Silke Financial Monitor, Issue 1

Well, this is the first of, hopefully, a bi-monthly event. This year has definitely taken us by storm. Still catching up with last years new year's resolutions. Pheeeeeeeewwww

A very big thank you to all our clients who saw 2005 through with us. The industry has recently changed drastically - I believe for the better. Client protection has always been top priority at Silke Financial Services.

So what's new this year? Our assets under management have grown considerably since we last chatted - by some 18%. Yes - this is partially due to the markets being very kind, but with Ken's brilliance and conservative manner we expect this to be the norm. Taking Trevor Manual's budget speech into consideration, things should continue to look good going into 2006. A word of caution, however, reviewing your portfolio is crucial. If we haven't chatted and risk-profiled with our unique Silke Risk Profiler^TM give us a tinkle to set up a meeting. Individual circumstances change before you know it!.

We have recently taken on a new member to our team - Mandy. She is a mom of two, oldest being 5 years. She was previously employed at Vodacom as a business consultant. She will be responsible for our Client Relationship Management and overall forward business strategies to enhance our level of service to you, our client.

Joel Zwane joined us in December as of last year and he will be managing the Ikwezi Art Centre at the Montebello Design Centre in Newlands Avenue that Ken and I sponsor on a full time basis. He is from Kwazulu Natal and is hoping to finish his 9th comrades this year!

On the celebrity side - Ken's dog, Nicole, had her film debut last year co-staring alongside Leon Schuster's in Mama Jack; This has gone to her head. Paw prints are available.

No new additions on my personal side. I will try from time to time keep all our "Blogs" up to date for the inside skinner. See profiles under the www.silke.co.za for links.

Best Wishes,
Shane Thom

In this issue

1. Articles Why is the JSE doing so well? Retirement Annuity's are facing radical changes Is your will up to date?
2. Our Sponsorship Program
3. Recommended Resources
4. Quote of the Week

Articles

Why Is The JSE Doing So Well

– Ken Silke

The JSE All Share Index broke through the 20,000 level for the first time n history last month and with commentators seemingly unanimously bullish on equities, it is almost understandable for some investors to question whether the market is overheated.

Let's look at why our local stock market (and most equity unit trust funds) is doing so well. Is it not the time to lock in profits? Yes, you can but where do you put your money? Cash is only offering just below 7% (taxable) and bonds are not an exciting asset class at this point in time.

Just about every investment professional does not see this buoyant stockmarket as a bubble, as the market is supported by strong fundamentals in South Africa. A further positive is that there is a lot of money swirling around markets locally and globally looking to find a home. With commodity prices high and developed markets not offering much potential, a lot of this money is finding its way into resources shares, which have a heavy weighting on the JSE.

The JSE's all share index is already up over 10% this year alone, with the resources 20 index up over 13%.

So, are there other factors which could drive our market higher? Let us examine some of these factors:

• Inflows alone into our market should drive the market even higher.
• Resources were clearly boosted by faster-than-expected economic growth numbers out of China last week. The Chinese economy grew by 9.9% year-on-year (y/y) in the fourth quarter of last year. Chinese demand has been a major driver of commodity prices and the GDP figures would have no doubt assured any concerns of a slow down there.
• It must also be borne in mind that while the historic price-to-earnings (PE) ratio on the all share index stands at just over 17 times, this is distorted by the relatively higher PE of the resources index.
• The All Share Industrial and Financial indices are both at PEs of just above 15 times. In 1999, industrials had a PE of 18 times, while the PE on the all share index was just below 18 times, I-Net data shows.
• Importantly, corporate earnings are expected to increase by about 20%, which should see the PE decline by a similar amount. A PE of around 13.5 times on the All Share Index is certainly not onerous in historical terms.
• Lastly, but importantly, one must not forget that the market is supported by strong fundamentals.
• Inflation is under control both locally and globally. Interest rates are expected to remain stable at relatively low levels;
• Companies are sitting on a lot of cash and can use this to pay increased dividends, buy back shares or invest in capacity. The first option will give investors more money which will need to find a home elsewhere in the market, the second will boost the companies' own share prices and the third should increase earnings growth, benefiting the company in the long term;
• The government fiscal deficit fell by 87.8% y/y to only 1.855 billion rand in the first nine months of the 2005/6 fiscal year, which started in April 2005.

Of course, the market will be disappointed and react negatively should earnings growth not come through, but as yet there are no indications that this will happen. However, the bond market is still unlikely to deliver anywhere near the return in the region of 15% to 20% that even conservative pundits are expecting from equities.

Low interest rates also mean that the tax-free dividends offered by quality equities make them an attractive option when compared to cash and unlike cash, equities offer solid opportunities for capital growth.

It is true that there is also a lot of short-term trading interest, which is being reflected in demand for single stock options. This does boost volumes on the JSE and add to its volatility.

The money flowing into the market alone could keep it pumping; but be aware that there is always profit -taking along the way and this can be risky. We have recently seen some profit-taking with market drops as much as 3% in one day alone.

Health Warning: The above article does not constitute investment advice and clients should only expose money at risk after being risk -profiled according to their particular tolerance for risk. Clients are hereby advised that past performance is not indicative of future performance. It is imperative that we review your portfolio regularly - so if we haven't spoken to you recently please give us a call to set up a meeting. Good chance to get a free cup of coffee and taste our dynamic chocolate biscuits.

Retirement Annuity's Are Facing Radical Changes

– Ken Silke

Most retirement annuities are facing radical change. The Allan Gray Retirement Annuity does not need to. Traditional "life" RAs have come under fire from regulators, clients and the media on issues such as lack of transparency, high fee structures and distribution costs and inflexible structures.

With that in mind, it is worth remembering that Allan Gray do not charge initial fees on their RA, no switching fees, and no penalties for reduced contributions. The only fees you naturally pay are our advisory fees. You are guaranteed of total transparency in plain language that anyone can understand.

What's more, the Allan Gray Investor Platform also gives you access to the funds of Coronation, Nedbank, Marriott, Prudential and RMB at very reasonable cost.

Is your will up to date?

– Ken Silke

It is highly irresponsible NOT to have a valid up-to-date will in place. Don't leave your loved ones in the lurch. Do you really want your family to make medical decisions when you can NOT do so?

Disease or accidents can befall us without warning often rendering us incapable of communicating our wishes in terms of how we are to be medically treated. The costs of keeping someone on life support when there is no prospect of recovery can devastate your financially and emotionally.

Silke Financial Services is offering a Free Living Will when we draft or re-draft your existing Will.
The choice is yours - make it now.

Act now if you have put off making your Will; if your marital status has changed or you have additional children or grandchildren.

Silke Sponsorship Program – Ikwezi Art Centre

We are proud to be the Main Sponsors to the Ikwezi Art Centre situated at the Montebello Design Centre in Newlands, Cape Town.

We will be holding an exhibition on 16, 17 and 18 June in line with the 30 year anniversary of June 16.

Bring this Newsletter to get a 20% discount (Valid until the end of March 2006) at the Ikwezi Centre.

Recommended Resources

In each issue, we will try and recommend some helpful resources. Try them and if you find them useful, please feel free tell us so and if you come across any of your own – tell us as well.

My recommendation:
Listen from Monday-Friday, to Alec Hogg's business radio programme broadcast by Classic Fm (102.7 FM) between 6pm and 7pm every weekday evening.

Listen live on-line at: Alec Hogg's Radio Stream

Quote of the Week

"You shouldn't break the rules daddy 'cause policeman's are always watching - like God and Christmas" – Georgia Thom (5yrs)

Authorised Financial Services Provider FSP No. 12462Accredited Health Care Broker: BR 3440