In August the average prudential balanced portfolio returned 0.29% (July: 0.84%). Top performer is Namibia Asset Management (0.80%); while Metropolitan (-0.15%) takes the bottom spot. For the 3 month period EMH Prescient is top performer outperforming the ‘average’ by roughly 1.0%. On the other end of the scale Stanlib underperformed the ‘average’ by 0.60%.

In last month's newsletter we provided a graph depicting the recovery of the US industrial production to levels last seen 4 years before the financial crisis struck. Year-on-year growth now stands at arounda 5%, up from its trough of minus 15% in the middle of 2009. Capacity utilization improvement correlates very closely with industrial production, having improved to 79%, up from 67% in the middle of 2009.  The graph below is further evidence of the improvement of the US economy. It shows that unemployment has declined from around 10% at its peak at the end of 2009 to 6% while non-farm payroll improved from losing 300,000 jobs in a single month to currently adding around 200,000 jobs monthly.

Financial media no longer talk about monetary stimulus but rather speculate about when the Fed will start raising interest rates, after warnings having been uttered by the Fed. 10 Year US bond yields have turned up recently in anticipation of such an increase. Is this the reason why bond purchases by foreigners on the FTSE/JSE have declined from net purchases of R 21.8 billion in July to net sales of R 237 million in August? Most likely so.

If this trend continues, our local currencies will remain under pressure while local interest rates will also be under upward pressure. The 0.25% increase in SARB’s repo rate in the middle of July that followed the first rise for a long time of 0.5% at the end of January has not done much to support our currencies. Further local interest rate increases are inevitable once the Fed announces its first increase.