(by Group Advisory Services, Stanlib)
Market Comment
- September was a great month for markets, with the JSE gaining 8.7% (15.2% in dollars), while the MSCI World Index gained 9.4% and the MSCI Emerging Markets Index gained 11.1%, both in dollars. With the rand gaining 5.9% in September against the dollar, these two returns were 3.4% and 5.1% respectively in rand terms.
- The rand also gained 3.6% against the pound, but lost 1.3% against the euro, one of our big trading partners.
- The ALSI returned 13.3% over the quarter to end September (24.2% in dollars).
- Although bonds have done very well (up 14.1% YTD), both the JSE Industrial Index (up 18.2%) and the Financial Index (up 16.7%) have beaten bonds, while the Resources Index (-3.6%) has struggled. Cash has done 5.3% YTD.
- Foreign investors have taken some profits lately, with a total of R8.9bn net flowing out of our bonds and equities over just the past 10 days, with very little impact on the rand so far.
Where to now?
- After such an impressive jump, markets could pull back a bit in October. Note that, apart from cash and residential property, almost everything is in a bull market. Copper jumped 9.5% in September to its highest price since before the Lehman Bros crash. Oil jumped 8.5%, palladium jumped 16%, silver 12%, gold 5% and platinum 8.5%.
- The point is, as Fidelity’s legendary value fund manager, Anthony Bolton said last year, slow world growth, minimal inflation and low interest rates are a good environment for equities….also for commodities and not bad for bonds either.
- BCA Research admits that economic uncertainty remains high, although in a nutshell they think we are slowly passing the soft patch; but more easing by the US is still needed.
- They note that although US consumer spending is growing slowly, in absolute dollar terms it is now at an all-time record high, as are US company profits.
- BCA’s asset allocation model has just up-weighted equities at the expense of bonds, especially Emerging Market equities.
Snippets of Info
- The Financial Times reports that the US TARP programme, whereby they lent money to besieged companies like GM, Citigroup, AIG and Bank of America, is on track to cost just $50bn, way below the $700bn original estimate. In fact, the US taxpayer may even make a profit.
- The FT reports today that 3 Brazilian and 2 Chinese banks are among the world’s top 10 credit card issuers, more evidence that banks and consumers in the emerging markets are leaving their western rivals in the shade.
Economic Weekly
- The SA leading economic indicator recorded an impressive rise of 1.1%m/m.
- Stats SA released the CPI headline inflation last week, which fell to 3.5% mainly on the strength of the Rand.
- SA PPI accelerated slightly to 7.8 percent y/y in August from 7.7 percent in July, driven mostly by mining and electricity.
- SA credit growth increased in August mainly because of a large increase in mortgage advances.
- Overall credit growth is clearly looking a little more encouraging.
- SA trade account recorded a larger than expected deficit of R4.66bn in August 2010, due to a sharp decline in mineral and metal exports
- In the US last week, personal income rose more than expected in August 2010.
- US consumer confidence fell sharply in September to 48.2, well below market expectations.
To see the full review, Read on…..