1FINPLAN Investment Committee Monthly Financial Comments
In the current economic climate, it is important to stay abreast of the latest news locally and globally. The 1FINPLAN investment committee aims to provide you with the most current market and economic updates on a monthly basis.
We share Stanlib Retail Asset Management’s weekly focus with you.
· So clearly rand strength is playing a big role in the returns, with the stronger rand assisting future inflation expectations, which is enhancing a view that we won’t get any more interest rate hikes this cycle…and may even get a cut by mid-year 2017.
· Bond yields have a major effect on SA Listed Property AND on some of the financials, notably the Banks. So far in 2016 the JSE Banks Index has returned +26.3%. In particular the past 5 weeks have seen a +23% return, as the All Bond Index returned +9.6%.
· Because the SA Listed Property has about 38% of an offshore leaning, this is now a bit of a constraint on the index in the wake of rand strength. It certainly helped last year as the rand weakened.
· Rand strength has hurt the JSE Industrial Index, which is heavily rand-hedged via SAB Miller, Naspers, Richemont, British American Tobacco, Steinhoff, Mediclinic etc. The Industrial Index (J257) is about 60% of the All Share Index and has returned just -1.5% so far in rand terms in 2016!
· The great long-term performer British American Tobacco is down -0.8% in rand terms so far in 2016 and has dropped over 10% from its recent record high.
· Richemont is down a whopping -25% in rands so far in 2016, back at the same level as three years ago, as luxury sales remain weak in Asia, especially from the Chinese.
· SAB Miller is down -19% in rands in 2016 and is down -22% since end May.
· The effect on the rand is no more marked than on the ALSI 40 Index, which is +1.3% in 2016, whereas the JSE Mid-Cap Index is up +33.9%, including dividends, at a new all-time record high and the JSE Small-Cap Index, which is +19.2%, also now at a new all-time record high.
· Money has flowed strongly into emerging markets. Last week foreigners bought a net R5.3bn of our bonds and +R4.6bn of our equities, making R9.9bn in one week, net of sales. Banks featured strongly in foreign SA purchases.
· The MSCI Emerging Markets Index has picked up quite sharply of late, having gained +3.9% in dollars last week to a 13-month high and is +16.8% so far in 2016, including dividends.
· Thanks to the rand’s +13.3% gain versus the dollar so far in 2016, the MSCI Emerging Markets Index is up just +1.5% in rand terms.
· The rand has also gained +10.9% against the euro in 2016 and a whopping +23.2% against the weak pound.
· Meanwhile the developed market MSCI World Index is at a 12-month high and has so far returned +6.3% in dollar terms in 2016, including dividends. This is -7.6% in rand terms!!
· It was good to see the European markets finally perking up a bit of late, +4.3% in the past 10 days.
· Also good to see the Hang Seng China Enterprises Index (of Chinese companies listed in HK) finally gaining some traction after a long malaise. The index is +13.7% from the Brexit low on 27th June.
· The JSE Resources Index (J258) has done very well so far this year, up +32.7%, but has gone sideways for some 5 months now. It has remained above the 18,000 level for a week or so, but is struggling to make any headway. BHP Billiton, by far the biggest share, remains ‘beached’ in rand terms. It is also largely unchanged for the past 5 months. Clearly rand strength isn’t helping.
US Market Analyst, Elaine Garzarelli
· The current bull market is in its 89th month, the 2nd longest in history (the 1987 to 2000 bull market lasted 150 months).
· Currently many share indices are at an all-time high as market participants look forward to better-than-expected earnings. This, along with low interest rates, makes shares an attractive investment choice.
· Rates are kept low as policymakers around the world continue easy monetary policy.
· Garza’s quants model reading is at 71%, a bullish reading. She expects corrections to be limited to 4-7% and offer buying opportunities.
· She calculates fair value for the S&P 500 Index at 2,305, which is 5.5% above the current level of 2,184.
Indexes & Currencies – putting things in context
* Please note that the above returns on some portfolios are estimates and still needs to be confirmed by the fund managers
We will continue to manage your (and our) investments with the deserved diligence and vigilance. As always, please do not hesitate to contact us if you would like to discuss any aspect of your investment portofolio.