Market Overview – February 2017

Although both global and local economic developments proved to be broadly positive in February, this did not translate into healthy returns for South African investors over the month.

In the US, the stock rally arising from a more bullish outlook for economic growth and corporate earnings (on the back of deregulation and lower taxes) under President Donald Trump continued. This was supported by data showing a firm jobs market, rising inflation and an increasing likelihood (now well above 50%) of a Federal Reserve interest rate hike at its next policy meeting on 14-15 March. European data also revealed an acceleration in economic activity as the European Central Bank continued its easy monetary policy, and the Bank of Japan lifted its 2017 GDP forecast amid signs that dis-inflationary pressures had eased, while also extending its expansionary policies.

Good demand for emerging market equities continued, although South Africa failed to benefit due to weakness in resources stocks.

South Africa’s National Budget was well-received by economists and all three global ratings agencies thanks to its commitment to tighter fiscal discipline, among other attributes. Inflation fell slightly in February as the effects of the drought on food prices waned, and the rand strengthened further from the January levels.

In South Africa, after strong gains in January, the FTSE/JSE All Share Index returned -3.1% in February, driven by a -9.9% return from resource stocks and -1.6% from the industrial sector. Listed property was also in the red with -0.4%, while financials recorded the only positive equity return at 0.2%.  The rand managed to continue its strengthening trend against each of the three major global currencies, gaining 2.3% against the US dollar, 3.1% against UK sterling, and 4.0% 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 -1.2% for the month. The average multi-asset high equity (balanced) fund delivered -0.6%, while multi-asset low equity funds averaged 0.0%, and multi-asset income funds returned 0.7% on average.

Article by Pieter Hugo – Prudential Fund Managers