January 2020 market overview

The year 2020 might have a good ring to it, but the first month rapidly rattled any festive season euphoria out of investors – both at the turn of the Western calendar and the Chinese new year.

Tensions heighten in the Middle East
On 3 January, in a shock move, President Trump ordered the killing of General Qasem Soleimani, spearhead of Iranian military operations in the Middle East, along with other Iran-backed militia at Baghdad airport. Iran’s Supreme Leader Ayatollah Ali Khamenei responded by saying “severe revenge awaits the criminals” behind the attack. Shortly after the killings a Ukrainian passenger plane was shot down by Iran, reportedly by accident, killing all on board, and Iran also launched a missile attack on bases at Ain al-Asad and Arbil in Iraq, housing US and coalition forces. Heightened tensions in this oil-rich region put upward pressure on oil prices.

China ends year in panic
Later in the month as China prepared to enter the Year of the Rat panic set in with the deadly Coronavirus locking down entire cities, such as Wuhan with 11 million residents. The Shanghai Composite Index reported the worst pre-new year drop in its three-decade history.

World Bank lowers SA GDP forecast
Also in January, the World Bank lowered its growth outlook for South Africa due to electricity supply and infrastructure constraints in SA, as well as weaker global economic conditions weighing on export demand. The SA Reserve Bank’s Monetary Policy Committee responded by unanimously cutting the repo rate by 25bps to 6.25%. It also revised down its forecast of GDP growth for 2019 to 0.4% (from 0.5%). Consumer-price growth quickened to 4% compared with 3.6% in November.

The shake-up at SA parastatals continue
The signs have long been there that there’s no more room for ‘business as usual’ at SA’s state-owned enterprises (SOEs) and semi-SOEs. During January Telkom announced large-scale retrenchments, Eskom continued its restructuring plans and SAA received a loan from the Development Bank of Southern Africa but not before it had to cancel certain low-volume flights and put some of its planes up for sale. In total the planes would amount to around R37 billion in value if bought new today.

During January offshore investments benefited from rand weakness
During January 2020 the rand weakened by 7.27% against the dollar and by 5.90% against the euro, resulting in strong rand returns from the main international indices. The MSCI World Index returned 6.61% in rand terms; the Bloomberg Barclays Global Aggregate Bond Index gave international bond investors 8.64%. The FTSE/JSE All Share Index (ALSI) lost 1.69% on a total return basis, while the SA Listed Property Index (SAPY) lost 3.06%. The All Bond Index (ALBI) returned 1.19%, and cash returned 0.58%.

Over the past year international indices ran exceptionally hard
For the 12 months to 31 January 2020, the MSCI World Index gave South African investors an exceptional 33.08% total return in rand terms; the Bloomberg Barclays Global Aggregate Bond Index gave 20.47% in rand. The rand weakened by 13.03% against the greenback and 9.17% against the euro during the past year. The ALSI and ALBI gained 7.14% and 8.48% respectively. Listed property (the SAPY) lost 9.50% and cash returned 7.27%.

International equities remain the 10-year top performer
Over the long run (10 years to 31 January 2020), 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 17.68% in rand terms. International bonds gave 9.88%. Locally, the ALSI returned 10.99% per year and listed property 10.52%. The ALBI and STeFI delivered 8.95% and 6.52% per year respectively over the 10 years to 31 January 2020.