Markets are sharply higher from their recent lows

Equity markets worldwide have rallied nicely from their lows in mid-June and early July. The S&P500 is up 13% and the JSE All Share is up 6% from their lows. For the year to date, however, we still have to see the markets go up the same amount to get back to positive figures. It must be said that July is a strong month for markets historically before they drop off again in August and September (see graph). But let us be happy with the positive news for the time being and also thank our lucky stars that we are not in the same position as Argentina; with an inflation rate of 64% and a interest rate of 60% (see graph).

As the saying goes “hard times create strong men”, and the same can be said for companies. If you invest in a company at a reasonable price, it will go down when sentiment turns negative, but it will always bounce back to the top when it proves that its earnings can withstand the tough environment. We saw this recently, with most of the bigger tech companies in the States delivering better than expected second quarter returns with a solid outlook for the rest of the year.

In our local economy we are still hampered by loadshedding and political shenanigans. The rand is still rather weak against the dollar and we will feel the impact of our relatively inefficient business environment in the coming months, but there are some good quality companies with cheap valuations which will re-rate when things turn positive.

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