Economic context
We expect a severe global growth recession for 2009 (-0.1% y-o-y growth), with
only a modest pick-up in 2010 (to 2.6%). Our view is considerably below the
consensus forecast of 1.2-1.7% world growth for 2009. We have accordingly
moderated our SA growth outlook to 2% for 2009, with a modest recovery into
2010 (3%). We see the primary growth drivers in fixed investment and
government consumption spending. We expect PCE, which has been an
important growth driver in recent years, to grow only in line with GDP in 2009.
Although we expect inflation to fall sharply by mid-2009, this is partly on the back
of favourable base effects, which are not sustainable. We therefore do not expect
interest rates to follow inflation all the way down: our call of a further 150bp cut in
policy rates during 2009 is above the 350bp anticipated by the market. For this
reason, we have also adopted a more circumspect stance on interest-sensitive
stocks.
Our investment position
The current backdrop – poor visibility into 2010, great uncertainty on the strength
and timing of a recovery in world growth, high volatility in equity markets – is not
conducive to strong investment themes. The high forecast risk also renders
earnings-based relative value calls largely meaningless. We have two strong nonconsensus
views, but otherwise our investment themes focus on defensive
aspects: defensive valuations (earnings, dividends, price/book), defensive margins,
earnings visibility, and low operational and financial gearing. We remain
overweight industrials, neutral financials and underweight resources.
Industrials: Although the fundamentals are unexciting (moderating demand,
decreasing pricing power, rising costs), the sector, on average, still offers the
highest earnings visibility and most defensive business models. Our preferences
are stock rather than sector specific.
Financials: The sector has significant recovery potential (general financials and life
in particular), but looks unlikely to perform while global markets remain subdued.
Also, banks appear fully priced on a relative basis, and given our non-consensus
view on rates, may give back some relative performance.
Resources: We remain unenthusiastic about resource stocks. The sector typically
only thrives when global growth nears 4%, and this appears some way off.

Table of Contents
Index to the shares .............................................................................3
Economic context ...............................................................................4
Global growth: Going negative in 2009? ....................................................................................4
United States ..............................................................................................................................5
Japan .........................................................................................................................................6
Euroland .....................................................................................................................................6
Asia (ex-Japan)...........................................................................................................................6
SA ..............................................................................................................................................7
Currencies and commodities....................................................................................................10
Market outlook..................................................................................11
Summary..................................................................................................................................11
Equities ....................................................................................................................................11
Emerging market context .........................................................................................................17
Equity review: Forecast summary...................................................18
Mining stocks: Resources ................................................................20
Resource stocks: Non-mining..........................................................46
Banks / Financial Services stocks ...................................................50
Life Assurance stocks .......................................................................68
Real Estate stocks.............................................................................78
Industrial stocks................................................................................98
Stocks by market capitalisation ....................................................152
Prospective PE Ratios highest and lowest 10*............................153
Two-year compound EPS Growth pa Top 20*.............................153
Industrial Shares .............................................................................154
Enterprise Value/Turnover (Year 2008/2009e) Lowest to Highest
..........................................................................................................154
Appendix A: Equity valuations ......................................................155
Executive summary ............................................................................................................... 155
Glossary ...........................................................................................157