October 2016 market overview

October was marked by political uncertainty, locally and in the US, which stoked market volatility. On 11 October the National Prosecuting Authority pressed charges against Minister Gordhan for fraud, but the minister ended the month triumphantly, with all charges withdrawn. Wall Street and Asian markets, in particular, rode the rollercoaster as various polls released results that Trump retains a fair chance of entering the White House.

Locally, during the month Anheuser-Busch InBev completed its merger with SABMiller, marking the end of the era for this stalwart share on the JSE. September consumer price inflation marginally breached the upper limit of the Reserve Bank’s target range, and Minister Gordhan delivered the Medium Term Budget Policy Statement soon after addressing student protesters outside parliament’s gates.

A few key points of the Mini Budget include the downward revision of estimated 2016 growth from 0.9% to 0.5%; an additional R17 billion budgeted for universities and students over the medium term; rapidly rising net national debt estimated to stabilise at 47.9% of GDP in 2019/20;  2016/17 tax revenue is R23 billion lower than initially estimated; and the 2016/17 budget deficit is projected at 3.4% of GDP. Some good news mentioned by Minister Gordhan is that SA has been recognised as the best sovereign debt management operations and issuer in sub-Saharan Africa by the Global Markets Publication.

Internationally, the chickens came home to roost for global automotive giant VW, as a US district judge signed off a $14.7 billion settlement amount between VW and the federal and California regulators and the owners of the 475 000 polluting vehicles following its 2015 emission scandal. In the UK, short-term credit surged an annual 6.7%, the biggest increase since December 2006, as consumers make use of lower interest rates. The 0.5% growth rate in the three months since the vote to exit the European Union triumphed over doomsayers predicting a UK recession post-Brexit.

SA market returns were disparate. The FTSE/JSE All Share Index (ALSI) declined by 2.5% on a total return basis. But the strengthening of the rand against the major currencies, for example 8.5% against the British pound, softened the blow for foreign investors during the month. Dollar investors in the ALSI lost 0.7% during October, while sterling and euro investors gained 5.9% and 1.6% respectively. The All Bond Index (ALBI) gained 0.64% during the month and inflation-linked bonds returned 0.25%. Cash returned 0.63%. On the global front, the MSCI World Index ($) lost 1.9% and the MSCI Emerging Markets Index ($) gained 0.3% on a total return basis.