Monthly Market Wrap - July 2009 - Articles - Investment Intelligence

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Monthly Market Wrap - July 2009

Added on 06 August 2009 @ 10:11 AM

Market highlights

Attention fell on US companies last month as markets focused more on the start of the quarterly corporate earnings season, and less on macroeconomic data. About three-quarters of companies on the S&P500 reported better than expected results, which spurred a global equity rally resulting in most major indices achieving their highest levels this year. The Dow passed the key 9000 level, which it last achieved in September and surged 40.1% from its low levels in March (see table below). Similarly the NASDAQ and S&P500 also surged 56% and 46% respectively from the lows set in March. Further abroad the FTSE100 had a two-week winning streak equaling its 2003 run. Asian markets also benefited from investor optimism, with the Nikkei having a nine-day winning streak - the most consecutive positive days in 21 years. The Shanghai Composite Index is up 81.4% year-to-date, but took a large knock in the last week of July, (as much as a 5% fall in one day) as fears of China tightening its monetary policy spooked investors. The Chinese government, however, responded the following day by announcing that its loose monetary policies will remain unchanged, and the market surged once again.

Many investors are still wondering whether a sustainable recovery is underway or whether this is merely a rally within a longer term bear market. From a market perspective, momentum appears to be on the upswing, even though macroeconomic data is still ambiguous. Signs of stabilization have occurred in certain economic data, such as global purchasing managers indices (PMI's), US housing data, and production indices from the East. But high unemployment levels across the globe, depressed consumer spending, and tighter access to credit are issues that could seriously hinder recovery.

Equity markets rebound

The JSE benefited from the rise in global risk appetite, with the All Share Index breaking through 24000 points towards the end of the month and ending July at 24259. Since the low levels of March, the All Share gained 34%. The JSE's various sectors had solid all-round performances too, with resources adding 9.8%, financials putting on 10.2% and Industrials adding 10.4%. It was thus a broad-based rally, with no one-sector dominating. Crude oil was also buoyed by the upswing in global risk appetite and hopes of an early recovery, resulting in a 6% gain in the oil price for July.

The rand continued to be the world's second best performing currency against the US dollar (Brazilian Real is first) throughout July. The rand managed to stay resilient relative to a basket of currencies due to a weaker dollar, increasing risk appetite for emerging currencies and the pending merger between MTN and Bharti Airtel, which could see large capital flows into South Africa if the deal occurs. The rand also responded favorably to the appointment of widely respected Gill Marcus as the new governor of the Reserve Bank, and shrugged off wage disputes and strikes during the month. However, a strong rand is not good for the economy's export sectors, as confirmed by mining and manufacturing data released in July.

Good news came by way of consumer inflation finally slowing down faster than expected, according to the latest data released during he month. June CPI grew by 6.9% year-on-year, down from 8% in May and below the 7.2% consensus expectation. Producer inflation, on the other hand, remained in negative territory in June. PPI fell 4.1% year-on-year, after May's -3%. If CPI inflation moves into the target range of 3%-6%, the rand continues to stay strong and economic activity remains depressed, further interest rate cuts could be on the cards later in the year. However there will be much debate over the issue in the coming months.

Fairbairn Capital | Old Mutual

Investment Intelligence|Articles