Economic Overview: June 2015

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Economic Overview: June 2015

ECONOMIC OVERVIEW AND DRIVERS

Global risk has recently been a hyped topic! The crisis in Greece, the Ukraine conflict, Iran nuclear negotiations and the Chinese market crisis are some of the more important events. So how risky are asset classes at the moment? The graph below depicts the volatility of the equity market (Vix index, in red), currency market (JPM global currency volatility index, in black) and the bond market (JPM global bond index volatility, in bronze).

Asset class voloatility 1

Volatility in all three asset classes has been on the increase from the 2013 lows, but is still close to or below long term averages. As a result, uncertainty in the markets has not reached the levels we saw in 2007 before the great recession.

Market overview

Total return to 7 July 2015

Market Overview 2

Longer term performances are still attractive in most regions given the low interest rate environment. However the shorter term picture reveals a reasonable correction in most regions, except in the USA and Japan.

Sector performance

Total return to 7 July 2015

Sector performance 3

The South African market corrected across sectors, driven predominantly by Grexit risk and commodity price risk.

Asset class returns as at 30 June 2015

Asset class returns as at 30 June 2015 4

LOOKING FORWARD

The equity market correction is likely to continue and market volatility will be the order of the day until reasonable stability returns to Greece. The US interest rate lift-off in September has become market consensus and a placid hiking path is expected. Domestically, the economy is managing load shedding whilst hoping to not get hit by a gold mine strike which will push the economy straight back to a 2014 scenario. With unions trying to fight for survival, the commentators predict an above average probability of a strike.

ASSET ALLOCATION

The table below indicates our view of the relevant assets, based on expected performance, using a scale from -2 (implying we aren’t in favour of these assets) to +2 (implying we are strongly in favour of these assets).

Asset Allocation 5

COMMODITY PERFORMANCE

COMMODITY PERFORMANCE 6

MACRO OVERVIEW

Real GDP expectations (using IMF forecasts) are set out below:

Macro overview 7

 

Eugene Goosen

Eugene Goosen

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