2019/01/04 00:00:00

As we move into the final quarter of the year, it seems evident that the US market needs to cool, or the rest of the world needs to do some catching up. Though global growth is still relatively resilient, inflation risk is clearly on the rise, driven by higher commodity prices and tight labour markets. The most recent global manufacturing PMIs are consistent with a healthy underlying growth rate, but leading indicators of economic activity suggest that global growth has peaked, and with it earnings growth. Despite this positive backdrop, investors continued fretting about emerging market assets, as the recent currency crises in Turkey and Argentina fuelled worries about contagion. Locally, President Ramaphosa announced a stimulus package, which is intended to revitalise the economy. Also, the SA Reserve Bank decided to keep the repurchase rate unchanged at 6.5%, amidst the local economy unexpectedly contracting for a second consecutive quarter in Q2, largely because of a sharp drop in agricultural output.
As the rand strengthened some 3.53% in September, the MSCI World index returned -2.87% in rands. The MSCI EM index underperformed its develop market counterparts and delivered some -3.93% in rands, largely driven by weaker Asian markets. As developed market bond yields rose, the JP Morgan Global Aggregate delivered some -4.20% in rands. Emerging market bonds fared better, outperforming their developed market counterparts, delivering some -0.72% in rands. The recent dislocations should lead to value entry points opening up in some quality and value parts of equity markets. But, as monetary policy tightens in developed markets, the ability of emerging markets to fend off inflationary pressures is being tested. Furthermore, the global listed property market derated, and delivered some -5.37% in rands.
The ALSI underperformed its developed and emerging market peers in September largely driven by the stronger rand, and delivered some -4.17% in rands. The Indi-25 and Fin-15 indices delivered some -8.07% and -1.96% respectively in rands, while the Resi-20 index inched 0.34% higher in rands. The SA 10-year bond yield weakened during the course of the month. However, as US bond yields rose, the differential between emerging market bond yields and the US bond yield narrowed generally as the broader emerging markets experienced a relief rally. As such, the ALBI delivered a muted 0.30% in rands. Over the month inflation-linked bond yields were largely unchanged and the asset class is now offering an attractive inflation plus 3% virtually across the yield curve. Inflation-linked bonds outperformed their sovereign counterparts, and delivered some 0.43% in rands. The SAPY delivered some -2.60% in rands as the dividend yield pushed higher. Domestic cash returned 0.57% in rands for the month.