256.13

2013/12/20 00:00:00

The listed property sector found some firmer ground this month. The Efficient Property Fund returned 6.08% for the month, bringing its one year return to 11.97%. The South African Property Index returned 6.71% in September.
Developments abroad continue to drive the performance of the domestic South African markets. September will be remembered as the month in which the United States Federal Reserve Bank (the 'Fed') surprised the market by deciding not to reduce the stimulus that it has been providing in the form of Quantitative Easing. Our interpretation of this surprise is twofold. Firstly, the Fed has reason to be concerned about the near-term outlook for the US economy, and secondly, the Fed was concerned about the extent of the increase in bond yields since its initial announcement in June. We therefore take comfort from the communication that the Fed is watching the US bond yields and that it will insulate the market against excessive shocks where possible.
September was also a month to remember for the stubbornness of politicians. At the time of writing, it is looking increasingly likely that the government of the United States will be unable to reach agreement on a budget going forward. This increases the likelihood of a government shutdown, with non-essential services being shuttered for a while. Such a shuttering will create a significant drag on the economy and could result in weaker economic data for the fourth quarter of 2013 than we had anticipated. Such weak data might further reduce the propensity of the Fed to significantly taper their Quantitative Easing.
The listed property sector has recently been responding to movements in bonds. Both of the above events were significantly positive for the bond market, and consequentially, the listed property sector.
We continue to see value in the listed property sector. In our view, the current market pricing has moved in line with fair value, with certain listed property stocks being attractive. We have increased to overweight our holdings of listed property counters that offer higher dividend yields, while remaining a little underweight the large market capitalisation stocks that are more defensive in nature.
Looking forward, we continue to believe that events in the United States will impact markets in South Africa. Currently the reduced tapering and government shutdown are both positive for the bond and listed property sectors.