1FINPLAN Investment Committee Monthly Financial Comments

Dear Client,


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.

 

Market Comment

 

·         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.

  • STANLIB’s Economist, Kevin Lings, noted that one of the bright spots in the Chinese economy of late is the +20% increase in car sales year-on-year. This should be good for some commodities, notably copper, possibly steel and iron ore.

 

 

Other Commentators

 

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.

 

BCA Research

 

  • One can see from the table of the S&P sector performances in our main report how Technology has bounced back quite strongly over the past 3 months, returning +11.9% versus the +5.9% for the S&P 500 Index.
  • Over the past six months (26-week) Materials have done best with +25.5%, followed by oil shares +24.3%, then Technology +22.8%, Financials +21.6% (very interesting) and Industrials +20.1%.
  • The S&P 500 is up +19.5% since early February! While Consumer Discretionary has done a bit better with +19.8%, the more defensive Consumer Staples have done just +11%, but of course they would have fallen less during the sharp correction that ended in February.
  • Over the past year, Financials are still negative at -4.4%, as are oil shares at -0.4%. The S&P 500 Index has done +4.9% over this twelve month period. Interestingly Materials are +7.5% over the past year.
  • Meanwhile, differing from Garza’s calculation of the S&P 500 Index being undervalued, BCA sees the index as deeply into overvalued territory. They point out the Price to Sales ratio of the S&P 500 at over 2 times, at its highest level in the past 16 years at least (which includes the 2000 TMT bubble period). Mostly it seems to have averaged around 1.5 times.
  • They admit the stock market may stay strong because of the perception that global central banks stand ready to boost economies.
  • On the Japanese economy, BCA sees it stuck in a rut and needing more aggressive monetary and fiscal stimulus to help it recover.
  • BCA is looking for the dollar to strengthen generally and believes that pessimism on the UK economy has gone too far.
  • BCA continues to expect the European, Emerging Asian and Japanese equity markets to outperform the US equity market over the next three months.
  • On the euro area, although banks there are solvent and better off than a few years ago, they are still riddled with NPLs (non-performing loans).
  • In the UK the proportion of major bank lending that is non-performing is less than 10% of the banks’ tangible common equity, whereas in the top four euro area economies - Germany, Italy, France and Spain - the proportion of major bank lending that is non-performing is almost 40% of tangible common equity.
 

Economic Focus

 
  • SA manufacturing better than expected in June 2016, rounding off a much improved quarterly performance. Capacity utilisation levels have risen and PMI data consistently above 50.
  • U.S. retail sales were unexpectedly flat in July as consumers cut back on purchases of clothing and other goods.
  • Concerns around Namibia inflation.

 

Indexes & Currencies – putting things in context

Local

July

 

Global

July

Rand vs US$

+5.6 % (13.93)

 

MSCI AW (R)

(1.3) %

Rand vs UK£

+6.8 % (18.34)

 

S&P 500 (R)

(1.9) %

ALSI40

(0.1) %

 

FTSE100 (R)

(2.8) %

ALBI

+2.2 %

 

MSCI AW ($)

+4.3 %

STeFI

+0.6 %

 

S&P 500 ($)

+3.7 %

SAPY

+3.2 %

 

FTSE100 ($)

+2.7 %

 

Model Portfolios

Model

July 2016

1 Year

3 Year (annual)

5 Year (annual)

1FinPlan Balanced Income

+0.5 %

+5.0 %

+8.7 %

+10.1 %

1FinPlan Balanced Growth

+0.3 %

+3.1 %

+8.9 %

+11.5 %

1FinPlan High Growth

+0.4 %

(0.1) %

+8.9 %

+12.9 %

Discovery Stable Growth

+0.6 %

+6.0 %

+8.3 %

+9.5 %

Discovery Moderate Growth

+0.9 %

+4.1 %

+10.0 %

n/a

Discovery Balanced Growth

+1.1 %

+3.0 %

+10.6 %

n/a

Discovery High Growth

+1.7 %

+3.8 %

+12.9 %

+16.2 %

Asset swap – Global

(1.8) %

+11.4 %

+16.3 %

+20.1 %

Seed Global Balanced Portfolio (in US$)

$ +3.8 %

$ +7.1 %

$ +8.7 %

$ +9.4 %

Seed Global Balanced Portfolio (in UK£)

£ +4.5 %

£ +26.8 %

£ +14.3 %

£ +15.0 %

 

Bespoke Solutions

Bespoke

July 2016

1 Year

3 Year (annual)

5 Year (annual)

Seed RMB Portfolio

(1.2) %

+4.1 %

+13.2%

+19.1 %

Seed RMB Portfolio – 100% Geared

(3.4) %

+3.6 %

+16.6 %

+27.9 %

BHI Portfolio

+0.2 %

+13.87 %

+13.41 %

+13,51 %

* 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.

Kind Regards,