The year ended on a high note for global equities as investors were able to breathe a sigh of relief on the back of a firm Phase 1 trade agreement between the US and China, as well as a decisive Tory election victory in the UK that paved the way for a less-uncertain Brexit. These events helped to improve sentiment towards global growth in 2020, as did the backdrop of easy global monetary policy, sparking a strong global equities rally. US equity markets reached fresh record highs in late December, helping global equities record their best annual gains since 2009 - the MSCI All Country World Index returned 27.3% for the year (in US$). In the face of brighter growth prospects, the Fed left interest rates on hold, and its December “dot plot” forecast pointed to no changes through 2020 and one 25bp rate hike in 2021. The central bank also noted that the US economic outlook was favourable. In the Eurozone, Christine Lagarde (the ECB’s new President) kept interest rates on hold at its December meeting and confirmed that its bond buying stimulus programme had re-started on 1 November. The Chinese economy continued to slow during the month, hurt by the trade war’s negative impact on Chinese exports and manufacturing. The government’s ongoing stimulus measures, including tax cuts, infrastructure spending and lower bank reserve requirements, have helped to cushion the broader economy, but December saw increasing pressure on the central bank to initiate further monetary easing.
SA equities were buoyed in December by the improved global growth outlook and risk-on sentiment, helping Resources counters in particular. The surprise resumption of load-shedding, and the possibility of it extending well into 2020, exacerbated the weak growth outlook, leading many analysts to expect a recession. The SARB’s model is forecasting one 25bp interest rate cut in Q3 2020. In December, the FTSE/JSE ALSI returned 3.3%, the BEASSA All Bond Index delivered 1.9%, inflation-linked bonds (the Composite ILB Index) posted 1.0%, and cash as measured by the STeFI Composite Index returned 0.6%. Looking at global market returns (all in US$), the MSCI All Country World Index delivered 3.6%, the Bloomberg Barclays Global Aggregate Bond Index returned 0.6%, while the EPRA/NAREIT Global Property REIT Index posted -0.3%. The rand strengthened 4.4% against the US dollar, 2.1% against the pound sterling and 2.5% versus the euro.
Contributing the most to absolute performance for the month was the fund’s exposure to SA equities (excluding property) and SA bonds (excluding inflation-linked bonds).