Market Update: April 2017
Carl Roothman, chief executive of retail business
Cape Town: For South Africans, the ratings downgrades dominated the financial news during the month of April. Ratings agencies were quick to respond to Minister Gordhan’s replacement amid an extensive Cabinet reshuffle on 30 March. Standard & Poor’s was the first to downgrade South Africa’s foreign currency debt to non-investment grade (junk) and with it the local currency debt to one notch above junk. One day later Moody’s stated that it’s deferring its decision on SA’s sovereign credit rating, giving the rand a slight reprieve. A Moody’s review typically takes between 30 and 90 days. In the same week Fitch downgraded SA long-term local and foreign currency debt to junk.
Some good news is that towards the end of the month the Western Cape High Court ruled that government’s nuclear procurement processes were unlawful and it put aside any agreements reached. This is important, as Fitch clearly stated that a key driver behind its decision to downgrade SA’s debt was that Eskom has already issued a request for information for nuclear suppliers. Other good news is that SA posted an R11.44 billion trade surplus in March following a revised R4.78 billion surplus in February. Exports rose by 16% on a month-on-month basis. Consumer inflation also eased to 6.1% year-on-year.
Internationally, geopolitical tension intensified with the US-Russian relationship turning sour after a US missile strike in Syria, and North-Korea threatening to enter into warfare with the US, if provoked. Oil again fell below US$50 a barrel on uncertainty around the facts on US crude stockpile levels. In Europe, France’s PMI unexpectedly hit a six-year high, placing it ahead of Germany’s for the first time since 2012. The manufacturing and services index for the region as a whole was up too, exceeding economists’ forecasts and indicating job creation is rising to the highest level in almost a decade. Most international markets were robust. The Nasdaq climbed above 6 000 for the first time and the Dow surged on news of mostly strong earnings from several blue-chip companies. Good quarterly results reported by Alphabet and Amazon were an important contributor to the Nasdaq Composite’s new high.
Despite the downgrades the major SA market indices all posted positive returns during April 2017. The FTSE/JSE All Share Index (ALSI) gained 3.6% on a total return basis, driven by consumer goods and services, health care and technology. The SA Listed Property Index delivered 0.5% for the month and the All Bond Index (ALBI) and cash returned 1.47% and 0.61% respectively.
Internationally, the MSCI World Index gained 1.5% in dollar terms and the MSCI Emerging Markets Index ($) returned 2.2%. For South African investors who measure their gains in rand, the 0.5% appreciation of the rand against the dollar somewhat detracted from their experience of the MSCI World Index’s gain.
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