Iza Wealth December 2017 Monthly Report

On the 9th of October 2007, the summit of the previous US equity bull market was reached. The US S&P 500 index peaked at 1565. By the end of 2007 it had dropped by 100 points or 6.4%. Since then the world has experienced the Great Financial Crisis (GFC) and is currently in the midst of another massive bull market that continues to run hot. This is evident by the great 24.6% return in USD of the S&P 500 during 2017 and an annualized return of 8.5% in USD per year over the past 10 years.

Many developed markets had a great 2017, notably the UK (FTSE 100) with 22.6% and Japan (Nikkei 225) with 25.6% both in USD. However, both these markets have underperformed the US since 2007 (UK 1.7% and Japan 5.9% both annualized in USD). The biggest winner during 2017 were emerging markets with the MSCI Emerging Markets index returning a whopping 37.8% return in USD. This stellar return has only occurred during the past 2 years and the 10-year return is quite disappointing with on 2% annualized. This is at least far better than the Chinese market (SSE Composite) which has gone backwards 3.4% annualized over the past years.

Looking at currencies, although the US dollar weakened against Pound Sterling and the Euro (-7% and -12% respectively) during 2017, the greenback is still significantly stronger than both currencies over the 10 years. 31 December 2017: GBP/USD 1.34 and EUR/USD 1.20. 31 December 2007: GBP/USD 2.02 and EUR/USD 1.47.
With the slowing of and the change in the focus of Chinese economy from infrastructural spending to more consumer orientated, commodities prices have not done a lot. Copper has largely gone sideways and downwards apart from 2017 when the metal price increased by 30% to bring it back up to its 2007 price of US$500. Oil which was above US$100/barrel for much of 2011 to 2014, has languished at US$50/barrel since then, only on the last 6 months moving over US$60. Gold although up over 10 years has gone sideways over the past 5 years ending 2017 just under US$1300/ounce.

Inflation in the US has averaged 1.62% since the end of 2007, however it has swung between 0% and 4% and during the GFC it first peaked at 5.6% and then bottomed out below -2%. Over the last 2 years it has moved up from 1% to just under 2.2% at present. In the UK, CPI has swung further. In the midst of the GFC it fell from 5.25% to just over 1%. However, during 2015 it went below zero and since then it has steadily climbed up the present level of 3.1%. Japan which has suffered from deflation for decades has managed to increase its inflation marginally from the average of just 0.38% over the ten years to 0.5% currently.

Stepping back and considering asset class returns over the past 10 years
On the 9th of October 2007, the summit of the previous US equity bull market was reached. The US S&P 500 index peaked at 1565. By the end of 2007 it had dropped by 100 points or 6.4%. Since then the world has experienced the Great Financial Crisis (GFC) and is currently in the midst of another massive bull market that continues to run hot. This is evident by the great 24.6% return in USD of the S&P 500 during 2017 and an annualized return of 8.5% in USD per year over the past 10 years.