan behaal, hoef jy net 17.5% van jou salaris te spaar.

Dit klink dalk verwarrend en ‘n finansiële beplanner kan jou help om duidelikheid te kry oor watter roete jy moet inslaan om gemaklik af te tree.

Muller sê: “’n Verstommende 28.5% soek eers ‘n adviseur op wanneer hulle op die punt staan om af te tree. Selfs al is jy nou in jou veertigs of vyftigs, en sonder toereikende aftreebeplanning, is dit nie te laat om hulp te kry nie – moenie wag tot jy in jou sestigs is voordat jy met iemand praat nie. Rus jou met die regte kennis toe en beplan vandag reeds om te verseker dat jou aftreejare net so goed is - indien nie beter nie - as jou werksjare.

Justine OlivierFinweek

19 Februarie 2015

PSG Team WVS | 200 Nelson Mandela Drive, Bloemfontein, 9301 | PO Box 12337, Brandhof, 9324 | Tel: +27 (87) 820 7451 | Fax: +27 (51) 401 5660 | aneka.janeke@psg.co.za

PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider. FSP 728.

Nici’s letterI was going to write something light-hearted this week, but then we received word that one of our valued clients passed away unexpectedly in a tragic accident.

Finalising an estate after the death of a loved one is a time-consuming, difficult process. All the loose threads have to be tied up and dealt with. Dealing with the medical aid, insurance and banks; tax has to be finalised, properties and vehicles have to be transferred. The DSTV has to be cancelled and the cellphone companies and Telkom has to be dealt with. What happens to the TV licence and the postbox? All of this and more happens during an emotionally difficult time for all those left behind.

There are a few things you can do during your lifetime to ensure that this difficult process is made as easy as possible for your loved ones:

Make sure that your will is in order and you know where the original is stored.

Lists of contact persons and copies of all relevant documents should be kept together to be accessed after your death.

Appointing an executor who can help your loved ones finalise the process and help with all the paperwork.

Contact us if you require any help with the drafting of your will, or have any questions regarding the liquidation and distribution of estates.

Life is short. Time is fast. No replay. No rewind.*

(*A quote found on the internet – Author unknown)

Kind regards

Nici Macdonald

The opinions expressed in this document are the opinions of the writer and not necessarily those of PSG and do not constitute advice. Although the utmost care has been taken in the research and preparation of this document, no responsibility can be taken for actions taken on information in this newsletter.

The Team

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