Lunar Capital Weekly Roundup
|Index / Fund / Rate||Start of Year||Last week||This Week||% change YTD|
|JSE ALSI||73 723||69 305||72 115||-2,18%|
|NASDAQ Composite||15 833||10 475||11 323||-28,48%|
|S&P 500||4 797||3 771||3 993||-16,75%|
|Prime Lending Rate||7.25%||9.75%||9.75%||34.48%|
|Lunar BCI WW Flexible Fund||165.68||142.17||146,33||-11,68%|
Lunar Capital on Eastwave Radio
Every Tuesday, at 07h45, Sabir chats with Nazia from Eastwave Radio (92.2 fm, live stream on www.eastwave.co.za) on investing and the markets.
Listen to last week’s session here: https://youtu.be/ALBFYZEj89E
Company and Market News
The global markets have come down quite significantly since the beginning of the year. The US Federal reserve has been raising interest rates at a record rate to attempt to tame rapidly rising inflation. The global economy has also been facing supply chain issues that started at the beginning of the Covid-19 pandemic and was exacerbated by the Russia/Ukraine war. With higher energy costs and interest rates, consumers have less disposable income, thus reducing the demand for goods and services, which will likely result in a recession in many countries. China, which is the second largest economy in the world, has also maintained strict Covid-19 restriction policies since the beginning of the pandemic. An example of the effect of China’s strict Covid-19 policies on their economy is that Apple, earlier this year, decided to move some of the manufacturing of their iPhone 14 from China to India.
Despite all the above, last week, we saw a significant rally in the market. During the week, the S&P 500 gained 5.9% and the JSE ALSI increased by 4%. This can be attributed to several reasons. Year-on-year inflation for October in the US came in at 7.7%. The market expected 7.9% and this lower-than-expected inflation pointed to potentially lower than previously expected interest rate increases by the US federal Reserve. Other news that could have also resulted in the market rally is that Russia have been forced to retreat from the major city of Kherson in Ukraine. This indicates that the war could end and possibly alleviate the energy crisis. China has also started to relax some of their Covid restriction methods. Certain measures such as the quarantine length for close contacts has decreased from 7 days to 5 days; and people that are secondary contacts do not need to quarantine anymore. Lastly, there is hope that US/China tensions could be eased at the G20 Meeting this month when Joe Biden and Xi Jinping have a face-to-face meeting to try and resolves these tensions. Other technical issues (like short-covering by traders) may also be the reason for the rally.
China still enforces a Covid Zero policy and could reverse course if they feel that these new measures aren’t getting them the results they want. Another risk the market faces is that inflation could remain high despite October’s lower than expected inflation. In the US, housing accounts for the highest weighting (33.8%) in determining CPI. Housing inflation is generally quite sticky and is often one of the trickiest to bring down. The war in Ukraine could also carry on for longer than people anticipate, which could result in pro-longing the energy crisis and further increasing geo-political tensions.
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The Lunar BCI Worldwide Flexible Fund Fact Sheet can be read here.
This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.