Market Growth Thus Far

From the end of July up to now there has been much volatility and uncertainty in markets. The so-called "Magnificent Seven" tech stocks have significantly repriced and has resulted in significant negativity in markets virtually around the world.? As an example, the S&P500 index in the US contracted by more than 9% during this period – the sharpest drop in the index in the last 2 years.??

The correction comes amid an overvaluation on these stocks but also due to interest rates that started to rise in Japan which disbanded some of the so-called "carry-trades".? Carry-trades are where investors borrow money in certain parts of the world where interest rates are low (such as Japan) and then take the money and invest in other countries where there is an expectation of a much higher return.? So when Japan's interest rates rose recently these leveraged positions re-priced which had a huge negative impact on markets.? All indications are that the worst is not over yet.?

Following is a brief summary of how markets have fared so far this year up to the end of July.? As usual, we look at the growth from each major asset class and compare that to inflation in order to see what real growth there has been.? One must remember that only growth above inflation can be seen as true value increase.? Inflation in Namibia is currently 4.6% and 5.1% in South Africa:?

• First is money market.? This asset class represents interest-bearing products with a term up to 12 months.? Money market funds continue to yield around 8% per annum, although treasury bill rates have actually dropped over the last couple of months.? 12-Months treasury bills now yield a discount return of around 8.20%;?

• Next up is bonds – this asset class is also interest-bearing investments only with a term of longer than 12 months.? Bonds performed brilliantly in June with growth of 5.2% and followed that up in July with growth of 3.5%.? The past 12-months growth up to the end of July for this asset class currently stands at a stellar 16.2%;?

• Then local equities also had a good couple of months with 3% growth for June followed by 3.7% growth in July.? These 2-month growth almost makes up the entire growth over the last 12 months which currently stands at a mere 7.6%;?

• Listed property was the winner in June with 7% growth and again yield 3.1% growth in July.? The 12-month growth currently stands at an outstanding 26.7%;?

• And then lastly foreign equities in developed economies as measured in N$ terms were only just positive with growth of 0.4% for the month however the past 12-month growth is almost 20%.?

International markets, as measured in their own currencies, were a mixed bag in July with the Nikkei down 1.2%.? In early August this index dropped even further and was at one point down by 34% only to bounce back by some 10%.? Looking at the first week in August, it was truly a bloodbath as a result of what is mentioned earlier.?

Commodities in USD terms were all in the red except for gold which rose by 4.1% in July.? Gold has now yielded 22.5% over the past 12 months.? Oil was down 3% in July and copper down 4.4%.?

Exchange rates – the N$ was slightly weaker against the US dollar in July.? Over the long run, our local currency remains under pressure and is nearly 6% weaker per year against the US dollar over the last 15 years.? During the first week in August, our currency weakened significantly against all the other major currencies.?