Market Overview – April 2017

Despite South Africa’s credit rating downgrades in the first week of the month, April proved to be surprisingly positive for local investors, helped by the ongoing bullish international appetite for risk assets and the fact that the downgrades were mostly priced into markets before they occurred. Global equities were widely underpinned by lower geopolitical risk sentiment on the back of the as-expected outcome of the first round of France’s Presidential elections, which saw the centrist candidate outpoll the far-right populist party and prompted a relief rally in equities.

The continuing strong US economy, combined with upward revisions to US earnings estimates, also drove equity markets higher. Bonds also posted gains, a contradictory move reflecting some doubts about the successful implementation of President Trump’s pro-business agenda. Other positive news saw upward revisions to the IMF’s 2017 global growth forecasts and an acceleration in global trade, investment and manufacturing.

Meanwhile, the price of Brent crude oil slipped for the second month in a row, losing 2.1% to trade below US$50/barrel at month-end as more supply from US shale weighed on the market. Commodity prices were broadly softer.

In South Africa, April’s positive returns were underpinned by the bullish global environment and the timing of the downgrades – the month started with the rand, bonds and listed property at weak levels as the downgrades became increasingly anticipated, but subsequently recorded good gains on investor bargain hunting.

The strongest performance came from equities, with the FTSE/JSE All Share Index returning 3.6% for the month. Resource shares were hurt by falling commodity prices in the last two weeks of the month, paring gains but still up on the month. Bonds were also in positive territory. The rand even managed to gain ground against the US dollar due to dollar weakness, gaining 0.3%, but depreciated against sterling and the euro, by 3.3% and 2.0%, respectively.

According to Morningstar data, the average SA general equity fund returned 2.4% for the month. The average multi-asset high equity (balanced) fund delivered 1.7%, while multi-asset low equity funds averaged 1.2%, and multi-asset income funds returned 0.7% on average.

Article adapted from Pieter Hugo – Prudential Fund Managers