February 2017 market overview

February was an exceptional month for international markets – one in which we saw most major indices explore new territory. Early in the month the Nasdaq Composite Index reached a new record, despite a tumble by General Motors and oil-driven businesses. Mid-February the Dow Jones Industrial Average, the S&P 500 and the Nasdaq reached new highs for the fifth consecutive day after President Trump promised details around his proposed tax cuts and Yellen signalled that higher rates are on the way. A week later all three indices again touched a new high.

In the Eurozone, economic activity was lacklustre, with German GDP growing by only 0.4% in Q4 2016, lower than expected (0.5%). Still, with total growth for 2016 at 1.9%, Germany drives Europe’s recovery. And in the UK, the post-Brexit doomsayers do not yet have much substance for their gloomy outlook. Data released during February showed the number of people with jobs in the UK has reached an all-time high.

Locally, the month started off with African Bank rising from the ashes. The former ordinary and preference shares of holding company Abil are now trading under the apt name of African Phoenix. Cell C was downgraded to D grade (the lowest junk status) by Standard & Poor’s after missing interest payments on its senior secured bonds. SA’s official unemployment rate dropped to 26.5% (Q4 2016) – 2% higher than a year ago. And CPI dropped too, from 6.8% in December 2016 to 6.6% in January.

On 23 February Minister Gordhan delivered his second National Budget Speech after his re-appointment at the end of 2015. Treasury showed commitment to reduce the country’s debt to GDP ratio. And, with the announcement of an even more progressive tax system – introducing a new 45% personal tax bracket for those earning more than R1.5 million, it demonstrated concerted efforts to reduce inequality. Government expenditure now accounts for 30% of GDP and the fiscal consolidation can be expected to weigh down on economic growth.

After the year’s good start, local markets behaved rather subdued in February 2017 compared to the previous month. The FTSE/JSE All Share Index (ALSI) lost 3.1% on a total return basis after significant price-shedding among most resources stocks.  The SA Listed Property Index lost a marginal 0.4% for the month and the All Bond Index (ALBI) and cash returned 0.71% and 0.57% respectively.

In dollar terms the MSCI World Index gained 2.8% and the MSCI Emerging Markets Index ($) returned 3.1% to dollar investors. However, for South African rand investors the 3.0% appreciation of the rand against the dollar would have erased all of the MSCI World Index gain when converted back to rand.

Source: Stats SA, I-Net, Bloomberg, MSCI, Deutsche Bank and Sanlam Investments | One-month total returns up to 28 February 2017