Update No. 41 – 06/01/12

I will leave the calculation of assets until the closing value of $0.96254 per share is confirmed by our external auditors and the new shares are issued for those who subscribed for new shares.  Needless to say as it is still essentially a holiday and trade was thin, prices barely moved this week.

I probably come across as habitually optimistic; I truly believe the challenges faced by Europe are surmountable, that the USA is on the cusp of a new prosperity and that our Asian neighbours will continue to prosper (albeit at a declining rate of growth), thereby leading to continuing Australian prosperity. I am happy to be viewed that way (optimistic), I am almost always a glass is half-full kind of guy.  This article by Chris Berg of the IPA gives a little insight into the world events that lead me to feel that way.

Particularly satisfying is that Africa, which has previously been a severe economic laggard is now the fastest growing continent in the world.  China has shown in the last 30 years how rapidly the transition from poverty to (relative) prosperity can occur, given the right circumstances.  Africa despite having something like one seventh of global population, has (depending on where you get your numbers) somewhere between one third and half of the worlds poverty stricken, and something like 18 of the 20 most poverty stricken countries.  Like Australia, much of the prosperity will likely stem from the desire from the big, fast growing Asian economies for resources.  Africa is incredibly resource rich and provided the financial benefits flow substantially to the people, rather than warlords and dictators, they will probably find themselves significantly better off over the coming decades.

Coming back to Australia, and particularly our share-market, without making any specific predictions, I think 2012 will be a very good year.  I expect there is a very high probability of double-digit gains.  Ten percent probably doesn’t get anyone too excited, but when we consider where the ASX200 Total Return index has finished the last 3 years, ten percent sounds pretty good:

  • January 1st 2010                      33985.86
  • January 1st 2011                      34518.53
  • January 1st 2012                      30879.12

The funny thing with the markets is that any substantial movement approaching say 10 percent generally does two things, one of which is scaring many bears and other short-selling types away.  The other is to encourage the nervous capital that has been sitting on the sidelines back into the market, which is why sometimes these things can run further than they should (such as the March – September 2009 rally).  In any case, the earnings of the Australian market grew by more than 10% in 2012, whilst the market fell by about 10% over the same period, so by any measure, barring a massive economic meltdown, the market appears much cheaper than 12 months ago.

I am very confident EGP Fund No. 1 Pty Ltd is even better positioned than the market in 2012, without wishing my life away, I can’t wait for Christmas…– Tony Hansen 06/01/12