2019/10/28 00:00:00

Market comments
In Quarter 3, the MSCI EMEA index (which includes South Africa) fell 7.02%, which was worse than the returns of that of the MSCI Emerging Markets (EM) at -4.25% and far behind the MSCI World’s 0.53%. Year to date, the picture does not change much with the MSCI EMEA at 5.13%, relative to the MSCI EM return of 5.89% and way behind the 17.61% for the MSCI World. The Federal Reserve and the European Central Bank both eased policies to offset signs of weaker global growth. The US economy has weakened but is not in a recession mainly due to fiscal support offsetting the adverse impact of the trade war. The inversion of the US yield curve is perceived as tolling the bell for a near-term global recession whilst Draghi also added to the call for fiscal easing.
Adding to that, commodity prices took a dive with key iron ore benchmark prices plunging some 20% in a matter of weeks and the key industrial metal, copper, hitting two-year lows. The key global manufacturing indices have also dived and are at fiveyear lows - but was at least stable over the last two months.
In the UK, Eurosceptic Boris Johnson has become the prime minister after being elected as leader of the Tories. There appears a greater likelihood of a no-deal Brexit or, at the very least, yet another postponement of the October decision deadline. The market has discounted this in large part with a weaker Sterling. As business decisions get postponed, the UK could dip into a technical recession.
In South Africa the SA Reserve Bank held the policy rate unchanged at 6.5% at its September meeting, but its statement was more dovish than in July when it did cut. For Quarter 2 of 2019, GDP was 3.1% quarter-on-quarter, above the consensus of 2.4% and reversing the first three months’ contraction. SA headline CPI accelerated from 4.0% in January to 4.5% in March and then settled around 4.3% in August 2019. Forward rate agreements are now pricing in a 25bp rate cut in the next six months.
From an SA asset allocation perspective, cash (STEFI: +1.8%) outperformed SA bonds (ALBI: +0.8%) and the FTSE/JSE All Share Index returned -4.2% (Capped SWIX: -5.1%) in the third quarter of 2019. In Dollars, the MSCI SA (-12.60%) continued to underperform the MSCI EM (-4.25%) mainly due to a weak Rand (- 6.9%). SA equities and SA bonds saw outflows of $5.7bn and $2.4bn respectively year-to-date. Properties, after stabilising somewhat over the first half of 2019, experienced a tough three months, losing about -4.4%.
On the corporate side the most important news was the Naspers spin-off of Prosus, which listed on 11 September 2019. Prosus is now the largest listed EU consumer internet company.
Performance
The FTSE/JSE Top 40 Index (Top40) had a return of -5.22% for the third quarter of 2019, significantly underperforming the FTSE/JSE All Share Index (ALSI), which had a return of -4.57% for the quarter. The index’s performance was slightly lower than that of the FTSE/JSE Shareholder Weighted Top 40 Index (SWIX40), which had a negative return of -5.08% for the quarter.
Some of the contributors to the difference in return between the two Top 40 indices could be explained by the relative underweight position in British American Tobacco (BTI) and Bid Corp (BID), which were positive performers over the quarter, and contributed to the underperformance of the Top40 versus the SWIX40. A significant contributed to the underperformance of the Top40 versus the SWIX40. A significant relative overweight position in BHP Group (BHP), which was a poor performer during the quarter, also detracted from performance. The overweight position in Anglogold Ashanti (AGL), which was one of the few stocks with strong positive performance, contributed positively to the performance of the Top40 Index. The underweight exposures to especially Sasol (SOL) and Shoprite (SHP), which experienced substantial negative returns for the quarter, -27.77% and -21.07% respectively, also positively limited the performance difference.
During the September 2019 FTSE/JSE index review Impala Platinum Holdings (IMP) and Sibanya Gold Ltd (SGL) were added to the index while Aspen (APN) and Sappi Ltd (SAP) were deleted from the index. The one-way turnover for the index review was 3.07%.