June 2019 market overview

June 2019: Tweets, trade war and retrenchments

Global markets during 2019, and in fact 2018, have been hinging on President Trump’s tweets to find out whether to brace itself for an escalating trade war or a return to more tranquil times. At least the ban on Huawei accessing US technology has been suspended – for now – easing relations with China and also bolstering China’s suppliers, including South African resources companies (SA Basic Materials were up 10.16% in June). Trump did not go so easy on Iran this month, though. At first he threatened with war (the real kind) and then moderated to instead impose more sanctions on Iran’s leadership.

Mid-month Facebook announced that it’s launching a digital currency, Libra, that will allow its users to make financial transactions across the globe. US lawmakers were quick to raise their concerns around privacy, with Facebook being notorious for backtracking on its promises around this issue.

An interesting development this month was the downward pressure on global bond yields. The yield on the US 10-year Treasury Bill fell from 2.16% to 2% – below the current federal funds rate – a rare occurrence. Germany’s benchmark 10-year yield hit a new record low; so did Austria’s, both turning negative. This means that investors are now rewarding these governments to borrow money!

Negative figures hit the headlines in South Africa too. Data shows that our economy shrank by 3.2% in the first quarter of 2019. This was the biggest contraction in a decade and caused by weak consumer demand, extended load shedding and recurring falls in mining production.

Poor company news and resultant retrenchments continued in June. Tongaat Hullett asked that its listings be suspended because of accounting irregularities and more than 5 000 employees received retrenchment notices. Steinhoff finally released its financial result for the last accounting year, posting a loss of more than R19 billion. And MultiChoice, formerly part of Naspers, announced that up to 2 194 of its employees may lose their jobs in a restructuring exercise.

A perennial ray of sunshine is the discipline with which the SA Reserve Bank has been applying its monetary policy. Inflation is firmly under control and currently stands at 4.5%. It has remained below the 6% monetary policy ceiling since April 2017.

Despite all the doom and gloom, during June 2019 the FTSE/JSE All Share Index (ALSI) gained 4.78% on a total return basis, while bonds gained 2.27%. The SA Listed Property Index (SAPY) too had a positive month with a return of 2.2%, and cash returned 0.59%. During June the Rand strengthened by 3.13% against the greenback and 1.01% against the Euro.

For the year to date, the ALSI and ALBI returned 12.21% and 7.65% respectively. Listed property returned 6.04% and cash returned 3.6%. The Rand gained 1.97% against the greenback and 2.35% against the Euro.

Over the 12 months to end June 2019, the ALSI returned a paltry 4.42%, though, while the ALBI took the lead with a return of 11.5%. Listed property eked out 0.79% over the 12 months and cash returned 7.31%.

Over the long run (10 years to June 2019), equities were the top performing local asset class with an annualised return of 13.47%. Bonds delivered 9.02% and cash 6.55%, against consumer price inflation of 5.21%. Internationally, the MSCI World Index returned 17.58% in Rand terms, boosted by the weakening of the local currency over the past decade.

Click here to read the previous market review – May 2019.