June 2016 will always be remembered as the month that the United Kingdom(UK) voted to leave the European Union. Indeed, Brexit had an indelible effect on markets in June, and for that matter the quarter, with greater uncertainty translating into a variety of asset and asset class returns. Global equity markets fell sharply in the wake of the UK referendum result resulting in negative monthly returns across markets. With a sense of panic and shock in the air, investors flocked to safe-haven assets such as bonds and gold, which gained in value as a result. An increasing US dollar price of Gold led to gains in the local mining sector, but the domestic equity market was overwhelmed by the negative impact of Brexit on large locally listed multinational companies, particularly in the financial and property sectors. The most notable story on the local front in June was the decision by credit ratings agencies (S&P and Fitch) to leave South Africa’s credit rating unchanged, which contributed to relatively strong bond returns.
The FTSE/JSE All Share Index had a negative month as global markets stalled in an uncertain environment. The index was down 3.0% for the month which dragged quarterly gains down to 0.4%. June’s top performers were Gold Fields (30.5%), AngloGold (27.4%) and Telkom (19.3%). The index’s worst performers in June were Capital & Counties (-26.7%), Intu Properties (-17.3%) and Sasol (-16.7%). Financials were least effected by falling risk appetite in June with a 2.1% loss which left the sector down 4.3% for the quarter. Resources provided a mixed bag of performance, ending the month down 2.5%, leaving the sector with a 6.4% gain for the quarter. Industrials fell the most in June (-3.5%) largely erasing gains from earlier in the quarter.
The UK’s vote in favour of leaving the European Union sent shock waves through global markets, with asset prices reacting sharply to the news. This saw the MSCI World Index post a loss of 1.1% in June, resulting in a second quarter gain of just 1.2%. US markets actually managed to eke out positive returns, with the S&P 500 up 0.3% for the month resulting in a second quarter gain of 2.5%. Other major developed markets were not so fortunate and showed losses in June leading to depressed quarterly returns. The United Kingdom’s FTSE 100, Germany’s FSE DAX and Japan’s Nikkei lost 3.8%, 5.9% and 2.1% in US dollars for the month respectively.
In a reversal of the previous month, emerging markets posted strong gains in June, resulting in mild quarterly gains. A weakening US dollar and rising commodity prices led to the MSCI Emerging Markets Index gaining 4.1% In US dollars June, resulting in a second quarter US dollar gain of 0.8%. Most emerging markets posted healthy gains in June, with Latin American markets the standout performers. Chinese markets, however, did not benefit as much from rising commodity prices and weakening US dollar as it is largely a manufacturing economy and the Chinese Yuan is pegged to the US dollar. As a result, China’s main equity index, the Shanghai SE Composite, posted losses of 0.4% for the month in US dollars, resulting in quarterly loss of 5.1%.
With South Africa’s credit rating in the spotlight since the end of last year, the biggest story on the local front in June was the decision by credit ratings agencies – S&P and Fitch – to leave our credit rating unchanged. The news sparked a downward movement in local bond yields which translated into a 4.0% return on the All Bond Index (ALBI) in June (4.4% for the second quarter). Listed Property benefitted from declining bond yields, however the effects of locally listed companies with exposure to the UK had a negative impact on the sector’s returns. As a result, listed property returned 1.2% in June. Cash returned a stable 0.6% for the month, leaving quarterly gains at 1.8%.
From a foreigner’s perspective, the Rand strengthened against most major currencies over the month and quarter. The most pronounced movement was against the Pound Sterling as a result of the UK referendum result. The Rand appreciated 18.9% against the Pound Sterling in June alone, leading to an 8.8% appreciation over the quarter. The Rand appreciated by 7.2% and 7.3% against the US dollar and Euro in June respectively. This meant that the Rand ended the quarter up 2.8% and 0.3% against the Euro and US dollar respectively.
Looking at commodities, Oil was the standout performer over the quarter, with the US dollar price gaining 25.5% during the second quarter despite being flat in June. Gold, which is seen as a safe-haven asset, made strong US Dollar gains in June (9.0%) as investors flocked away from market uncertainty. This led to a quarterly gain of 7.2% in the US dollar price of Gold for the quarter. The US dollar price of Platinum was up 2.9% in June and 5.0% for the quarter.