September 2016 market overview

September saw data releases that hint at a potential SA economic recovery. Economic output grew by 3.3% q/q in Q2 2016 and consumer price inflation dropped below 6% in August, encouraging those who believe we may be nearing the end of a very short and shallow interest rate hike cycle. Another boon was the narrowing of the Q2 current account deficit to 3.1% of GDP from a revised 5.3% of GDP in Q1.

Elsewhere in Africa, Nigeria was downgraded to B, five levels below investment grade, due to poor growth amid lower oil prices, a restrictive exchange policy and delayed fiscal stimulus.

In the West, US consumers – according to the Conference Board’s consumer-confidence index – have not been this confident since August 2007, just before the start of the Great Financial Crisis. At the same time job dismissals are close to a four-decade low and jobless claims came in lower than the forecast. And on 6 September the Nasdaq hit another fresh high. Consensus is moving towards another rate hike possibility before the end of this year.

In the East, China’s substantial foreign-exchange reserves dwindled to $3.19 trillion in August, the lowest since 2011 as the central bank continues to defend the yuan. And in Japan governor Haruhiko kept the benchmark rate at a negative 0.1% and pledged to expand the monetary base until inflation is stable above 2%.

Despite sound economic data being released in September, in rand terms the SA equity markets were sceptical about an immiment and sustained recovery in company earnings, with the FTSE/JSE All Share Index (ALSI) declining by 0.94% on a total return basis. But with the 7.1% strengthening of the rand against the dollar during the month, dollar investors in the ALSI would have experienced a gain of 6.1% for September. The All Bond Index (ALBI) gained a handsome 2.98% during the month and inflation-linked bonds returned 0.92%. Cash returned 0.60%. On the global front, the MSCI World Index ($) gained 0.5% and the MSCI Emerging Markets (EM) Index ($) 1.3% on a total return basis (USD), with SA ending the month as the top performing EM index.

Year to date the ALSI return now stands at 4.82%, underperforming cash’s 5.42%, while the ALBI has been delivering an exceptional YTD return of 15.05%.

Source: Stats SA, MSCI, Bloomberg, Deutsche Bank and Sanlam Investments | One-month total returns up to 30 September 2016