We’ve had a number of queries from clients concerned about the drop in value of their investments. Whilst some alarm is quite understandable, the first half of this year has been quite a shocker for everyone – not just here in South Africa but across the world. Firstly, all asset classes except cash have been badly affected. This is unusual as, for example, when equities are in retreat bonds invariably come to the rescue but not this time.
The first half of 2022 has seen the US S&P 500 index having its worst performance since 1970. US Bonds performed worse than they have done since 1842! No wonder then that portfolio values are down across the globe.
The problems which ignited the downturn: inflation, higher interest rates, rising food and energy costs and of course the Ukraine war are still with us and are likely to be the cause of a bumpy road going forward for the foreseeable future.
Nevertheless, with inflation easing in the US a slightly more positive outlook appears to be in evidence. Maybe the worst of the interest hikes are behind us. The more positive outlook has been reflected in a noticeable turn around in investment markets since the end of June. The S&P 500 is up by 9% and the MSCI World index up by 6%. Our own JSE has returned 7% since the end of June.
Whilst it’s encouraging to see this mini recovery, we are by no means out of the woods. Although inflation might be easing and therefore interest rate hikes becoming less severe, there is still the prospect of rising energy costs as the northern hemisphere goes into its winter. With food prices continuing to rise, inflationary pressures are likely to be with us into 2023 at least.
Although it is difficult to predict with any certainty what will happen in the forthcoming months we believe the more positive news and the investment markets reaction to it is most welcome. It also confirms our conviction that, despite the bumps in the road, staying the course when it comes to investing is the right approach.