November 2016 market overview

November will be remembered for its political surprises, some pleasant and some unsettling – depending on your political stance.  In the first week of the month Wall Street and Asian markets trembled in anticipation of a potential Trump victory. Once it became official, investors sold almost $5bn of bonds in Asia’s local-currency debt markets in the week following Trump’s victory. And the Bloomberg Barclays Global Aggregate Total Return Index lost 4% in November, the biggest retreat since the start of the index in 1990.

Locally, Zuma withdrew application to block the publication of a report on the extent of the influence of the Gupta family over government – the so-called ‘state capture report’. SA joblessness rose to 27.1% in Q3 2016 — the worst employment data released since 2003. Despite CPI October data of 6.4% being released the day before, considering the poor growth outlook for SA in 2017, the SA Reserve Bank announced on the 24th that the repo rate would remain at 7%. (The prime lending rate remains 10.5%.)

Also in November, deputy President Cyril Ramaphosa announced a proposed new minimum wage of R3 500 per month for South African workers. On the last Friday of the month Fitch changed its outlook attached to the BBB- ratings of SA foreign and local currency debt to negative, and warned that continued political instability could lead to the sovereign’s downgrade. On the same day Standard & Poor’s Global Ratings (S&P) cut Eskom’s credit rating a further notch into subinvestment grade. And lastly, South Africa’s trade balance swung to a deficit of R4.41 billion in October, from a revised R6.9 billion surplus in September, as exports fell 11.1% on a month-on-month basis.

With the exception of certain resource sectors, SA market returns were mostly down during November. The FTSE/JSE All Share Index (ALSI) declined by another 0.55% on a total return basis. For foreign investors, the weakening of the rand against the major currencies during the month resulted in an even more disappointing return.  British pound investors in the ALSI lost 6.61% and dollar investors lost 4.49% during November.  The All Bond Index (ALBI) declined 1.83% during the month and inflation-linked bonds returned a negative 1.02%. Cash returned 0.61%. On the global front, the MSCI World Index ($) gained 1.4% and the MSCI Emerging Markets Index ($) lost 4.6% on a total return basis.

Year to date the ALSI return now stands at 1.64%, underperforming cash’s 6.72%. The ALBI is the clear winner for the year so far, delivering a YTD total return of 13.7%.  The MSCI World Index ($) YTD return stands at 5.0% and the MSCI Emerging Markets Index ($) at 11.2%. The SA listed property index gained 5.72% YTD.

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