Global equity and bond markets were broadly positive in March, buoyed by the US Federal Reserve’s easier interest rate stance that put the brakes on further interest rate hikes for the remainder of 2019. Developed markets outperformed emerging markets, shrugging off concerns over a contraction in global growth and political uncertainty in Europe. In Europe, political turmoil in Turkey and uncertainty around Brexit dominated headlines; however, news that the European Central Bank would implement a new cheap loan programme for banks to stimulate economic activity within the region helped bolster investor sentiment. In South Africa, local equities and bonds posted positive returns for the month, supported by stronger Resources and Industrials sectors.
In the US, the Federal Reserve left the benchmark interest rate within the 2.25% – 2.5% range, indicating that no further rate hikes were likely for the remainder of 2019, while forecasting just one further rate hike in 2020. Fed Chair, Jerome Powell, noted that a slowdown in the European and Chinese economies could have a positive but lagged effect on US growth through downward pressure on future inflation (and therefore less need for higher interest rates).
In the UK, Prime Minister Theresa May had a third vote on her Brexit proposal rejected by Parliament. Parliament also voted down eight separate proposals on the structure for exit, creating even more uncertainty. The EU has given Britain until 12 April 2019 to formalise its exit strategy.
The ECB also announced its intention to keep interest rates unchanged for the remainder of 2019, and launched its new Targeted Long-Term Refinancing Operation (TLTRO-3) aimed at helping banks rollover their ECB loans and encourage economic activity through a range of favourable credit incentives.
In Japan, poor economic indicators and a slowdown in China’s growth forecast for 2019 left markets subdued; however, news that the US-China trade talks had made substantial progress helped Asian markets close the month in positive territory.
Meanwhile, China lowered its growth target for 2019 and announced a major tax cut in a bid to stimulate economic growth.
In Turkey, political unrest leading up to the national elections dented investor confidence and financial markets suffered the consequences; however, the contagion was not nearly as widespread as the crisis seen in August last year.
Developed markets outperformed emerging markets, with the MSCI World Index delivering 1.4% and the MSCI Emerging Markets Index returning 0.9%.
Turning to South Africa, the SARB announced that it would keep interest rates unchanged at 6.75%, in line with market expectations. The SARB also lowered its growth forecast for 2019 from 1.7% to 1.3% and from 2.0% to 1.8% for 2020. Ratings agency Standard & Poor’s, meanwhile, revised its outlook for Eskom from negative to stable. President Ramaphosa announced that the government would move ahead with the nationalisation of the SARB, sparking fears of state interference in monetary policy. The announcement came on the back of growing allegations of corruption within the ruling party, state-owned enterprises and ANC-run municipalities.
Rating agency Moody’s decision on 29 March not to review the sovereign rating and leave it at investment grade with a stable outlook, granted the country a big reprieve.The rand depreciated against all major currencies for the month, losing -3.3% against the US dollar, -1.9% against the euro and -1.0% against the pound sterling.
The FTSE/JSE All Share Index returned 1.6% in March.
According to Morningstar data, the average balanced fund delivering 1.3% while the average low-equity balanced fund produced 1.0%.
Adapted article by Pieter Hugo – Prudential Investment Managers