February was a positive month for global markets. The shortest month of the year passed without any major surprises, with the common thread of economic optimism balancing against political uncertainty. Donald Trump was the obvious talking point with further hyperbole regarding his policy stance, whilst increasing scrutiny in Europe also played a dominate role. Within equities, strong economic and corporate data in the U.S. helped push equities higher. A similar theme was evident elsewhere, as emerging markets saw a material increase that edged out developed markets and added to an apparent recovery that is underway (see below image).

 

On the local front, equities came under pressure from a stronger rand which had broad based impacts on the large multinational counters and resources. The largest declines came from the latter as a firmer rand, and more tempered expectations regarding US infrastructure spending and Chinese iron ore demand led to a significant correction in mining share prices in February. The greater fiscal discipline emphasized in the annual budget and stability in the treasury promoted greater confidence. This led to mild gains from local bonds and further rand appreciation in February.

Below are the index highlights for the month of January:

 

  • The All Share Index lost -3.1% in February, giving back a large portion of the previous month’s gain. The index now has an annual return of 6.3%.

 

  • Small-cap shares, which benefitted from a stronger rand, led monthly performance with a 1.9% return in February.Mid-cap shares provided a mixed bag in terms of performance with a return of -0.4% for the month. The performance of resource shares was a notable driver of negative returns in this market segment.  Large-cap shares had a tough month returning -3.9% in February. Rand strength negatively impacted rand hedge shares, while more tempered iron ore demand expectations led to significant declines in the share prices of BHP Billiton and Anglo American, which are the index’s 3rd and 4th largest constituents respectively.

 

  • The MSCI World Index ended the month up 2.8%, which means the index has gained 22.0% in US dollar terms over the past year! The index’s largest contributor, the US, rallied strongly with the S&P 500 posting a 4.0% gain in February. Positive economic and corporate data published in the world’s largest economy buoyed equity market returns in February. Elsewhere, the UK’s FTSE 100 had a decent month continuing a positive trend by posting a US dollar return of 1.9% for the month. Japan’s Nikkei 22 and Germany’s FSE DAX also ended the month up with mildly positive returns of 1.1% and 0.9% in US dollar terms.

 

  • Emerging markets had another strong month, as improving sentiment and better economic growth prospects encouraged, what seems to be, a sustained recovery. TheMSCI Emerging Markets Index gained 3.1% for the month in US dollars, leaving gains at 29.9% over the past year! Chinese markets were an important driver of monthly gains, with the SSE Composite producing a 2.8% US dollar return in February.

 

  • It was a positive month for local fixed income investors, as a relatively stable economic and political environment led to retreating bond yields. The All Bond Index(ALBI) gained 0.7% in February.

 

  • Listed Property was flat for the month with a return of -0.4% in February. The sector was affected by the opposing effects of marginally declining bond yields and the negative impact of rand strength on those constituents with predominantly offshore earnings.

 

  • Cash returned a stable 0.6% for the month.

 

  • The US dollar price of Oil was flat in February, showing only a marginal decline of -0.2% for the month. Over the past year oil has gained by 54.6%, and while production cuts from major oil producing countries have helped stabilise its price in the mid-$50 per barrel range, supply shocks remain a threat. The Gold price gained by 3.5% in US dollar terms in February on the back of a weaker US dollar. The US dollar price of Platinum also ended the month up, with a gain of 3.8% in February.

 

  • From a foreigner’s perspective, the rand gained further ground against major currencies in February. Despite a churning rumour mill, South Africa’s finance minister remains in office and firmly made the case for greater fiscal discipline in the annual budget. A relatively stable political environment and signals of greater economic stability fuelled improving sentiment which in turn saw the rand appreciate by 3.1% against the US dollar over the course of the month.  The rand also appreciated against the euro and pound sterling by 4.8% and 4.2% in February respectively.