June 2016 market overview

Tough business conditions continued during June. SA business confidence fell to a new all-time low, hurt by poor performances in sectors such as manufacturing and retail. Still, SA narrowly avoided a downgrade to junk status by Standard & Poor’s, but the agency maintained its negative outlook. Days later data showed that SA GDP contracted by an annualised 1.2% in the first quarter of 2016, keeping the country tip-toeing in front of ratings agencies.

Internationally, the biggest surprise was British voters’ decision – with a 52% majority – to leave the European Union and David Cameron subsequently leaving his post at 10 Downing Street. This immediately created a knee-jerk sell-off in international markets. Germany’s highest court decided an ECB scheme to buy troubled states’ bonds in secondary markets is constitutional, causing 30-year German bond rates to fall to their lowest level on record. In the US, in the absence of signals that the US economy is heating up, the Federal Reserve indicated that it’s keeping rates steady for now.

Bonds and most emerging markets performed well during June, but the local and many developed equity markets struggled. The FTSE/JSE All Share Index (ALSI) lost 3.0% on a total return basis. However, with the 6.4% appreciation of the rand during the month, dollar investors in the ALSI experienced a gain of 3.2% during June. The rand strengthened nearly 17% against the pound sterling, boosted by the surprise Brexit outcome, with pound investors in the ALSI reaping 13.1% for the month. The All Bond Index (ALBI) and inflation-linked bonds returned 4.04% and 2.15% respectively this month. Cash returned 0.59%.

On the global front, the MSCI World Index and MSCI Emerging Markets Index posted a -1.1% and 4.1% return respectively for June on a total return basis (USD).

Source: Stats SA, I-Net, Bloomberg, Deutsche Bank and Sanlam Investments | One-month total returns up to 30 June 2016.