August 2017 market overview

Locally, August was the month that saw Parliament vote (again) on a motion of no confidence in President Jacob Zuma, resulting in 198 votes against the bid to remove the president and 177 for the motion. And the plight of SA low- or no-income citizens remains concerning as SA unemployment persists stubbornly at the 27.7% level.  Because Moody’s views the situation in the country as ‘largely unchanged’ the agency announced shortly after the vote of no confidence that it is delaying its ratings decision on the SA sovereign. Good news arrived in the form of slowing consumer inflation, surprising at 4.6% in July, down from 5.1% for the previous month. Producer inflation eased too – to 3.5% – and hence there is a case for a disinflation outlook, even if fuel hikes lead to a temporary short-term inflation acceleration.

Globally, markets treaded nervously in August after North Korea’s missile launches over Japanese territory, and a White House response that signalled little reluctance to reach for its own arsenal. On the economic front the month was more positive. In fact, US growth for the second quarter of 2017 was revised upward to the fastest pace in two years on stronger household spending. And with home listings not meeting the current demand, US home prices climbed 6.6% year-on-year in the second quarter. EU inflation accelerated to 1.5% in August after 1.3% in July, with the acceleration almost exclusively due to a rise in energy prices.On the other side of the English channel, UK consumer spending and house-price growth hit their worst slump since early 2013.

August was marked by modest, but positive returns for all major local and world indices. The FTSE/JSE All Share Index (ALSI), buoyed by positive emerging market sentiment, gained 2.65% on a total return basis and the All Bond Index (ALBI) also posted a positive return of 1.03%. The SA Listed Property Index delivered 0.76% for the month and cash returned 0.62%. Internationally, the MSCI World Index gained 0.14% in dollar terms and the MSCI Emerging Markets Index ($) returned 2.3%. For South African investors who measure their returns in rand, the 1.7% appreciation of the rand against the dollar negated these international gains.

For the 12 months up to 31 August 2017, the ALSI and listed property returned 10.14% and 9.44% respectively. Cash comfortably beat inflation at 7.63%, and the ALBI gained 10.20%. Internationally, the MSCI World Index and the MSCI Emerging Markets Index ($) returned an impressive 16.8% and 25.0% respectively in dollar terms. However, the rand strenghened 13% against the US dollar over the past year, reducing a significant portion of the offshore portfolio gains.