The past few months have been quite worrying for investors, with markets and currencies both showing negative trends. In addition we have faced power shortages, cutbacks in mining and worrying news from a number of state owned enterprises.

 

We are not alone in having a weakening currency. As an example, the following currencies have all fallen against the US Dollar over the past year.

South Africa

-20%

Australia

-27%

Brazil

-54%

Canada

-20%

India

-6%

Russia

-78%

Turkey

-29%

We are also not alone in our stock market fall. Consider the following stock market indices:

Past Year

Past Month

SouthAfrica

-3%

-5%

Australia

-5%

-6%

Brazil

-18%

-9%

Russia

+19%

+2%

China(HongKong)

-6%

-8%

Japan

+31%

-2%

Europe

+11%

-7%

USA(Dow)

+4%

-3%

UK

-6%

-5%

The markets panicked a year ago when it became apparent that Chinese economic growth was slowing down, contributing to the collapse in the oil price and certain commodity prices, and again recently when the Chinese devalued their currency by just under 4%.

 

Our view is that much of this is being fuelled by investor psychology. The markets have been in a benign phase for some while, growing at a steady pace. However as prices rose, investors started looking for cracks to appear, and the Chinese moves, supported by the Greek drama, provided the reason.

 

Our expectation is that there will be turbulence for a while, markets will slowly settle down and investors will again gain confidence. The continued recovery in the USA and Europe, although slow, will provide some market support. We think our exchange rate, which is volatile at the best of times, has overshot the mark and could settle back over the next few months.

 

The Ascent Wealth view is to hold on while navigating the rapids, but to reconsider when in calmer waters.