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January 2017 market update

16 Feb 2017

2017 started with world leaders decisively executing on voters' wishes. Prime Minister Theresa May made it clear that there would be no half-measures when Britain exits the European Union. It will leave the EU's single market and extend its trade freely beyond Europe. On the other side of the Atlantic, President Donald Trump signed into law an immigration restriction on seven Muslim-majority countries.

Carl Roothman

Only a few days before the Dow Jones had shattered the 20,000 barrier for the first time, but Trump’s so-called ‘travel ban’ caused global equity markets to retreat somewhat from these record highs. The new law did, however, boost traditional ‘safe havens’, such as gold and the Japanese yen.

On the European continent, there are signs of economic recovery, even if it’s happening slowly. The final Eurozone manufacturing PMI figure for December came in at 54.9 points, the strongest indicator of economic expansion since April 2011. European markets responded with a strong start to the year. German inflation accelerated to the highest rate since July 2013, while inflation across the Eurozone is starting to pick up. The European Commission reported that an index of executive and consumer sentiment rose to 108.2 in December. This is the highest reading in six years.

Locally, the tension between SA banks and factions within the ruling party mounted as a preliminary report prepared by the Public Protector on the alleged bank bailouts pre-1994 leaked to the media. As a consequence, the financial sector index did not partake in the exuberant start to the year. As in the US and Europe, SA is experiencing slowly rising inflation. SA CPI climbed to 6.8% year on year. Food prices increased the most in the past year, with the price inflation for food and non-alcoholic beverages up by 11.7%. PPI edged on to 7.1% year on year.

In contrast to the start of 2016, most markets kicked off 2017 with a spring in their step, with all major asset class indices up for January. The FTSE/JSE All Share Index (ALSI) gained 4.31% on a total return basis on the back of a strong resources and consumer goods run. The SA Listed Property Index returned 1.63% for the month and the All Bond Index (ALBI) and cash posted 1.33% and 0.63% respectively.

In dollar terms the MSCI World Index gained 2.41% and the MSCI Emerging Markets Index ($) returned a generous 5.47% to dollar investors. However, for South African rand investors the 1.53% appreciation of the rand against the dollar would have destroyed much of the MSCI World Index gain when converted back to rand.

Sources: Stats SA, I-Net, Bloomberg, Deutsche Bank and Sanlam Investments