Weekly Stocktake

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	70731	69 719	-5.43%
NASDAQ Composite	15 833	13047	12 705	-19.76%
S&P 500	4 797	4280	4 228	-11.85%
Prime Lending Rate	7.25%	9.00%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	148.81	151.96	-8.28%
USD/ZAR	15.96	16.23	17.01	6.58%
EUR/ZAR	17.95	16.64	17.08	-4.85%
Brent Crude	77.86	97.1	95.78	23.02%

Source: iress

Company and Market News

Last week, Walmart released their Q2 2023 results. The results were good and it gave quite an interesting insight into the current spending behaviour of US consumers, primarily. Total revenue for the quarter increased by 8.4% compared to the same quarter a year ago. Gross profit for the quarter increased by 3.2%. And net income for the period increased by 20.4%.

The smaller increase in gross profit compared to the total revenue for Walmart indicates that Walmart were not able to sell all their inventory at the prices they initially planned to sell it at. The company noted that they reduced prices of some of their goods so as to not maintain a bloated inventory. This affected the gross margin for Walmart compared to the previous quarter. The gross margin for Walmart was 31.96% for Q2 2023 compared to 34.10% for the same quarter last year. The gross margin of a company is a good indicator as to how well a company can handle inflation. However, the absolute increase in gross profit resulted in Walmart increasing their net income significantly.

One of the drivers for growth in Walmart is its advertising business. Walmart has a large amount of consumer data, and are leveraging it to companies who want to advertise on their platforms. Their Ad business grew by just under 30%. An article in the Business Day suggests that Walmart could potentially roll out a platform that will allow social media influencers to market their products. Whether they are able to successfully do it or not is another question. Walmart already works with influencers to promote certain goods on other platforms. Currently, influencers are able to earn a commission on goods sold if a customer uses an influencer link to purchase a Walmart product.

The large scale of Walmart allows them to offer customers low prices for their goods. However, the net margins for the business remain quite low in comparison to other businesses, but they operate at such a large scale that they are still quite profitable in absolute values. The low margins still provide a risk for the company, as it means they are quite price sensitive to input costs. If we look at one of their competitors, Amazon, Walmart’s margins are significantly lower as Amazon has a highly profitable cloud service: AWS. This allows Amazon to offer similar prices to the eCommerce consumers while generally maintaining higher margins in their overall business.

Below is a table comparing certain metrics of Walmart to metrics of a year ago.

Period	Price at end of week of Q2 results release ($)	EPS	Gross Margin	Net Margin	ROE
Rolling 12-months Q2 2023	137.02	5.00	24.60%	2.36%	16.21%
Rolling 12-months Q2 2022	150.45	3.56	25.10%	1.78%	11.53%

Disclosure: Walmart and Amazon are held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	69 519	70731	-4.06%
NASDAQ Composite	15 833	12 658	13047	-17.60%
S&P 500	4 797	4 145	4280	-10.77%
Prime Lending Rate	7.25%	9.00%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	150.04	148.81	-10.18%
USD/ZAR	15.96	16.77	16.23	1.69%
EUR/ZAR	17.95	17.07	16.64	-7.30%
Brent Crude	77.86	94.38	97.1	24.71%

Source: iress

Why Numbers Matter: In Review

A month ago we held our Lunar Capital client event: Why Numbers Matter. We’d like to share two of the short clips with you from the event.

The story of how Lunar Capital started

And the stories of some of the people who’ve invested with us

If you would like to talk to us about our products and what we can offer you, contact us via email at: [email protected] or phone Sabir at: +27 83 305 7860

 

Company and Market News

Last week, MTN released their interim results for 2022. Overall the results were quite good. Total revenue for the interim increased by 10.3% compared to last year. And profit after tax for the interim increased by 148.89%. The increase in revenue was largely attributable to the increase in data sales. Data sales were up 33.1%. Of the total revenue, data sales account for 34%. The stock price for MTN jump 6.46% last week on the positive news.

MTN is a telecom service provider that  operates primarily in Africa. The three locations which account for the most revenue are South Africa (25.6% of revenue), Nigeria (36.4% of revenue), and Ghana (10.2% of revenue.) One of the key metrics used when valuing a telecom provider is  Average Revenue per User per a month (ARPU). ARPU for MTN in South Africa was $6.01, Nigeria: $5.01, and Ghana: $3.60. In South Africa, a year ago the ARPU was $6.91. The decrease in ARPU in South Africa is as a result of data prices decreasing.

Some of the risks that MTN faces are high levels of inflation and hyperinflation in some  of the countries they operate in. This hurts their bottom line figures which are reported in ZAR. Telecom providers also have high fixed costs. This can negatively impact their profit in the long term if they are not able to grow their customer base.

MTN’s main competitor is Vodacom. However Vodacom’s operation is primarily focused in South Africa. For Vodacom’s most recent quarter, South Africa accounted for 77.8% of total revenue.

Below is a table comparing key metrics of MTN with Vodacom.

Company	Market Cap @ 12 Aug 2022 (ZAR’bn)	PE Ratio @ 12 Aug 2022	Net Margin	ROE	ARPU in South Africa (ZAR)
MTN	287.37	13.68	12.18%	20.14%	94
Vodacom	239.97	13.51	17.26%	20.75%	89

 

Disclosure: MTN and Vodacom are held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	68 934	69 519	-5.70%
NASDAQ Composite	15 833	12 391	12 658	-20.05%
S&P 500	4 797	4 130	4 145	-13.58%
Prime Lending Rate	7.25%	9.00%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	148.08	150.04	-9.44%
USD/ZAR	15.96	16.53	16.77	5.08%
EUR/ZAR	17.95	17.00	17.07	-4.90%
Brent Crude	77.86	103.59	94.38	21.22%

Source: iress

Company and Market News

Under Armour: a creator, marketer, and distributor of branded athletic apparel, released their Q1 2023 results last week. For the quarter, revenue remained flat at $1.3 bn compared to Q1 a year ago. Net income decreased from $59m in Q1 2022 to $8m in Q1 2023. The share price of Under Armour increased by 4.06% this week despite the disappointing news.

Under Armour operates in the athleisure/athletic apparel space with other brands such as Nike and Lululemon. Despite Under Armour and Lululemon making athletics-wear for the same purpose, Under Armour sells products to the mid-income market compared to Lululemon, who sell products to an upper-income market. An example would be if we compared the price of leggings. A pair of Under Amour leggings go for just under $75; whereas a pair of leggings from Lululemon can go for just under $100, with some leggings being priced at just under $120.

One of the things we like about premium brands, at Lunar Capital, is that they have higher margins compared to other brands. People that like a specific premium brand will stick to buying that brand compared to others. A downside, however, would be that in this current market, when interest rates are going up, and the disposal income of consumers is decreasing – consumers who were on the fringe of buying premium products may hold off on buying these products.

Below is a table comparing the margins and other financial indicators of Under Armour and Lululemon.

Company	Market Cap @ 5 Aug 2022 ($bn)	PE Ratio @ 5 Aug 2022	Gross Margin	Net Margin
Under Armour	4.04	12.80	49.67%	5.43%
Lululemon	40.56	40.43	56.87%	15.35%

 

Disclosure: Lululemon is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	68 070	68 934	-6.50%
NASDAQ Composite	15 833	11 834	12 391	-21.74%
S&P 500	4 797	3 961	4 130	-13.90%
Prime Lending Rate	7.25%	9%	9.00%	24.14%
Lunar BCI WW Flexible Fund	165.68	148.08	145.24	-12.34%
USD/ZAR	15.96	16.85	16.53	3.57%
EUR/ZAR	17.95	17.21	17.00	-5.29%
Brent Crude	77.86	103.71	103.59	33.05%

Source: iress

Company and Market News

Last week, many of the big US companies released their quarterly results for the period. Overall, the companies released positive results compared to what the market was expecting. This resulted in the Nasdaq and the S&P 500 increasing by over 4% during the week. The major companies that released their results were: Alphabet, Amazon, Apple, Meta, Microsoft and Qualcomm.

Earnings this quarter were better than expected given the inflation and recessionary outlook. However, at Lunar Capital, we think that the next quarter’s earnings season will be more significant indicator with regards to the outlook of the economy. The economy would have been through a longer period of increased interest rates. Consumers would then be paying higher interest on their mortgages, for example, for a longer period; and thus, would have less discretionary spending. This arguably would be felt in the economy as a whole, potentially reducing the earnings of companies.

Below is a table showing some of the financial indicators of companies that released their results.

Company	Market Cap @ 29 July 2022 ($bn)	12m Earnings Change (%)	PE Ratio @ 29 July 2022	ROCE
Alphabet	1 519	14.44%	21.72	24.41%
Amazon	1 375	-60.57%	121.52	4.17%
Apple	2 630	14.78%	23.05	48.26%
Meta	428	15.79%	13.19	30.57%
Microsoft	2 095	18.72%	29.09	26.96%
Qualcomm	163	39.72%	12.86	36.55%

 

Disclosure: Alphabet, Amazon, Microsoft, Qualcomm, and Berkshire Hathaway (which has a significant holding in Apple) is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	65 089	68 070	-7.67%
NASDAQ Composite	15 833	11 452	11 834	-25.26%
S&P 500	4 797	3 863	3 961	-17.42%
Prime Lending Rate	7.25%	8.35%	9%	24.14%
Lunar BCI WW Flexible Fund	165.68	141.63	148.08	-10.62%
USD/ZAR	15.96	17.08	16.85	5.58%
EUR/ZAR	17.95	17.23	17.21	-4.12%
Brent Crude	77.86	102.60	103.71	33.20%

Source: iress

Company and Market News

Last week, ASML released their Q2 2022 results. Revenue and net income for the quarter both increased by 35% compared to the Q2 last year.

ASML have indicated that they expect net sales for Q3 2022 to be between €5.1 bl and €5.4 bl. And for the year they expect revenue growth to be around 10%. This is lower than they previously stated. They noted that it is due mainly to delayed revenue recognition from the fast shipments they are implementing. They noted that some customers are indicating signs of slowing demand from certain consumer-driven market-segments. However ASML are still seeing high levels of demand for their systems. They currently have strong net bookings for their systems. According to ASML, the strong demand is driven by global megatrends in automotive, high-performance computing, and green energy transition.

Due to the on-going supply-chain issues, ASML is using the process of fast shipment to deliver their products to customers. This means that ASML will skip some of the testing at their factories and will do final testing at their customers’ site. ASML will only then be able to recognise revenue at a later stage. Their customers, however, are able to test the systems they receive from ASML earlier and can begin production of microchips earlier.

With the ongoing geo-political tensions, ASML faces the risk of being forced to stop selling their DUV (Deep Ultraviolet) systems to China. Semiconductor companies require export licenses, as semiconductors are considered dual-purpose products that are used for general consumption and military use. Currently, they are unable to sell their flagship EUV (Extreme Ultraviolet) systems to China.

ASML is one of the leading suppliers to the semiconductor industry. The company provides chipmakers with the hardware, software, and services to mass produce microchips. Some of their clients include Intel, Samsung, and TSMC. ASML effectively has a monopoly on making equipment that uses photolithography (process of using light to print patterns on silicon) to produce microchips.

Below is a table comparing some of the rolling 12-month results for ASML.

Rolling 12-Month Period Ended	Net Income (€’bn)	Free cash Flow (€’bn)	PE at end of week Results Release	Return on Capital Employed
03-Jul-22	5.62	9.24	37.74	32.53%
04-Jul-21	4.78	6.55	55.64	25.09%

Source: iress

 

Disclosure: ASML is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	68 327	65 089	-11.71%
NASDAQ Composite	15 833	11 635	11 452	-27.67%
S&P 500	4 797	3 899	3 863	-19.46%
Prime Lending Rate	7.25%	8.25%	8.35%	13.79%
Lunar BCI WW Flexible Fund	165.68	144.63	141.63	-14.52%
USD/ZAR	15.96	16.90	17.08	7.02%
EUR/ZAR	17.95	17.21	17.23	-4.01%
Brent Crude	77.86	107.08	102.60	31.77%

Source: iress

Company and Market News

On Friday, 15 July 2022, MTN announced that they were in talks with Telkom, to acquire the entire share capital of Telkom in return for shares in MTN, or a combination of a cash pay-out and shares in MTN.

The mobile market in South Africa is primarily made up of 4 players: Vodacom, MTN, Telkom, and Cell C. For the period ended 31 March 2022, MTN had a total of 34.5 million subscribers in South Africa and Telkom had 16.9 million subscribers. For the most recent quarter, the mobile subscription Average Revenue per User (ARPU) for MTN was R93.26 and R89.94 for Telkom
Vodacom has the biggest share of customers in South Africa (45.4 million customers) with an ARPU of R90. And Cell C had 12.9m subscribers in South Africa (the lowest market share.) Cell C have not disclosed their ARPU.

If the MTN-Telkom deal goes through, MTN would significantly be able to close the gap between itself and Vodacom in the South African mobile market. MTN would also have further access to the fibre and other ICT (information and Communications Technology) markets. However the deal would still need approval from the competition commission. We are not sure whether the approval will go through. The outcome of the deal would likely result in 2 players (MTN and Vodacom) controlling more than 80% of the mobile market in South Africa.

The share price for MTN remained flat for the week and the share price of Telkom increased by 16.6%. Below is table comparing certain metrics of MTN with Telkom.

Company	Market Cap at end of week (R’bn)	Total Assets at Year End (R’bn)	PE at end of week	ROE
MTN	267	366	13.70	5.29%
Telkom	22	66	7.34	7.73%

Source: iress

 

Disclosure: Vodacom and MTN are held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	65 662	68 327	-10.92%
NASDAQ Composite	15 833	11 128	11 635	-28.87%
S&P 500	4 797	3 825	3 899	-19.74%
Prime Lending Rate	7.25%	8.25%	8.25%	13.79%
Lunar BCI WW Flexible Fund	165.68	137.95	144.63	-16.74%
USD/ZAR	15.96	16.34	16.90	2.45%
EUR/ZAR	17.95	17.00	17.21	-6.23%
Brent Crude	77.86	111.38	107.08	37.53%

Source: iress

Why Numbers Matter – Lunar Capital Virtual Event

Join us this Wednesday at 18H00 as we will be hosting our client event: Why Numbers Matter

Numbers were used to predict trends and influence decisions during the Covid 19 epidemic, and Ridhwaan Suliman was at the forefront of making sense of these. The numbers paved the way to helping the world understand the pandemic and how to handle it. Lunar Capital also use numbers to determine market trends and the valuations of companies they invest in. Join Lunar Capital as Ridhwaan and Sabir explore and discuss the relevance of numbers in their respective fields and how Lunar Capital uses these to manage risk and grow your investments.

Sign up for our free event here.

Please forward this to anyone else you think may be interested.

 

Company and Market News

ASML

On Monday last week, A Bloomberg article reported that there were rumours that the US Government wanted to restrict ASML from selling some of their older semiconductor equipment like the DUV (Deep Ultraviolet) lithography equipment to China. A spokesperson from ASML said that, “No decisions have been made, and we do not want to speculate or comment on rumours.” Shares for ASML U.S. dropped from $449.96 on the Monday before the article was released to $432.21 by the end of Tuesday. However – by the end of the week the share price for ASML was $452.95.

Lithography and semiconductor equipment require licenses to sell overseas. Since 2019,The Dutch Government in conjunction with the US Government have not granted ASML the license to sell their Lithography machines, that use EUV (Extreme Ultraviolet) light waves to make high-powered semiconductor chips, to China. However ASML were still able to sell older equipment, that uses DUV technology, to Chinese customers. Of the €18.6 bl revenue in 2021, 14.7% of revenue still came from China. It accounted for the third largest revenue figure behind Taiwan (39.4%) and South Korea (33.4%).

As of Friday 8 July 2022, ASML was trading $452.95 on the Nasdaq compared to $796.14 at the beginning of the year. This represents a decrease in the share price of just under 40%, compared to the tech heavy NASDAQ which is down 26.51% since the beginning of the year.

Since the begging of 2019, revenue for ASML have grown at a CAGR rate of 19.36%, and net profits have grown at a CAGR rate of 31.43%. The company has averaged a net-margin of 25.66% since 2018. The company was trading at a PE of 34.55 as of Friday 8 June 2022. At Lunar Capital, we believe that the company has strong fundamentals and is still really well positioned due to ASML effectively having a monopoly on selling Lithography equipment in an industry with a high demand for semiconductors.

 

Disclosure: ASML is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	66 349	65 662	-10.92%
NASDAQ Composite	15 833	11 608	11 128	-28.87%
S&P 500	4 797	3 912	3 825	-19.74%
Prime Lending Rate	7.25%	8.25%	8.25%	13.79%
Lunar BCI WW Flexible Fund	165.68	136.20	137.95	-16.74%
USD/ZAR	15.96	15.81	16.34	2.45%
EUR/ZAR	17.95	16.69	17.00	-6.23%

Source: iress

Company and Market News

Nike, one of the world’s leading designers, marketers and distributors of athletics wear, released their 2022 Q4 and full year results on the 27th June. The company’s share price closed at $101.18 on Friday last week. The stock is down 38.6% since the beginning of the year, compared to the S&P 500 which is down 20.26%.

For the year, Nike’s revenue grew by 5% to $46.7 billion, and had a net earnings of $6 billion (grew by 6%). The company did, however, return approximately $5.8 billion to shareholders through dividends and share buybacks. One of the struggles the company has been facing is the global supply-chain issues. Inventories for Nike increased 23% to $8.4 billion, mainly as a result of Nike having more unfinished products that they currently aren’t able to sell.

Generally, the more high-end a clothing company, the greater their gross margin. This means that companies with lower gross margins are more susceptible to inflationary price pressure as they could be forced to increase the price of their products if their costs increase dramatically. And that would lead to fewer people buying their products. The large decrease in the share price is likely due to the high levels of inflation in the US and Europe; the possibility of the US going into a recession; global supply chain issues; and Nike exiting operations in Russia. These factors are all likely affecting the near-term earning potential for the company. It is worth noting that one of the huge upsides for Nike, is that they have a really strong global brand with a large base of loyal customers that will only buy from them.

Nike’s competitors such as Adidas and Lululemon have also suffered similar fates to their share prices this year.  Below is a table comparing certain metrics for these companies as recorded on the 1st of July 2022.

Company	Market Cap ($’bn)	PE Ratio	Rolling 12 months Gross Margin	% Change in Price YTD
Nike	159.20	26.98	46.00%	-39.59%
Adidas	33.75	25.91	50.23%	-33.79%
Lululemon	33.62	35.98	57.68%	-33.94%

Source: Iress; Nike, Adidas and Lululemon financial statements

 

Disclosure: Lululemon is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	65 390	66 349	-10.00%
NASDAQ Composite	15 833	10 798	11 608	-26.68%
S&P 500	4 797	3 901	3 912	-18.44%
Prime Lending Rate	7.25%	8.25%	8.25%	13.79%
Lunar BCI WW Flexible Fund	165.68	131.69	136.20	-17.79%
USD/ZAR	15.96	16.06	15.81	-0.94%
EUR/ZAR	17.95	16.89	16.69	-7.02%

Source: iress

Company and Market News

Prosus and Naspers released their annual results for the year ended 31 March 2022. In the annual results, they announced that they would start a share repurchase programme for their Prosus and Naspers’ shares. This would be funded by regularly a selling small number of the Tencent shares. The idea is that they want to decrease the difference between their Market Cap and Net Asset Value (NAV), which has been trading at a significant discount.

As it currently stands, Prosus effectively owns 29% of Tencent. This is by far their biggest holding, which is currently worth $134 billion. Prosus also owns a multitude of small ventures in the E-commerce space such as OLX, PayU, and Movile. According to Prosus, on the 31 March 2022, the NAV per share of Prosus was ZAR 1,759 versus a closing price of R795.76, representing a discount 54.8%. post the announcement of the results, the closing price on the 27th of June 2022, was R1 039.48, increasing by 18% from the day before the results and announcement of the sale of Tencent shares and repurchase of Prosus and Naspers shares were published. This has reduced the discount.

Similarly, Naspers has also been trading at a discount to its NAV and its shares went up by 22.8% on 27 June 2022, from the day before the results were announced. The estimated NAV per share of Naspers on 24 June 2022 was R5 398.30 per share versus the closing price on 27 June 2022 of R2 348.69, presenting a discount to NAV of 56% despite the 22.8% increase.

The sale of Tencent shares will be done in an orderly way, with no more than 2-3% of the daily trading volume of Tencent shares on the Hing Stock Exchange being traded.

Over and above the share repurchase programme, Naspers and Prosus have indicated that they plan to continue investing in other ventures that have the goal of generating sustainable returns over the long term. However, for the current year none of their other ventures, apart from the classified portfolio in Prosus\’s books and Media portfolio in Naspers’ books, have generated a profit. These loss making businesses together with high management costs will continue to discount Nasper and Prosus share prices versus their respective NAV.

 

Disclosure: Prosus and Naspers are held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Index / Fund / Rate	Start of Year	Last week	This Week	% change YTD
JSE ALSI	73 723	67 803	65 390	-11.30%
NASDAQ Composite	15 833	11 340	10 798	-31.80%
S&P 500	4 797	3 901	3 901	-23.38%
Prime Lending Rate	7.25%	8.25%	8.25%	13.79%
Lunar BCI WW Flexible Fund	165.68	138.08	131.69	-20.52%
USD/ZAR	15.96	15.88	16.06	0.63%
EUR/ZAR	17.95	16.73	16.89	-5.91%

Source: iress

Company and Market News

Last Wednesday, The US Federal Reserve (Fed) announced that it will increase its benchmark interest rate by 75 basis points.  This comes after the announcement that the yearly US consumer price index for May increased by 8.6%, compared to expectations that it would only increase by 8.1%. The benchmark funds rate range now sits at between 1.5% and 1.75%. This is still a long way from giving investors in US treasury bonds a real positive rate of return (ie. a return after inflation has been accounted for).

A 75-basis points increase has not been seen since 1994. Jerome Powell (the Fed chairman) said that they expect that the rate will increase by another 50 to 75 basis points in the July meeting. The decisions will be made after the inflation figures for June come out.

The Fed is effectively trying to tame inflation by decreasing demand. But they do not want to push the US economy into a recession. Some market analysts believe that the rate increases have been too little and too late, and that the risk of a recession in the USA next year is very high.

At the June meeting of the Federal Open Market Committee (the committee that makes decisions about the interest rates and US money supply), at least half of the members indicated that the Fed fund rate might need to rise to around 3.375% by the end of the year. This is about 1.5 percentage points higher than what they expected in March. The market, through the rate that it wishes to earn on US Treasury bonds has been predicting a rate of around 3.5% in the FED funds rate by the end of the year.

The long-term goal of the Fed is to get inflation to a 2% level while keeping the labour market strong.

 

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