JUNE HAS NOT BEEN KIND

The markets certainly have not been a pleasant destination during June. At the time of writing June has produced the following:

The currency was not helpful either with the Rand appreciating against the Dollar from R 10.07 at the start of the month to R9.98 at the time of writing.

What has caused this negative performance and when will it end?

Since the 2008 financial crisis, central banks have been flooding the world markets with liquidity through their asset purchasing programmes. While these programmes have helped to push equity markets to new highs and push yields on bonds, property and dividend paying stocks to new lows investors have been aware that at some point these programmes would have to end.

Owing to the low yields in the bond space, historically the home of the low risk conservative investor, portfolios have been forced to hold instruments with a higher risk premium to ensure that they achieved returns in excess of inflation over time. These assets with higher risk premiums included South African bonds and equities which is why our markets have also enjoyed high returns.

Market participants became wary when Ben Bernanke, Federal Reserve Chairman, announced that the Federal Reserve would begin to taper back the US bond purchasing programme at the end of the year. The US economy is showing stronger signs of recovery with lower unemployment, improving property prices and an equity market at record highs, until recently. As the fears increased that the asset purchase programme would come to an end sooner rather than later we saw the bond markets being punished as bond yields increased with market participants attempting to re-price assets for a world with less liquidity being provided by the Federal Reserve. At the same time investors moved their exposures away from those assets with the higher risk premiums that have benefitted from the bond purchasing programmes since the 2008 crisis. This included a sell-off of South African Bonds and Equities.

It is during these changing and volatile times that we see the value of a well diversified long term investment strategy. Your capital is guided through the markets by fund managers who have proven long-term track records and different investment approaches that ensure that their respective investment targets are achieved while protecting investor’s capital. Short term volatility may affect portfolios but we are still confident that investment targets will be achieved over longer term periods.