Market Overview – December 2017

The year that was 2017 ended on a high in December, with equity markets around the world posting fresh record highs amid a remarkable lack of volatility. The MSCI All Country World Index, incorporating both developed and emerging markets,  managed to return a remarkable 24.6% for the year as a whole. Global growth remained strong, inflation relatively subdued and monetary policies supportive for the month. The passage of the Republican tax cut package in the US bolstered market optimism further.  During the month the US Federal Reserve raised its base interest rate by 25 basis points, its third hike for the year, as widely expected. Together with full employment and the large corporate tax cuts to come, analysts expect US inflation to become more problematic in 2018 – market consensus is for four 25bp Fed rate hikes in the New Year. However, new Fed Chairman Jerome Powell is expected to proceed gradually. The Bank of England and European Central Bank both left their rates unchanged in December, the former due to concerns over sluggish growth and ongoing Brexit uncertainty, and the latter as a result of still-low inflation despite the region’s accelerating growth.

In South Africa it was a surprisingly positive month for investors, with markets dominated by the election of market-friendly Cyril Ramaphosa as President of the ANC. Despite the installation of a divided ANC leadership committee with competing policy approaches, investors interpreted Ramaphosa’s election as an opportunity for the country to introduce much-needed reforms, reduce corruption, and lift business and consumer sentiment. Greater prospects for improved fiscal responsibility also helped the credit rating outlook. Combined with Moody’s credit rating reprieve in November, this more optimistic sentiment helped lower risk perceptions among both local and offshore investors, driving strong rallies in South African bonds, listed property and the rand.

The rand, meanwhile, gained strongly in December against all three major global currencies, appreciating 9.3% against a weaker US dollar, 9.1% against the pound sterling and 8.6% against the euro. For 2017 as a whole, the local currency managed to rally 10.1% versus the greenback and 1.9% versus sterling, while depreciating 2.2% against the resurgent euro.

Finally, the FTSE/JSE All Share Index (ALSI) closed out the year at around 58,500 points, below its November record high, mainly due to the plunge in the share prices of Steinhoff and its associated companies, as well as pressure on the large offshore-focused companies from the stronger rand in December.

For 2017 as a whole, SA equities had a remarkable year given the poor local fundamentals, thanks partly to global conditions. The ALSI produced a total return of 21.0%, most of which came in the last six months of the year.

According to Morningstar data, the average ASISA SA general equity fund returned -0.9% for the month. The average multi-asset high equity (balanced) fund delivered -1.8%, while multi-asset low equity funds averaged -0.5%, and multi-asset income funds returned 0.8% on average.


Article by Pieter Hugo – Prudential Asset Managers