| Continued concern over slowing growth in China affected emerging markets such as South Africa again last week with the local market losing 1.74%. This retreat was however nothing compared to the 6% drop in Japanese equities. Undervalued European equities were “spared” and traded flat for the week. Data out on Friday showed U.S. employers added 173,000 workers in August and the jobless rate dropped to 5.1 percent. The unemployment rate is the lowest since April 2008. The gain in payrolls, while less than forecast, followed advances in July and June that were stronger than previously reported. The August number is historically erratic in nature and is normally below the trend. More importantly the average work week increased from 34.5 hours to 34.6 hours, which is the equivalent of several thousand of more jobs been added. State intervention in the equity market prevented systemic risk and stopped the free-fall in shares, People’s Bank of China Governor, Zhou Xiaochuan said in a statement on the bank’s website Saturday. The yuan’s exchange rate versus the dollar is also close to stabilizing, he said, after a meeting by finance ministers and central bankers from the Group of 20 nations in Ankara. Xiaochuan said, he expects financial markets to become more stable going forward.  |
| Specialist Comment: Primary reasons for the drop in local equities is as a result of fear of a slower growing Chinese economy and the possible upcoming tightening of US monetary policy by the U.S. Fed. However, after the long bull run in our equity market and some equity valuations looking over extended, the market have seemed to be looking for a good reason to have a healthy correction. China’s property market is still more important to their economy than the equity market, as property fuels up to a quarter of GDP and its value underpins the banking system. In the past few months prices and transactions have both been healthier. China’s future lies with its shoppers, not its exporters and services and incomes and consumption are resilient. The Chinese central bank has plenty of room to loosen policy further, so China is not in crises, more so its ability to evolve smoothly from a command to a market economy is been tested. Financial markets may still be very volatile in the weeks ahead and we may still see most investments performing poorly, but with the primary and secondary threats to our local market becoming smaller, there should be no reason to make any big changes or rash decisions to long term investment plans. Many savvy investors will be viewing this market volatility as an opportunity to start adding to their investment portfolios as valuations become cheaper and longer term return risk-reward opportunities become more enticing. A well-diversified portfolio with a proper investment horizon, even though not completely immune to market volatility, should still be the most effective way to achieve your long term financial goals. |
Regards,
Tersia van Nieuwenhuizen
Independent Contractor to Discovery Life
Direct: +27 21 975 3199
Fax: +27 21 975 3995
Email: tersiav@ic.discovery.co.za
URL: www.discovery.co.za
An authorised financial services provider - FSP No. 18147
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