The third quarter of 2019 proved a tough one, especially for Emerging Markets and South Africa. The rand depreciated by 7% vs the US dollar during the quarter and ultimately, widening twin deficits (negative fiscal and current accounts), dwindling growth and declining return on capital will continue to depress the rand and risk assets in South Africa. With this in mind, exposure to SA Property across all funds were lowered from neutral to underweight, and allocated to global equity, specifically US Equity where better growth opportunities exist as well as to increase offshore exposure to hedge a weakening rand. While SA Property share prices have fallen significantly and apparent valuations have improved, concerns about the risks to the sector due to fundamental headwinds and structural adjustments to increased scrutiny on governance prevail, with sector fundamentals not being fully reflected in the earnings and forecasts and hence share prices. A lower weight to the asset class better reflect our concerns about the risks to earnings of property companies.

SA Equity (SWIX) lost 4.6% during 3Q2019 while SA Property (SAPY) was down 4.4%, SA Bonds (ALBI) and SA Cash (SteFI) returned 0.7% and 1.8% respectively, while Global Equity (MSCI World) was up 8.2%, all of which bode well for the fund’s performance as the fund is underweight SA Equity and SA Property and overweight SA Bonds, SA Cash and Global Equity.

Looking forward to the final quarter of 2019: Markets have entered a “show me” phase. Better economic data and meaningful progress on the trade negotiations will be necessary for stocks to move sustainably higher. The global economy has reached a critical juncture and global growth has been slowing since early 2018, reaching what many would regard as “stall speed”. But global financial conditions have eased significantly over the past four months, thanks in part to the dovish pivot by most central banks and looser financial conditions usually bode well for global growth.