The tale of the tape for the third quarter of 2019: Local equities fell 5% and local bonds returned nearly 1%, while global equities and bonds were approximately flat and 1% higher respectively in US dollar terms, and the rand weakened by over 7% against the US dollar.

Various measures have pointed to a broad-based slowdown in global economic activity, which was compounded by a re-escalation in trade tensions between the US and China during the quarter. In addition, the state of the UK political environment remains one of confusion with no clarity on the likely outcome. In response to the muted growth outlook and increased uncertainty, several central banks, including the US Federal Reserve, have clearly stepped off the brake and are slowly reapplying the accelerator. Time will tell if this is sufficient to offset the uncertainty created by political developments. In the meantime, equity markets remained somewhat directionless, while industrial metals continued to come under pressure. Global bond yields moved lower again and precious metal prices rose as investors sought safe havens. Many sovereign bonds are once again trading on negative yields, while the US 10-year bond yield reached a low of 1.5% before unwinding a little towards the end of the quarter.

The South African economy has been and remains tied to the hip of the global economy. Hence the impact of slower global growth filtered through to South African markets and the currency. While a Chief Reorganisation Officer was finally appointed at Eskom during the quarter, visa restrictions were relaxed on several countries and President Ramaphosa announced his Economic Growth Advisory Council, progress on inducing a meaningful economic recovery has been slower than many expected. At the end of September, the President published his first weekly newsletter – over the coming months this may shed further light on the focus of Government. The South African Reserve Bank trimmed interest rates by 0.25% in the quarter as inflation remains well contained and growth anaemic.

It was a rollercoaster ride for Government bond markets and risk sentiment in Q3. The quarter began with market expectations of an imminent US Federal Reserve (Fed) interest rate cut; at the end of July, the Fed duly delivered on these expectations, with a 25 basis point rate cut – its first rate cut in just over a decade. The European Central Bank also became increasingly concerned about the growth and inflation outlook, indicating that a series of policy easing measures would soon be announced. August saw Government bond yields fall sharply as risk sentiment deteriorated following an escalation in the US-China trade war, heightening concerns about the global growth outlook. The hardening in the US stance on trade negotiations resulted in a further depreciation in the Chinese yuan. US growth outperformance versus the rest of the world and relatively more dovish central banks outside the US supported the US dollar, which on a trade-weighted basis ended the quarter around two-and-a-half year highs.

Among developed market currencies, we continued to hold a small position in EUR versus USD. We also implemented a long AUD versus USD position, which was closed in August and had a modest negative impact. In terms of emerging marketing currencies, we continued to hold a small overweight position in the Brazilian real, and in September booked long-term profits on half of our Indonesian rupiah position. With the USD appreciating against most emerging market currencies during the quarter, the Brazilian real position had a negative impact on performance during the period.

The fund aims to maximise total return to investors through full exposure to a basket of major foreign currencies by investing in a foreign collective investment scheme focusing on global currencies. Any income earned will be of an incidental nature.

In the second quarter risk sentiment was supported by dovish rhetoric from central banks globally, helping to stem concerns about growing geopolitical tensions and global growth concerns. The US Federal Reserve (the Fed) confirmed market expectations that some easing in policy may be warranted, while the European Central Bank (ECB) also signalled that it may have to ease policy further if downside risks to euro area growth and inflation materialise in the coming months. Meanwhile, at the latest G20 meeting at the end of June, the US and China agreed to restart trade talks, following a ratcheting up of the tariff wars in the preceding months. President Trump offered some concessions to China, including no new tariffs. The global monetary policy backdrop resulted in global sovereign bond yields heading lower over the course of the quarter, while the S&P reached new all-time highs. The stock of negatively yielding debt hit new record highs of US$13trn; 10-year US treasury and Bund yields ended the quarter at 2.01% and -0.33% respectively. The trade weighted US dollar reversed YTD gains given the Fed’s easing bias.

Among developed market currencies, we began the quarter with a modest preference for EUR versus USD but took modest profits on the position in April before reopening it again in June. In terms of emerging marketing currencies, we held small overweight positions in the Brazilian real and Indonesian rupiah versus the USD throughout the period, and these positions had a positive impact on performance (especially the real) as most emerging market currencies appreciated versus the US dollar over the period.

Old Mutual Global Bond Feeder Fund have closed and amalgamated into Old Mutual Global Currency Feeder Fund.