December 2019 market overview

In December market participants were ‘entertained’ by yet another act in a long-winded saga centered along the themes of trade war, corruption in both the private and public sector, retribution, and the resultant drag on economic growth. A denouement is not yet in sight.

The SA economy contracted by 0.6%, after growing by 3.1% in the second quarter of the year and shrinking by 3.2% in the first quarter. Eskom shocked the nation by implementing stage 6 load shedding for the first time in history, not boding well for economic growth in the short to medium term.

Corruption has consequences

It’s encouraging though that arrests of corrupt officials at state-owned enterprises have begun and that government is taking decisive action. Priority crime investigative unit the Hawks arrested two senior managers at Eskom as well as two businessmen. They appeared in court on charges of corruption, fraud and money laundering. Also during the month of December the Ministry of Transport placed state-owned Prasa under administration and dissolved the interim board.

The year 2019 was catastrophic for several large SA corporates, of which Tongaat Hulett was one of the companies badly wounded. In December it announced that it was forced to write down nearly R12bn of equity, most of it originating from land expropriation in Zimbabwe and deferred tax assets not recognised by Zimbabwean law.

Trade deal boosts US markets

An interim trade deal between China and the US boosted US markets in particular and sent the S&P 500 and Nasdaq to new highs.

December was kind to the ALSI and ALBI

During the month of December the FTSE/JSE All Share Index (ALSI) gained 3.30% on a total return basis, while the SA Listed Property Index (SAPY) lost 2.07%. The All Bond Index (ALBI) returned 1.86%, and cash returned 0.58%. The MSCI World Index returned -1.71% in rand terms; the Bloomberg Barclays Global Aggregate Bond Index -4.01% in rands. During December the rand strengthened by 4.57% against the greenback and 2.85% against the euro.

But for the calendar year of 2019 global equities led the way

For the year 2019, the ALSI and ALBI gained 12.05% and 10.32% respectively. Listed property (the SAPY) returned 1.92% and cash returned 7.29%. The MSCI World Index rewarded South African investors with a lucrative 24.11% total return in rand terms; the Bloomberg Barclays Global Aggregate Bond Index gave only 3.86% in rands. The rand strengthened by 2.79% against the greenback and 4.55% against the euro during the calendar year of 2019.

International equities were also the 10-year top performer

Over the long run (10 years to end 2019), international equities were the top performing main asset class from a South African investor’s perspective, with the MSCI World Index giving an annualised total return of 16.72% in rand terms. Locally, despite lacklustre performance in 2019, the SAPY (listed property) was the top performer with an annualised total return of 10.83%. Finishing a hair breadth behind the SAPY was the ALSI with a return of 10.78% per year. The ALBI and STeFI delivered 8.85% and 6.52% per year respectively over the 10 years to end 2019.