Market Overview – November 2017

Propelled by improving global growth and corporate earnings, global equities continued their record-breaking run in November across several markets, ranging from the major US markets to the MSCI Asia Pacific and even including South Africa.

US markets were additionally boosted by the increasing likelihood of tax cuts, as well as more dovish comments from US Federal Reserve chairman Janet Yellen, who cautioned against raising interest rates too rapidly for fear of “stalling” inflation below the targeted 2% level.

Looking at global equity market returns (all in US$), the MSCI World Index (for developed markets) returned 2.2% in November, outperforming the MSCI Emerging Markets Index at 0.2%.

Among developed markets, the S&P 500 returned 3.1%, the Dow Jones EuroStoxx 50 posted a subdued -0.5%, with France’s CAC also in the red at -0.3% and Germany’s DAX 0.7%. The UK’s FTSE 100 was absolutely flat with 0.0% as news over Brexit terms was gloomy one day and positive the next. Japan’s Nikkei was again the best performer for the month with a 4.3% return.

In South Africa it was an eventful month, but returns were generally subdued for investors across local assets, while the stronger rand detracted from offshore returns.

The long-awaited ratings agencies reviews resulted in downgrades from S&P Global, putting the country in sub-investment grade territory for local currency debt (lowered to BB+ from BBB-) as well as foreign currency debt (lowered further to BB from BB+). However, there was a reprieve from Moody’s, which placed the sovereign rating on downgrade review pending the outcome of the ANC Elective Conference and February 2018 Budget.

The rand, meanwhile, managed to gain against all three major currencies, appreciating 4.2% against a weaker US dollar, 2.4% against the pound sterling and 2.0% against the euro.

In other significant developments, while SA’s October CPI fell to 4.8% y/y from 5.1% in September, the SARB left the repurchase rate unchanged at 6.75% at its November MPC meeting, citing higher inflationary risks from a rising oil price and a possibly weaker rand resulting from December’s ANC Elective Conference.

Finally, helped by global enthusiasm, the FTSE/JSE All Share Index hit new record highs during the month, rising briefly to over 61,200 points before retracing much of its gains and closing November just below the 60,000 level. For the month, the ALSI returned 1.5%, thanks to a 4.4% return from Financials (boosted by the stronger rand and ratings news). Listed property returned 1.9%, Industrials delivered 1.4% (as large global companies were hurt by the stronger rand) and Resources were in the red with a -1.5% return, weighed down partly by lower commodity prices.

According to Morningstar data, the average ASISA SA general equity fund returned 1.4% for the month. The average multi-asset high equity (balanced) fund delivered 0.1%, while multi-asset low equity funds averaged -0.1%, and multi-asset income funds returned 0.2% on average.

Adapted article by Pieter Hugo – Prudential Asset Managers