February 2018 market overview

Despite it being the shortest month of the year, February proved that a month can be a long time in politics. On 13 February the National Executive Committee of the ANC recalled Jacob Zuma as president of South Africa. At the eleventh hour the next day he resigned with immediate effect and on 15 February Cyril Ramaphosa became the fifth democratic president of the Republic of South Africa. The rand, which had been anticipating a leadership change since December, strengthened even further. Before the end of the month President Ramaphosa announced several new ministers, and restored Nhlanhla Nene as finance minister.

February was also the month of the National Budget review. The first VAT hike in 21 years was announced and markets responded positively to Treasury’s re-affirmation of its intent to stabilise the South African debt ratio. The capital gains inclusion rate and the dividend withholding tax rate were not raised – very good news for investors. Other good news on the local front was the SA unemployment rate declining to 26.7% from the 27.7% recorded in the previous two quarters and consumer inflation dropping to 4.4% from 4.7% year-on-year.

In the US, a strong jobs report released at the start of February halted the recent stock market rally. The report showed the biggest increase in wages in nine years and spurred fears that the Fed might decide to hike US interest rates again. A global stock market sell-off ensued. In the last week of the month global stocks slid further in the wake of Fed minutes that painted a healthy picture of the US economy (more upward pressure on interest rates). The dollar remained steady while Treasuries rose and European bonds were mixed.

In Germany, Europe’s largest economy, GDP increased 0.6%, amounting to a 2.9% expansion for the 2017 calendar year.

During February 2018 the FTSE/JSE All Share Index (ALSI) lost 2% on a total return basis, while bonds delivered a particularly strong 3.9%. The SA Listed Property Index (SAPY) continued its descent into the abyss, falling another 9.9% in February – the same loss as in January. Cash returned 0.54%. Internationally, the MSCI World Index contracted 4.1% in dollar terms and the MSCI Emerging Markets Index ($) retreated by 4.6%. For South African investors who measure their returns in rand, the strengthening of the rand amplified their losses on offshore assets in rand terms. During February the rand strengthened 0.6% against the greenback and 2.75% against the euro.

For the 12 months to the end of February 2018, the ALSI and listed property returned 17.4% and -6.1% respectively. The ALBI returned 14.3% and cash 7.5%. Internationally, the MSCI World Index and the MSCI Emerging Markets Index ($) rewarded offshore investors with dollar returns of 17.4% and 30.6% respectively. The rand appreciated by 11.2% against the US dollar but weakened by 3.3% against the euro over the past year.