September proved to be a difficult one for local markets as local equities failed to build on healthy gains earlier in the third quarter. Overall there was retracting
investor positivity towards the local outlook as politics, economic events and declining commodity prices took their toll. Political uncertainty has in no doubt kept
investors at arm’s length from South Africa, as we steam ahead towards the all-important ANC National Conference in December and the economy continues to
stutter along. The World Bank slashed its South African growth forecast for 2017 in half highlighting the need for productivity improvements. Naturally this was
not well received by markets, and the Reserve Bank’s (SARB) decision not to cut interest rates, somewhat against market expectations, gave investors even less
to be cheerful about. Despite this negativity, local property, bonds and cash managed to provide positive returns for the month.
Global markets continued to be supported by healthy levels of investor confidence in September, despite rising geopolitical risk relating to North Korea and
European Union stability. There was, however, a clear divergence in US dollar returns in September, as developed market equities outperformed their emerging
peers in US dollar terms for the first time (on a calendar month basis) this year. A stronger US dollar was a ubiquitous driver of returns across global markets, as
expectations of higher US interest rates and growing confidence in the ability of US policy outcomes buoyed the greenback in September.
The FTSE/JSE All Share Index experienced broad-based declines amongst its constituents, losing -0.9% in September. The top performing shares amongst the
largest 60 companies in September were Reinet (+13.1%), Richemont (+8.4%) and Resilient REIT (+6.4%). The worst performing shares in September were
Sibanye-Stillwater (-26.7%), Impala Platinum (-22.9%) and MMI Holdings (-12.3%). In a marked turnaround from the previous month, all major sectors posted
negative returns for the month of September. Industrials (-0.3%) were least affected as rand weakness helped stem losses through its positive impact on
selected non-resource rand hedges. Resources (-1.1%) felt the negative effects of declining commodity prices, while Financials (-1.9%) were also down for the
month as sentiment and the SARB’s decision not to cut interest rates took their toll.
The MSCI World Index ended the month up 2.3%, leaving the index up 18.8% in US dollar terms over the past year. Heightening geopolitical tensions related to
North Korea and rumblings in Europe did little to stymie returns from global equities. The index’s largest contributor, the US, mirrored this performance in
September with the S&P 500 posting a 2.1% return for the month. Elsewhere, Germany’s FSE DAX, the UK’s FTSE 100, and Japan’s Nikkei 22 each posted a
US dollar return of 5.8%, 3.4% and 2.0% in September respectively.
Emerging markets provided a mixed bag in terms of returns as country specific issues and a stronger US dollar drove performance in September. Energy was the
only emerging market sector to produce positive US dollar performance for the month, and naturally countries with concentration in this sector benefitted
(Russia). The MSCI Emerging Markets Index lost -0.4% for the month in US dollars, leaving gains at 22.9% over the past year.
Local bonds had another decent month of stable returns in September, despite the SARB deciding not to cut interest rates, which surprised the market. Local
bonds continue to be buoyed by the global search for yield. The All Bond Index (ALBI) gained 1.1% in September, leaving annual gains at 8.2%. Listed
Property had a relatively decent month; posting a return of 1.2% in September that left returns over the past year at 9.5%. Despite interest rates remaining on
hold and negative news flow, property counters showed gains across the board coming off a relatively low valuation base. Cash returned a stable 0.6% for the
month, and has provided a steady 7.6% over the past year.
Looking at currencies, the rand depreciated against most major currencies in September. A stronger US dollar saw the local currency depreciate by -3.7%
against the greenback in September. The rand also depreciated against the euro (-3.2%) and pound (-7.6%) over the course of September.
The US dollar price of Oil showed healthy gains in September (9.9%), benefitting from rising demand and some limitations on US production because of the
hurricane season. The US dollar prices of Gold and Platinum were down -2.2% and -6.7% respectively in September, as both precious metals were negatively
impacted by a stronger US dollar.