Summary of investment markets: the week that was

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There is never a dull week in the financial markets. Especially at a time when high stock valuations are associated with several major macroeconomic issues that are troubling traders and investors. The main concern in today’s world markets is inflation. While Federal Reserve Chairman Jerome Powell remains steadfast in his view that this higher inflationary environment is transitory in nature, many of the greatest minds in finance – including Mohamed El-Erian, president of Queens’ College of Cambridge and chief economic adviser at Allianz – believe central banks, especially the Fed, have been too dovish in their policies. This makes a rational point, especially when you add the global energy crisis and supply chain disruptions. Oil prices hit their highest levels in nearly a decade, and supply chain disruptions have resulted in price increases across the board. It’s simple economics: when there is excess demand and insufficient supply, the price goes up. Why is inflation so feared by capital market participants? It erodes the purchasing power of money.

Despite so many complex issues play out in financial markets, local and global markets continue to advance. The tech-rich Nasdaq has consistently fallen below its September highs buboth the S&P 500 and the Dow Jones Industrial Average hit new all-time highs last week. Even with all of this uncertainty, the stock markets remain the most attractive destination for generating returns. This is because interest rates have been kept at record highs by central bankers in an attempt to stimulate the economy. Netflix and Tesla released quarterly results over the past week, beating expectations, up 5.12% and 6.81% respectively. It will be an exciting week with Apple, Amazon, Alphabet, Microsoft and Facebook all set to release their quarterly results. Fasten your seat belts!

Locally, the JSE was muted, climbing a meager 0.12%. However, the index is still behind its all-time high, established in April, of around 4%. Encouragingly, mining meters appear to have bottomed out as commodity prices, for the most part, appear to have stabilized overall. Fears in China have calmed down somewhat, which has been a big plus for heavyweights Naspers and Prosus. Despite the recent rally of Naspers and Prosus, they still find themselves down more than 10% each year to date.

Construction company in debt Aveng has been one of the most talked about actions on the JSE this year. This week, he announced that decorated mining executive Bernard Swanepoel will be appointed to the board of directors. Piet Viljoen, who owns Aveng shares in his “bundle of twigs,” said sage Swanepoel would be a shrewd addition to the board and his experience in the mining industry would prove invaluable. Viljoen also shares his optimism about the energy sector, stressing that underinvestment in the sector over the past five to 10 years will lead to supply shortages. The sector is a natural hedge against inflation, which makes it a much more attractive investment proposition given the current environment.

Pick n Pay was the first retailer to report results following the July riots, which affected around 10% of Pick n Pay store square footage, resulting in hundreds of millions of rand in lost sales. Hedge fund guru Jean-Pierre Verster has been relatively complimentary about the results, despite the retailer lacks direction. Verster called all of the major food retailers listed – Pick n Pay, Shoprite, Spar and Woolworths – “expensive.” His preferred choice in the sector is Spar and gives management credit for its successful international expansion, whose exhibition includes geographies such as Ireland, Poland, Switzerland and Sri Lanka.

Finally, South Africa’s favorite market commentator David Shapiro gives us the scoop on the local exchange scam that took place after the small-cap Hulamin share price rose 40 % a few days before a warning announcement. These cautions are usually indicators of significant corporate actions. Coincidence? Shapiro thinks not.

Much to digest. Much to think about. Roll on the new week …

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