Salvo NCIS Dynamic Income comment - Sept 19
In terms of monetary policy, the South African Reserve Bank (SARB), also kept rates on hold as it remained focused on fiscal and rating downgrade risks. The weaker rand, higher oil price and the need for high real rates did not support a move for another rate cut. In other emerging markets, the central bank of Brazil cut the Selic rate by 50 basis points to a new all-time low of 5.5%. Similarly, the Indonesian central bank cut the benchmark rate by 25 basis points to 5.25%. This is the third consecutive month of policy rate reduction.
On the data front, the consumer price index (CPI) rose by more than expected in August as food prices grew at the fastest pace in more than a year. CPI inflation measured 4.3% year-on-year in August, up from the 4% measured in July and marginally higher than market expectations of 4.2%. Meanwhile, in the third quarter, the RMB/BER Business Confidence Index plunged to a 20-year low. After remaining at 28 for the first two quarters of the year, the BCI dropped to 21. Eighteen months ago, the index was at 44. The current reading indicates that eight out of 10 respondents are unsatisfied with prevailing business conditions, and that this is the lowest level of the BCI since the 1998-1999 emerging market debt crisis. Confidence collapsed in four of the five sectors making up the BCI. This was on the back of lower activity and, importantly, a downscaling of expectations for future operating conditions.
FTSE/JSE All Share Index rose marginally by 0.1% for the month. The Resources 20 Index and the Industrial 25 Index declined by-0.4 % and -0.9 respectively. The Financial 15 Index was positive for the month, up 3.4%. The S.A. Listed Property Index was up 0.3%. During September, the All Bond Index and cash both returned 0.5% for the month. On the currency front, the rand apprecaited 0.3% against the U.S. dollar in September
Global equity markets came under pressure as U.S. political turmoil, concerns about Brexit and continued uncertainty over the U.S./China trade dispute all added to the cocktail of worries. Later in the month, news that the Democrats had initiated a process to impeach President Donald Trump sent global equity markets lower after the release of a whistle-blower complaint. Meanwhile, concerns about geopolitical risks on the back of the drone strike on the Saudi Arabian oil production facility dampened investor sentiment. As the month drew to a close contradicting reports surfaced over the future of the U.S. and China trade deal. Some reports stated that the White House was not contemplating blocking Chinese companies from listing shares on U.S. exchanges, while earlier reports stated that the U.S. administration was considering de-listing Chinese companies from U.S. stock markets. The impeachment news and trade headlines impacted markets, which were already on edge due to signs of slowing global economic growth. This led to volatility with global equity markets oscillating between gains and losses.
Ultimately, global stocks managed to finish the month in positive territory, thanks to easier monetary policy by some major central banks. Global equity markets received a boost after the European Central Bank (ECB) announced a new quantitative easing program, which entails $21.9 billion a month of net purchases - for as long as ECB deems necessary. The central bank also cut its main deposit facility to -0.5%, a new record. Meanwhile, the U.S. Federal Reserve Instituted another 25-basis point “insurance” policy rate cut. The Fed’s new dot plot median indicated no further rate cuts for the remainder of the year or next year, although the market still expects additional easing. The Bank of Japan (BOJ) decided to leave rates unchanged, as did the Bank of England which adopted a wait-and-see approach as uncertainties over Brexit remained.
For the month, the MSCI Global Equity Index was up 2.1%, while emerging market equities were up 1.9% as mirrored in the MSCI Emerging Market Equity Index. On Wall Street, the S&P 500 gained 1.7%, while the tech-heavy Nasdaq finsihed 0.5% firmer . In the UK, the FTSE 100 also ended the month stronger, up 2.7 %. The Barclays Global Aggregate Bond Index declined -1.0% with global bonds weaker as yields ticked up. On the commodities front, the yellow metal’s safe-haven appeal lost its shine as the gold price fell -1.9% for the month. Meanwhile Brent crude gained 3.1%.
The portfolio may comprise a combination of assets in liquid form, money market instruments, bonds, debentures, convertible securities, cash deposits, corporate debt, listed property, preference shares, non-equity securities, equity securities and any other securities which are considered to be consistent with the portfolio's primary objective and the Act may allow from time to time. This fund complies with Regulation 28.