Sygnia Itrix MSCI Japan ETF - Dec 19
December was a great month for equities, driven by bullish fundamentals and sentiment. The S&P500 ended the year up 31.5% in USD and the All Share closed up 12%. The JPMorgan Global Manufacturing PMI jumped into expansion for the first time in six months, driven by a supportive monetary policy. Looking into 2020, a recession looks unlikely. The US and China finally agreed to a phase-one deal and the UK’s Conservative Party achieved a majority victory, reducing the likelihood of a no-deal Brexit. China and India are expected to provide 55% of global GDP growth in 2020. Fiscal and monetary stimulus in both countries remains high and should support this growth. However, escalating tensions between the United States and Iran and a looming impeachment trial is keeping markets off-kilter.
The economy contracted by a shocking 0.6% in the third quarter, and Eskom reached a new low, implementing stage 6 load shedding and operating at a meagre 60% of capacity due to heavy rains, unplanned outages and possible sabotage, sending the economy and markets into a panic. Steps in the right direction are being taken, however, as Public Enterprises minister Pravin Gordhan announced that Eskom power stations are again drawing their fuel from nearby coal mines offering preferential prices – during the years of state capture, politically connected mines were preferred. The ANC also announced that they are in talks to introduce equity partners at SOEs, provided that government remains the majority shareholder. The government placed SAA under business rescue to allow a “radical restructuring” under which it will receive R4 billion. Inflation came in at a depressed 3.6%, its lowest rate since December 2010, still with no further rate cuts, driving SA real yields to amongst the highest in the world and constraining growth.
The SACCI business confidence index fell to 89.1 points in August, the lowest level since April 1985. The Chamber noted that the “current state of fiscal deficiencies, social injustices and unemployment necessitates an urgent adjustment”, and Moody’s noted that Eskom’s financial position remains a significant threat to economic growth and government debt levels. However, the agency acknowledged that progress would be slow, offering South Africa a temporary reprieve from a sovereign downgrade for the next 12 to 18 months.
The 2010s saw the longest expansion in US history, a decade without a recession. The S&P500 closed the decade near an all-time high despite US House Democrats delivering two articles of impeachment against President Trump, for abuse of power and obstruction of Congress. The process will now shift to a Senate trial, where he is expected to be acquitted by the Republican majority there. The Federal Reserve maintained the Federal funds target rate range at 1.50–1.75%, but the “dot plot” witnessed a downward revision to 2020 projections, with participants now expecting interest rates to remain steady. This, together with continued quantitative easing and slowing growth, has kept the US dollar weak.
Chancellor Angela Merkel’s government suffered a defeat as her coalition partner, the Social Democrats, replaced vice chancellor Olaf Scholz with Norbert Walter- Borjans. Scholz expects the SPD to put forward a set of demands that includes abandoning Merkel’s balanced-budget stance to stimulate growth. At her inaugural ECB meeting as chair, Christine Lagarde reiterated that monetary policy would remain highly accommodative but noted that fiscal policy is the next tool that can be used. Sweden’s Riksbank became the first central bank to exit negative interest rates, the rates having been negative since 2014.
The Conservatives won their largest majority since 1987 under Margaret Thatcher, which should allow for easy passage of the Brexit withdrawal agreement, with the UK set to leave the EU by the end of January. Focus will then move to EU trade negotiations, which currently have a 31 December 2020 deadline. This deadline is unlikely to be met, however, as the EU/Canada trade negotiations took eight years to complete. His 80-seat majority should give Prime Minister Boris Johnson ample room to seek transition-period extension.
Japan announced a stimulus package amounting to 26 tn yen ($239 bn), including 13.2 tn yen in fiscal measures to boost real growth, of which 9.4 tn yen is new spending. The CBRT cut rates by 200 bps at its 12 December meeting. The Bank of Russia cut its key rate by 25 basis points as inflation slowed. India’s budget deficit is expected to be at 7% in 2020 to boost growth.
China PMI data surprised on the upside. The official CFLP manufacturing PMI rose from 49.3 to 50.2 in November, taking the economy into expansionary territory for the first time in seven months. In December, the index continued to expand steadily, at 50.2.
The CNH fell below the 7 mark as President Donald Trump signed off on a phase-one trade deal with China, averting the 15 December introduction of US tariffs on $156 billion of consumer goods.The terms also cut existing tariffs by 50% on $360 bn worth of Chinese imports in exchange for a boost in purchases of US farm products and enhanced protection of intellectual property rights. The deal is expected to be signed on 15 January. China started 2020 with a 50-basis-point reserve-rate requirement cut, which further buoyed markets. China’s budget deficit is expected to stay at a high of 6.5% in 2020.
The Sygnia Itrix MSCI Japan Index ETF delivered -0.7% for the quarter, in line with its benchmark, the MSCI Japan Index. The Fund benefitted from exposure to Sony, Toyota Motor Corp and Recruit Holdings, while its exposure to Shiseido, Oriental Land Co and Subaru detracted from performance. There were several changes to the tracked index’s constituents over the period, including the addition of ORIX JREIT, Square Enix Holdings and Japan Post Insurance and the removal of Nippon Electric Glass, Kobe Steel and Kaneka. The Fund remains true to its investment objective of delivering returns that mirror those of the MSCI Japan Index.
The investment policy of the portfolio shall be to track the Index as closely as possible.
The portfolio shall not buy or sell constituent securities, any other securities or financial instruments for the purpose of making a profit, nor for any purpose other than tracking the Index.
As a secondary objective, securities held by the portfolio from time to time may be utilised to generate income for the benefit of investors, provided that such activities do not conflict with the investment policy as stated in the clauses above.
Investors can obtain participatory interests in the portfolio by acquiring participatory interests on the secondary market or subscribing for participatory interests in the portfolio. In order to achieve this object the manager may, subject to the Act and the Deed create and issue an unlimited number of participatory interests in the portfolio.
The portfolio will not be managed according to traditional methods of active management, which involve the buying and selling of securities based on economic, financial and market analysis and investing judgment. Instead the investment objective and style will be full replication of the Index. As a result the financial or other condition of any company or entity included from time to time in the Index will not result in the elimination of its securities from the portfolio unless the securities of such company or entity are removed from the Index itself.
The portfolio shall also be entitled, in its discretion, to employ such investment strategies as will most effectively give effect to the investment policies of the portfolio.
The composition of the portfolio will be adjusted periodically to conform to changes in the composition and weighting of the securities in the Index so as to ensure that the composition and weighting of the scheme's portfolio are a reflection of the composition and weighting of the securities contained in the Index.
The portfolio will hold securities purely for the economic rights and benefits attaching thereto, and accordingly if a takeover bid is made for shares of a company included in the Index, the portfolio will not tender shares in respect thereof. Securities held by the portfolio which are subject to a takeover bid will only be surrendered if such surrender is mandatory (and then only to the extent of such mandatory surrender) in terms of applicable law or under the rules of a regulatory authority or body having jurisdiction. If a takeover bid results in a company no longer qualifying for inclusion in the Index, any shares of the company held by the portfolio after the takeover bid will be disposed of by the portfolio, and the proceeds will be applied in effecting the appropriate adjustments to the portfolio.
To the extent necessary for the purposes of achieving its investment policies, the portfolio may hold assets in liquid form. Any assets held in liquid form may be invested in short?term investments such as banker's acceptances and certificates of deposit.
The portfolio's ability to replicate the price and yield performance of the Index will be affected by the costs and expenses incurred by the portfolio.
ETF - Local CIS with 100% investment in foreign equities as approved by FSB