What happened in markets
- The ALSI ended August up another 2.6% following on from July’s 7% rally!
- While gains for the month were fairly broad based, it was especially the Resources sector (+5.1%) which led the way with decent gains from the Diversified Miners (+6.1%), Gold (+8.3%) and Platinum (+9.7%). Some of the big gainers include Assore (+30%), Implats (+14%) and Anglos which rallied almost 12%. The paper stocks (+2.9%) and Sasol (-1.3%) lagged a bit.
- Financials had a decent month, up 2.1% with banks (+3.8%) leading the way on the back of a stable Rand and improving local interest rate expectations. Within Financials, gains from real estate counters were more muted.
- While Industrials (+2.0%) had a decent month as well, there was some dispersion in returns. The ‘SA Inc.’ sectors such as retail showed some resilience with strong gains from Shoprite (+12%) as well as Truworths and Massmart, both gaining 10%. MTN bounced 11% in August after a long period of dismal returns. Of the Rand-hedges, Richemont (+3%) and Barloworld (+8%) did well, while Steinhoff (-5%), British American Tobacco (-1%), Bid Corp (-7%) and Mediclinic (-0.4%) came under some pressure. While Naspers showed strong gains following market-beating results from Tencent, the share lost some momentum towards the latter part of the month, ending August only 1.1% higher.
SA Listed Property
- The UK property companies listed on the JSE came under some pressure in August. Capital & Counties fell almost 10%, INTU was down 6% and Hammerson closed the month 4% lower. Any ‘off-benchmark’ position in these shares would have detracted from returns. The SA Listed Property Sector (SAPY, which excludes the UK property companies) had a slightly better month, gaining 0.8%. However, returns on the SAPY in August has been extremely narrow. The recently-merged entity, NEPI Rockcastle, dominated returns on the sector as the stock gained more than 7% in August. While gains from Greenbay (+8%), Fortress B (+3%) and Growthpoint (+1.5%) were fairly respectable, larger cap domestic stocks such as Hyprop (-3%), SA Corporate (-3%), Rebosis (-3%) and Resilient (-2%) came under some pressure on the back of the muted domestic economic environment.
- The ALBI had another decent month gaining 1.0% on the back of a stable Rand and a muted domestic growth outlook which supported expectations for further interest rate cuts on the horizon. Despite disappointing reports of a deteriorating government fiscal situation, foreigners continue to pile into SA and other Emerging Market bonds. The yield pick-up offered by Emerging Markets are favoured by investors at present, overshadowing the negative domestic news flow and uncertainty regarding the country’s future credit rating. While the yield on the 10yr government bond moved lower to end the month at just under 8.6%, yields at the very long end of the yield curve remained nervously high. The 30yr yield closed the month at around 9.8%.
- On a rolling 12 month basis, the pull-back in bonds in August last year is providing a decent base, resulting in the 12 month return from the ALBI to jump up to 10.2% over the year, well ahead of cash and just-just ahead of the ALSI.
- Global equities hang onto strong gains with the MSCI ACWI Index adding 0.4% in US$-terms in August. These gains were however offset by a stronger Rand resulting in global equities declining 1.1% in August in Rand-terms. Over the last 12 months, global equities had an exceptional period, having gained 17.1% in US$!!! Over this period, the Rand strengthened over 10% resulting in a Rand-return of only 3.5% for SA investors.
- Emerging Markets continued to storm ahead, gaining another 2.2% (in US$) in August following the 6% gain in July. Over the last 12 months, the MSCI EM Index is up almost 25% in US$-term.
- Global bonds also had a decent month, gaining 1% in US$. Moderating expectations in terms of the extent to which US short term rates will rise over coming months as well as increased political risks between the US and North-Korea saw bond yields gradually grinding lower. However, over 12-months, the asset class is up only 0.2% in US$ and therefore down around 10% in Rand-terms.
Over the last year
- Looking a bit further back, returns on all asset classes remain fairly muted over the 12-months to the end of August. This therefore translates into muted returns from most unit trust sectors over the year. The General Equity sector average is up only 4.2% over the year which is well below the 10.1% from the ALSI (this is all about Naspers – very few managers had an index-weight of around 18% in this stock)! The MA High-Equity sector (typical Balanced funds) returned a mere 3.8% over the year.
- Returns for the last 12 months remain fairly muted for basically all asset classes:
- ALSI: 10.1% (reaching double-digits, but it has all been Naspers. Stripping out Naspers, the rest of the market is up only 6.7%)
- Cash: 7.6%
- Bonds: 10.2% (Nice base-effect lifting 1yr returns to double-digits)
- SA Property: 9.4% (not too bad)
- Foreign Equity: 3.5% (in ZAR, lagging other asset classes), but that’s all due to Rand-strength. Up 17.1% (in USD))!