January was a month of two halves: the first half continued the bullish sentiment that begun in November in anticipation of a more expansionary US economy under US President Donald Trump. However, the second half, after he took office, saw US stocks retreat from their record highs and the US dollar lose ground as uncertainty surrounding his aggressive policy stances spread caution in global financial markets. Still, the net result for the month was positive for developed market equities, and sentiment remained favourable toward emerging markets, underpinning higher commodity prices and good returns from most South African asset classes.
In South Africa, the FTSE/JSE All Share Index returned 4.3% in January – a strong start to the year. Resources shares were again the strongest performers, while industrials and listed property gained, with financials the only losers. Amid rising jitters later in the month, both nominal bonds and inflation-linked bonds reported gains.
The rand continued its strengthening trend against each of the three major global currencies, gaining 2.5% against a weakening US dollar, 1.2% against UK sterling, and 0.2% versus the euro. This would have detracted from offshore investment returns in rand terms. According to Morningstar data, the average SA general equity fund returned 2.2% for the month. The average multi-asset high equity (balanced) fund delivered 1.7%, while multi-asset low equity funds averaged 1.0%, and multi-asset income funds returned 0.8% on average.
Offshore, equity markets, the MSCI World Free Index (for developed countries) returned 2.4% in January (in US$), underperforming the MSCI Emerging Markets Index at 5.5%. Among developed markets, the US S&P 500 returned 1.9%, while the Dow Jones EuroStoxx 50 delivered 0.7%. The UK’s FTSE 100 returned 1.2% despite Brexit-inspired volatility, while the French CAC 40 and German DAX indices produced -0.1% and 2.7%, respectively (all in US$).
Article adapted from Prudential Asset Managers – Pieter Hugo