December was a positive month for markets, capping off a tumultuous year that was punctuated by local and global political events. On the global front, it proved to be a relatively busy month littered with important central bank meetings and political events. The U.S. Federal Reserve decision to raise interest rates did not come as a surprise, and as such, the move had a negligible effect on global markets in US dollar terms. However, in only the second hike since the global financial crisis, investors did take note of the more hawkish tone regarding further moves in 2017. Global bond markets also managed too eek out positive returns in December, recovering slightly from selloffs that characterised the months of October and November. On the local front, positive sentiment stemming from the avoidance of a sovereign credit downgrade and signals that rates may be cut in 2017 lifted markets higher. Listed property was the standout performer and the retreatment of bond yields also buoyed local bond market returns in December. Despite another month of rand strength (which depressed returns from selected rand hedge counters), local equities also ended the month in positive territory.
The FTSE/JSE All Share Index had a positive month, despite the negative effects of a stronger rand and declining precious metal prices on selected shares. Improving prospects and better sentiment within the local economy helped boost share prices of companies with primarily domestic operations. The index ended the month up 1.0%, which left 2016 gains at just 2.6%. The top performing shares in December were Truworths (+13.6%), Mr Price (+11.7%) and MTN (+11.5%). The worst performing shares in the top 60 were Sibanye Gold (-13.0%), Shoprite (-8.3%) and Anglo American (-8.0%). Financials showed strong performance in December, with a return of +3.5% for the month. Industrials also fared well, ending the month up +1.8%. Declines in selected commodity prices meant that resources ended the month down -3.6%.
The MSCI World Index ended the month up 2.4%, leaving gains for 2016 at 8.2% in US dollar terms. The U.S. was a large contributor to this result with the S&P 500 posting a 2.0% gain in December. The U.S. interest rate hike in December, which was only the second policy action in a decade, did little to stifle equity market returns. Elsewhere, the FTSE 100 in the U.K. had a solid month, posting a return of 4.2% In US dollar terms. Germany’s FSE DAX and Japan’s Nikkei 22 also had a strong finish to the year, ending the month up 7.3% and 2.1% in US dollar terms respectively.
Emerging markets provided a mixed bag in December, underperforming their developed peers. The MSCI Emerging Markets Index gained 0.3% for the month in US dollars, bringing 2016 gains to 11.6%. Chinese markets had a tough month, with the Shanghai Composite Index producing a -5.4% return, whilst emerging Europe was a standout performer up 9.9% for December in US dollar terms.
It was also a positive month for local fixed income investors, as the avoidance of a sovereign credit downgrade and signals that interest rates may be cut in 2017 led to falling bond yields. The All Bond Index (ALBI) gained 1.5% in December. Local bonds maintained their position as the top performing asset class in 2016 with a 15.4% annual return. Listed Property rebounded in December with a monthly return of 4.2%, resulting in an annual return for 2016 of 10.2%. The sector was also buoyed by sentiment regarding the local economic outlook and the simultaneous decline in bond yields.
From a foreigner’s perspective, the rand strengthened against most major currencies in December, as South Africa’s avoidance of a credit downgrade spurred positive economic sentiment. This led to the rand appreciating by 2.6% against the US dollar over the course of the month, which means the rand gained 13.1% against the greenback in 2016. However, the most pronounced movement was the rand’s 3.7% appreciation against the pound sterling, which left the local currency a whopping 35.2% stronger against the world’s oldest currency for 2016. The rand’s movements against the euro were similar, appreciating by 3.2% in December (+16.7% for 2016).
The US dollar price of Oil made strong gains of 12.6% in December, as the ‘Vienna agreement’ saw producers committing to cut production in 2017. This curbed supply expectations, thereby pushing prices of the commodity higher. The price of oil has made a significant recovery this year (52.4%). On the other hand, the Gold price declined by -2.7% in US dollar terms in December, leaving 2016 gains in the price of the precious metal at 8.1%. The US dollar price of Platinum also ended the month down, with a decline of -2.4% in December leaving 2016 gains at 3.5%.