October 2017 market overview

During October US lawmakers took important steps to implement President Trump’s proposals to reform tax, which among other things entail cutting the top US corporate tax rate from 35% to 20%. Markets were encouraged by this move and the Dow Jones Industrial Index broke through the 23 000 mark for the first time. US jobless claims returned to former low levels after a brief spike during hurricane season. US inflation remains contained and the Federal Reserve kept rates on hold at its meeting on 1 November. UK inflation came in at 3% for the year to September, the highest level since March 2012.

Locally, SA inflation edged up to 5.1% year-on-year from 4.8% a month earlier. This figure is comfortably within the SA Reserve Bank’s 3% to 6% target band. October marked the maiden Medium-Term Budget Policy Statement (MTBPS) from Minister Gigaba. The Minister stated that 2017 economic growth for SA has been downwardly revised to 0.7%. The rand weakened sharply after the MTBPS revealed that National Treasury will increase its borrowings in the international market and that it will issue short-term bonds to fund its higher borrowing requirements. Offshore investors started offloading SA bonds. In contrast, the JSE hit a record high.

The FTSE/JSE All Share Index (ALSI) gave a rewarding 6.3% this month on a total return basis and the SA Listed Property Index (SAPY) also posted a respectable return of 2%. Bonds were punished in response to the MTBPS, causing the All Bond Index (ALBI) to lose 2.3%. Cash returned 0.61%. Internationally, the MSCI World Index gained 1.9% in dollar terms and the MSCI Emerging Markets Index ($) picked up 3.5% after last month’s small loss. For South African investors who measure their returns in rand, the 4.5% weakening of the rand against the dollar once again boosted returns on offshore assets.

For the 12 months to 31 October 2017, the ALSI and listed property returned 20.1% and 11.1% respectively. The ALBI’s return of 5% for the past year, unfortunately, barely kept pace with inflation. Internationally, the MSCI World Index and the MSCI Emerging Markets Index ($) rewarded offshore investors with 23.5% and 26.9% respectively in dollar terms. The rand’s 4.7% depreciation against the US dollar over the year supported South African investors in these indices even further.