Global equity markets recorded healthy gains in April, as positive investor sentiment (largely arising from the easier global monetary outlook) outweighed renewed concerns over a slowdown in global growth. The IMF revised its 2019 global growth forecast down to 3.3% from 3.5% previously, citing the decelerating US and EU economies, as well as ongoing trade tensions, as major factors behind the downward revision. Some respite, however, came from China thanks to some better-than-expected economic data. In the UK, Britain’s withdrawal from the EU was postponed yet again, allowing Prime Minister Theresa May more time to have some form of exit deal approved by parliament. Emerging market equities also benefitted from the improved sentiment, including South Africa, which outperformed most of its EM peers for the month. In contrast with equities, global bonds and listed property finished marginally weaker, retracing some of the previous month’s robust returns.
In the US, Q1 2019 GDP growth surprised on the upside at 3.2% (q/q annualised). This was attributed to an improved trade surplus and higher inventories, short-term factors that masked sizeable drops in consumer and business spending, as well as weaker housing investment and declines in manufacturing and industrial production. Employment numbers were also better than expected. Given the fundamental slowdown, comments from the US Federal Reserve continued to reinforce the outlook of “lower interest rates for longer”, bolstering investor “risk-on” sentiment and helping both the S&P and Dow Jones indices to set new record highs towards the end of the month. President Trump, meanwhile, indicated that the US may impose additional tariffs on US$11 billion worth of EU products in response to its government subsidies for aircraft manufacturers.
UK AND EUROPE
In the UK, the Brexit deal deadline was pushed out to 31 October, but Prime Minister Theresa May’s failure to secure agreement resulted in mounting pressure to resign. In more positive news, the UK’s GDP growth accelerated in February as manufacturers rushed to stockpile goods ahead of Brexit (as well as a low base in 2018). February industrial production increased while manufacturing output also rose.
The European Central Bank (ECB) kept its main policy rate unchanged at 0%, in line with expectations. The ECB reaffirmed its position that policy rates would remain at current levels until the end of 2019, and that its programme of quantitative easing would continue beyond that date.
CHINA AND JAPAN
The Bank of Japan left its monetary policy unchanged at its April meeting, emphasizing the need to continue its monetary stimulus and stated that the economy is expected to continue expanding moderately, while inflation is likely to increase gradually towards the 2.0% target level.
Economic data out of China helped drive equity markets higher with exports increasing by 14.2% in March. Chinese policymakers indicated that they would continue with stimulus measures to grow the economy.
In South Africa, the IMF lowered its economic growth forecast for South Africa to 1.2% in 2019 and 1.5% in 2020, citing high debt levels and political and policy uncertainty as major concerns. Moody’s announcement that it would hold South Africa’s sovereign credit rating at investment grade with a stable outlook kept the bond market buoyant in the first part of the month; however it later highlighted that the country’s investment grade status was at risk due to its growing debt linked to SOE bailouts. Public Enterprises Minister Pravin Gordhan, meanwhile, confirmed that the government is discussing another support package for the highly-indebted Eskom, which earlier in the year received a R69 billion three-year bailout package.
The outlook for interest rates eased against the backdrop of the more dovish monetary policy globally. The local market is expecting no further rate hikes this year by the SARB, and the SARB itself is forecasting inflation of 4.8% for 2019. The central bank does remain concerned about the impact of the weaker rand and higher oil prices on future inflation, however.
In local financial markets, the FTSE/JSE All Share Index returned 4.2% in April, led by Financials and Industrials, both with a 6.6% return.
According to Morningstar data, the average balanced fund delivered 2.58% while the average low-equity balanced fund produced 1.66%.
Adapted article by Pieter Hugo – Prudential Investment Managers