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Extract from August 2010 newsletter

Share market update for August

In July world share markets had a strong bounce back on the back of Corporates reporting strong earnings and a reduction in nervousness in Europe.

The MSCI (Morgan and Stanley Capital Index - world share market index) was up 5.8%, Greek share market was up 23% and Spain 15%.

The NZ dollar continued its strong correlation with the US share market. It was up 5% against the US dollar.

The IMF (International Monetary Fund) reported world GDP is expected to exceed 4% this year and in 2012. In the US, the GDP result is currently 2.3%pa which is consistent with slowing growth momentum. Typically the US GDP is a consistently around 4-5%. China's GDP forecast is still a healthy 10.3% even with the changes made by the Chinese government to bring the GDP growth down to more sustainable levels.

In August while share markets have essentially moved side ways the road has been quite volatile as a result of the mixed economic data coming out of the US.

China has surpassed Japan as the world's second-largest economy.

For the first time, China's quarterly GDP result (at US$1.33 trillion) topped Japan's GDP figures;of US$1.28 trillion, making China the world's second largest economy behind the United States. And the Chinese economy may not rest in second place for long, according to Goldman Sachs chief economist Jim O’Neill, China could overtake the US as the world’s largest economy by 2027.

However, another recent report suggests that India may overtake China as the world’s fastest growing major economy by 2015, as it doubles infrastructure investment and adds six-fold more workers than its northern neighbour. India will add 136 million workers (more than the population of Japan) by 2020 compared with the 23 million that China is expected to add. In addition, India’s growth may accelerate to 9.5% between 2011 to 2015, according to Morgan Stanley economists. India’s gross domestic product has expanded at an average 7.1% over the decade through the third quarter of 2009, compared with 9.1% in China.
Source: Bloomberg