November 2019 market overview

Grabbing headlines in November were the state of Eskom and South African Airways (SAA)’s finances as investors look towards the government’s handling of the need for yet more bailouts as an indicator of where the fiscus and the SA economy may be heading in coming years. On the first day of the month the SA government was put on negative watch as Moody’s downgraded the outlook for its credit rating from ‘stable’ to ‘negative’.

Big changes at Eskom and SAA
The Ministry of Public Enterprises’ decision to appoint André de Ruyter, CEO of Nampak, as new chief executive of Eskom elicited mixed responses from unions and political commentators. SAA announced the start of a restructuring process that could lead to almost a fifth of its staff members losing their jobs, which was followed by a large-scale strike with employees demanding no job losses and an 8% wage increase.

Some good news for SA
But there was also some good news on the local front during November. President Ramaphosa confirmed that government’s 2019 investment summit resulted in R363 billion being committed to South Africa. This is on top of the R300 billion in commitments secured during least year’s drive. The Department of Home Affairs’ announcement that foreign children may now enter the country without carrying additional supporting documents such as birth certificates and consent letters is expected to boost family tourism in SA. Consumer price inflation fell to 3.7%, the lowest level since 2011, and the South African Reserve Bank kept the repo rate unchanged at 6.5%.

US stocks set new records
Internationally, US stocks continue to hit fresh highs. Early in the month the S&P 500, the Nasdaq and the Dow hit record highs after US officials indicated on 1 November that a trade deal with China could be signed during November. But US-China tension reignited later in the month after the US Senate approved legislation to protect human rights in Hong Kong, widening the divide between the US and China. It seems 2019 is ending on the same note as it begun, with the sword of trade wars dangling above investors’ necks.

During the month of November the FTSE/JSE All Share Index (ALSI) lost 1.80% on a total return basis, while the SA Listed Property Index (SAPY) gained 0.81%. The All Bond Index (ALBI) eked out 0.22%, and cash returned 0.56%. The MSCI World Index was flat; the MSCI Emerging Markets Index lost 2.85% in rand terms. During November the rand strengthened by 2.73% against the greenback and 3.86% against the euro.

For the year to date, the ALSI and ALBI gained 8.46% and 8.30% respectively. Listed property returned 4.08% and cash returned 6.67%. The MSCI World Index gave an astounding 26.27% total return in rand terms and the MSCI Emerging Markets Index 12.45%. The rand weakened by 1.86% against the greenback but strengthened 1.75% against the euro.

Over the 12 months to end November 2019, the ALSI returned a strong 13.08%, and the ALBI delivered 9.00%. Listed property gave only 2.98% over the 12 months and cash returned 7.31%. The MSCI World Index returned 21.03% in rand terms and the MSCI Emerging Markets Index 13.38%. The rand weakened against both the dollar and the euro – 5.67% and 2.91% respectively.

The long-term winners are international equities and SA listed property
Over the long run (10 years to November 2019), international equities were the top performing asset class with an annualised return of 17.02% in rand terms. In comparison, the MSCI Emerging Markets Index returned 11.24%. Locally, the ALSI and ALBI delivered 10.74% and 8.78% respectively, compared to cash at 6.52%. Despite its disappointing returns lately, the SAPY (listed property) beat both SA equities and bonds over the past 10 years with an annualised total return of 11.24%.