During May there was weakness in risk assets brought on by the US-China trade dispute, but due to the strong performance in June we finished the quarter positively and continued the good run for the year so far. The US Federal Reserve held rates steady in June at a target range of 2.25-2.5%. Fed Chair Jerome Powell indicated that the case for accommodative policy increased as the global economy slowed. Traders are pricing in a 100% chance of at least a 0.25% cut in July. Powell also emphasized the Fed’s independence even as President Trump reportedly considered demoting the Chair for the Fed’s inaction earlier this year. MSCI US Index returned 1.3% for the quarter in Rand terms

Other International equities underperformed the US, even as the US Dollar weakened. Developed markets in Rand terms, as measured by the MSCI EAFE Index, rose 0.9% for the quarter, driven by Germany 4.2%, France 3.6%, and Switzerland 5.5%. The UK disappointed with -1.8% due to uncertainty surrounding Brexit and Prime Minister May’s announced resignation.

Emerging market shares had a volatile second quarter and is still lagging behind developed markets. For the year ending in June 2019 the MSCI EM Index underperformed the MSCI World Index (developed markets) by 6.3%.

US-China trade tensions were rekindled in May as talks unexpectedly broke down and both sides implemented new tariffs. However, hopes for a resumption of talks post the G20 summit in June and rising expectations that the US Fed will cut interest rates, proved supportive later in the period. Emerging markets, as measured by the MSCI EM Index in Rand terms, fell 2.1% for the quarter. China, the best performer last quarter, fell 6.6% on slowing data and trade tensions. In 2019, the standout performer has been Russia, with a 13.7% rally in Q2, a 29.2% rise for the year. A YTD rebound in oil coupled with a lower likelihood of US sanctions drove the emerging market economy’s stock market and currency soaring.

The FTSE/JSE ALSI rose 3.9% in the quarter bringing it to 12.2% for the year. The financials sector gained 5.4%, while the industrial sector gain 4.0%. In June, SA equity markets followed global markets higher and ended the month 4.8% up. Resources were the largest contributor to returns in the month. The Resources sector soared 10.2% in the month on higher gold prices. The dollar price of gold increased by 7.9% in the month, responding to investors seeking protection against rising uncertainty. The dollar price of platinum picked up 2.5% in the same period.

The SA 10-year government bond yield increased by 30 basis points in June and ended the month at 8.7%. SA Fixed Rate Bonds (ALBI) lifted 2.2% in the month, while the SA Inflation Bonds (ILBI) underperformed with -0.1%. Meanwhile, the SA Listed Property increased by 2.2% in June bringing it to 6.0% for the year.

Global equity markets made gains in the first quarter of 2019, rebounding from weak performance numbers in the last quarter of 2018. The rebound stemmed from a more dovish monetary policy stance, by both the Federal Reserve and the European Central Bank. Concerns over US-China trade dispute also eased. Despite ongoing Brexit-related uncertainty, United Kingdom equities also performed well over the quarter.

As a result, the MSCI World Index returned 13.6% in Rand terms for the first quarter of 2019, with the US outperforming marginally and Japan lagging significantly. The US dollar also appreciated by 2.2% against the euro and by 1.0% against the Rand.

Emerging market equities registered a strong return for the first quarter, led by China. Optimism over a trade agreement with the US and ongoing government support for the Chinese domestic economy were beneficial. China A-shares were particularly strong as MSCI announced plans to quadruple their weight in the index between May and November. Emerging markets marginally underperformed their developed market peers, with the MSCI Emerging Market Index gaining 11.0% in Rand terms.

The S&P Goldman Sachs Commodity Index posted a robust return in first quarter. Energy led the way as crude oil prices rebounded from a sell-off in the last quarter of 2018. Production cuts from OPEC and other oil producers, together with the implementation of US sanctions on Venezuela, served to tighten supply. The industrial metals component also moved higher amid positive signs emanating from US-China trade talks. By contrast, precious metals recorded a modest gain, supported by a small rise in gold prices.

Locally the effects of a weak economic backdrop showed in the recent financial results reported by the banks and insurers. The financial sector experienced a challenging quarter and ended the period down 0.5%. Within the financial sector, banks (-0.8%) and the property sector (+1.5%) outperformed the life insurance sector (-5.5%).

The industrial sector had a good quarter, returning 7.4%. Stocks exposed to the domestic economy came under significant pressure during the first quarter as the realities of operating in a ‘no-growth’ economic environment filtered through into corporate earnings. The quarter started off with a string of profit warnings from the domestic retailers and the likes of Mr Price, Massmart Truworths and Dischem all ended the quarter materially lower.

In contrast, the resources sector had a very strong quarter and was up 17.8% - bringing the 1-year total return up to 41.6%. These results were characterised by strong performances from the industrial metals.

The listed property sector delivered a total return of 1.5% for the quarter, following a strong performance in January but subsequent reversal in February and March. This return lagged that of the FTSE/JSE ALSI (8.0%) and the ALBI (3.8%). The SA 10-year government bond yield compressed to 9.0% from 9.2% a quarter earlier

Over the third Quarter of 2018 the U.S. has dominated capital market headlines, amid strong corporate earnings and solid economic growth. U.S. equity markets hit a series of new record highs during the quarter. During the third quarter the S&P 500 returned 7.7%, while the MSCI ACWI ex US could only manage a return of 0.7% in dollar terms.

US equities have done exceptionally well since the global financial crisis, while the recent Trump/Republican pro-growth agenda has extended this booming economy and earnings outlook, but may now also be sowing the seeds for the end of the cycle as the Fed is forced to raise rates and tighten policy in a more deliberate manner.

European stocks rose modestly amid solid corporate earnings growth and signs of higher inflation. European markets were tempered by investors worries about slowing economic growth and the negative impact of global trade tensions on Europe’s trade-dependent economy. Overall, the MSCI Europe Index gained 1% in local currency terms and the Euro slipped 1% against the U.S. dollar.

Tighter US monetary policy, concerns about the impact of global trade tensions and the slowing pace of Chinese credit growth have been the main headwind for developing economies. The combination of rising U.S. interest rates and dollar strength triggered a sell-off in Turkish and Argentine assets and raised questions about the vulnerabilities of other developing countries. Several currencies fell to all-time lows against the U.S. dollar.


The recent selloff in emerging markets has restored a lot of value, which is increasing the already large discount relative to developed markets. The uncertainty around trade will most likely continue, but a lot of this uncertainty has already been priced into the market. We see opportunity in emerging markets on the back of strengthening fundamentals.

In the domestic markets we have been faced with additional headwinds from general political uncertainty leading to low levels of confidence and weak growth. During the ongoing Zondo commission investigations Finance Minister Nhlanhla Nene has reportedly asked President Cyril Ramaphosa to relieve him of his duties after he disclosed he had meetings with the Gupta family. This paved the way for Tito Mboweni, South Africa’s sixth Finance Minister since December 2015. Investor can take solace in the fact that Mboweni is not new to the financial sector as he was at the helm of the Reserve Bank for 10 years. Asset class performance in ZAR: Q3 | Year-to-date:

Local Cash 1.8% | 5.4%
Local Nominal Bonds 0.8% | 4.8%
Local Inflation Linked Bonds 0.6% | -0.7%
Local Equities -3.3% | -8.0%00
Local Listed Property -1.0% | -22.2%
Foreign Bonds 2.1% | 11.6%
Foreign Equity 7.5% | 18.7%
USD/ZAR 3.1% | 14.4%