January 2016 market overview

As trade opened for 2016, markets stumbled at the starting blocks. Trades in Chinese stocks were suspended after a 7% rout triggered the circuit breaker, as investors responded to fears around slowing GDP growth in China. Stock exchanges in most parts of the world suffered an equally glum start to the year.

Among the developed countries, policy makers – with the exception of the US Federal Reserve – are continuing their accommodative monetary stance in an attempt to spur on economic growth. The Bank of Japan surprisingly followed in the Swiss National Bank’s footsteps by cutting their deposit rates to negative figures.

In SA, business confidence struck pre-democracy levels and the country nearly lost its preferential status under the US African Growth and Opportunity Act (AGOA). An agreement with the US has not yet been reached. During the month the rand collapsed to a record R17.92 against the dollar after the turmoil in China caused an emerging market sell-off. Concerned about the impact of the falling rand on local inflation, the SA Reserve Bank hiked the repo rate by 50bps to 6.75% on 28 January.

The FTSE/JSE All Share Index declined 3.0% on a total return basis in rand during January 2016. With the weakening of the rand, dollar investors in our local stock market lost 2.6%. The sub-sectors that suffered most during the month in rand terms were Industrial Metals, Support Services and Automobiles. After the December shock, the All Bond Index (ALBI) recovered by 4.62% this month. Inflation-linked bonds gained 0.78%, while cash returned 0.56%. The MSCI World Index declined by 6.0% for the month on a total return basis in dollar terms and the MSCI Emerging Markets Index lost 6.5%.

Source: I-Net, Bloomberg, Deutsche Bank and Sanlam Investments | One-month total returns up to 31 Jan 2016