Market Overview – March 2018

March was characterized by more volatility in global financial markets as nervous investors continued to fear more aggressive interest rate hikes in the US, while also reacting negatively to, among other things, the growing possibility of both an international trade war and the imposition of stricter regulations on the giant tech companies (amid the Facebook information-sharing scandal and Trump’s criticism of Amazon).

Consequently, most equity markets ended the month in the red. This was contrasted by stronger bond markets as the US Federal Reserve met market expectations by raising the federal funds rate by 25bps, but kept its 2018 rate predictions unchanged (for two more 25bp increases).

The Fed did confirm its view of a more robust US economy as it lifted its forecasts for 2018 GDP growth. Globally, fundamentals remained positive as the European economy gathered steam alongside subdued inflation and the ECB signaled its intent to adhere to its path of slow monetary tapering. UK prospects appeared to brighten somewhat thanks to a long-awaited agreement on a Brexit transition deal and parts of the broader exit treaty. Economic indicators were broadly positive.

In South Africa, local bonds recorded gains on the back of several factors, including Moody’s decision not to downgrade the sovereign local currency credit rating to junk status (rather upgrading the outlook to stable from negative). Moody’s also lifted its 2018 GDP growth forecast to 2.0% from 1.0%, along with other international institutions.

Despite a broadly weaker US dollar in March, the rand depreciated 0.7% against the greenback, 2.3% against the UK pound sterling and 1.4% versus the euro, dented only partly by concerns over the implications of the ANC’s potential wider use of land expropriation without compensation.

SA equities continued to reflect the more volatile global market conditions: the FTSE/JSE All Share Index posted a -4.2% monthly return, weighed down by losses in big industrial counters, Naspers and financial shares.

For the month, the average multi-asset high equity (balanced) fund delivered -2.2%, while multi-asset low equity funds averaged -0.6%, and multi-asset income funds returned 1.0% on average.

Adapted article by Pieter Hugo – Prudential Investment Managers