The Weekly Focus. A Market and Economic Update 26 March 2018

Transcription

1 The Weekly Focus A Market and Economic Update 26 March 2018

2 Contents Newsflash...3 Market Comment... 3 Other Commentators... 5 Economic Update...6 Rates STANLIB Money Market Fund STANLIB Enhanced Yield Fund STANLIB Income Fund STANLIB Extra Income Fund STANLIB Flexible Income Fund STANLIB Multi-Manager Absolute Income Fund... 13

3 Newsflash The Rand has strengthened as a result of a good ratings outcome from Moodys. Overall, this is a solid piece of good news for South Africa! Market Comment Offshore Market Comment The Donald s trade tariff attacks have undone all the recovery efforts in markets since the initial correction lows about seven weeks ago. In fact equity markets have returned to those lows, even slightly lower (see graph below of the MSCI World Index in dollar terms). The index is back at October levels, i.e. back at the same level as 5 months ago. Source: I-Net Bridge At this stage, it is still a correction in the ongoing bull market, being -9.4% below the record high seen on 26 th January this year. One hopes and suspects that Trump is more intent on negotiating a better deal for the US than entering a tariff war. The gap between Chinese goods imported by the US and American goods exported to China rose to a record high of $375bn in The overall US trade deficit in goods and services with the world widened by +12% in 2017 to $566bn, the highest in 9 years. So Trump certainly has the numbers on his side in terms of negotiations. The S&P 500 Index is now negative in 2018 at -1.7%. The Information Technology sector has corrected quite sharply. It was up around +9% last week and is now up just +2.4% in 2018, behind Consumer Discretionary s +2.8% return. All the other nine sectors of the S&P 500 Index are negative in 2018, led by the -9.4% of Consumer Staples. Energy is still -6.3%, despite oil prices being right near their highest levels in over 3 years. RMB Morgan Stanley says the S&P 500 Index is now trading at 16 times earnings expected in twelve months. Elaine Garzarelli (see below) thinks a fair PE or price-earnings ratio is 18 times, meaning the market is undervalued.

4 The MSCI Emerging Markets Index is -7.9% from its late January high, so is outperforming the developed market index, which is very unusual. Usually in times of trouble, this index falls further, as currencies also get knocked. This is a healthy sign that the usually more volatile emerging markets index is outperforming. It is still positive in 2018 by +1.3%, while the MSCI World Index is -3.2% (both excluding dividends). RMB Morgan Stanley says dedicated emerging market equity funds reported inflows of $2.4bn for the week ending 21 st March and are now +$44.2bn year-to-date in Emerging market ETF (exchange traded funds) and Emerging Market active funds (non- ETF) both reported inflows of $1.2bn last week and EM bond funds had inflows of $0.6bn. So funds continue to flow into emerging markets. Local Market Comment The All Bond Index has now returned +8% in 2018, trading at an all-time record high, partly thanks to Moody s positive assessment of SA on Friday evening, where they actually upgraded their outlook from negative to stable. The R186 ten-year SA government bond yield is trading at 7.89% this morning from over 8% on Friday, its lowest yield (highest price) since Cash has returned +1.7% in 2018, while the JSE All Share Index has returned -5% (including dividends) and SA Listed Property has returned -18.4%. SA Listed Property took another knock last week and is back at the early February lows on a total return basis. Last week Naspers fell -9% on the JSE (-8% year-to-date in 2018). It is trading at a discount of 27% to its 31.3% holding in Tencent, assuming all other Naspers businesses are valued at zero. Last week it raised $9.8bn through selling 2% of its investment in Tencent, in order to invest in its other promising businesses. Steinhoff fell -25.5% last week, Stadio -25.1%, Fortress B -19.1%, Resilient -15.9% and Ascendis -11.3%, while Hammerson rose by +25.8%, Goldfields +10.1%, Cashbuild +9.6% and Truworths +9.5%. The historic dividend yield, based on dividends paid in the past twelve months, of the All Share Index has risen to 3.05%, the highest in two years, which is attractive. The historic dividend yield of the SA Listed Property Index is back up at 7.1%, close to its highest in almost six years. The market correction and strong rand have driven the JSE Mining Index down to a sixmonth low, down by -16.6% from its high in mid-january. Similarly the JSE Resources Index, which includes Sasol and Mondi, has declined by %. The JSE Financial & Industrial Index is -8.3% from its late January high, back at August levels. Looking at the past twelve months, the JSE ALSI is +8.5% excluding dividends, or +18.4% in dollar terms. A year ago the rand was at to the dollar versus today s (+8.4%). This continues to put pressure on the big rand hedges on the JSE and therefore on the All Share Index and the ALSI 40 Index. On the dollar to the euro, since the dollar s low of just over $1.25 to the euro on 25 th January, there has been some consolidation in the dollar s downtrend or euro s uptrend over the past two months. Today the dollar has weakened to $1.24 to the euro, but the consolidation situation remains intact for now (a largely sideways move).

5 Other Commentators US Market Analyst, Elaine Garzarelli Garza s quants model reading remains at a bullish 71.5%. Based on a fair PE ratio of 18 times and her expected earnings for 2018 of 156, fair value for the S&P 500 is 2,808, which is 8.5% above current levels. Shares usually rise 20-50% above fair value when her model is bullish. Garza expects the economy to continue to be healthy since the expansion is still in the middle stages. The expansion has support from tax cuts, deregulation, a lower dollar, accelerating productivity and good earnings growth. Moderate inflation is a key ingredient for a healthy economy. Based on history, a recession does not normally occur until inflation moves up sharply and the Fed engineers the downturn. Garza expects globalisation, technology and competition to keep inflation modest. The Fed expects core Personal Consumption Expenditure (PCE) inflation to be 1.9% in 2018 and 2.1% in both 2019 and 2020, so the Fed is anticipating modest inflation. BCA Research US trade policy is a cloud over the US economic outlook. It is a growing downside risk. Typically if there is a trade war, economic activity will be weaker and prices will be higher. On Trump s political woes, for the Fed and investors, the health of the economy and earnings matter more than the President s political issues. Today s environment provides support for higher share prices, above-trend economic growth, escalating inflation, three more Fed rate hikes and rising bond yields. BCA thinks Trump s latest tariffs are an attempt to increase negotiation leverage with China, rather than an attempt to launch an all-out tariff war. China is motivated to prevent a trade war through significant compromises that Trump can advertise as wins to his audience this November during elections for senators and representatives. If Trump accepts China s concessions or compromises, then the risk of a trade war with China will likely be removed, at least until the next race for a President in Paul Hansen Director: Retail Investing

6 Economic Update 1. Moody's decided to keep South Africa's credit rating unchanged at Baa3 AND they revised the outlook from negative to stable. The review was accompanied by a very positive statement on the changes in South Africa since December SA consumer inflation surprised on the downside in February 2018, dropping to 4.0%. SA Reserve Bank has a window of opportunity to cut rates. 3. SA current deficit widened appreciably in the final quarter of 2017 to -2.9% of GDP. Although the trade balance remained positive, the size of the trade surplus declined due to a sharp increase in imports. 4. SA retail sales worse than expected in January 2018, declining for the second consecutive month after the better than expected Black Friday sales in Nov The consumer remains under pressure ahead of the VAT hike. 5. Central Bank of Kenya pushes through its first interest rate cut of the year even though banks appetite to lend is subdued by interest rate caps. 6. US Federal Reserve decided to increase interest rates by a further 25bps as expected. The FOMC revised up their GDP growth forecast and expect interest rates to increase slightly more than previously indicated. 1. Moody's Investors Service decided to leave South Africa s international long-term credit rating unchanged at Baa3. Furthermore they changed the outlook from negative to stable. This announcement effectively ends the review for downgrade that commenced on 24 November Overall, the decision reflects Moody s view that the previous weakening of South Africa's institutions will gradually reverse under a more transparent and predictable policy framework. Furthermore, Moody s argued that the recovery of the country's institutions will, if sustained, gradually support a corresponding recovery in its economy, along with a stabilization of fiscal strength. That is an impressive turnaround from the concerns expressed by Moody s during In making the decision Moody s highlighted three key areas of improvement namely: Halting the deterioration in South Africa s institutional framework The recent change in political leadership appears to have halted the gradual erosion of the strength of South Africa's institutions. A number of key institutions, including the Treasury, the South African Revenue Service (SARS) and key State-Owned Enterprises (SOEs) have embarked on recovering earlier strength. The technical strength and independence of South Africa's media, civil society and institutions, including key ministries, the Reserve Bank and the judiciary, have been critical in sustaining the country's credit profile over time. While it is still early days, the speed with which the President has moved to replace the leadership in key institutions, including the Ministries of Finance, Mineral Resources and Public Enterprises and most recently in SARS, illustrates the resolve to address the problems of the recent past and to set the state, society and the economy on a new and positive path. Improved growth performance and prospects The change in political leadership comes in parallel with growing signs of cyclical, and perhaps structural, improvements in economic growth. The recovery in growth has been mirrored more recently by a sharp recovery in business and consumer confidence, illustrated both in surveys, and by other indicators such as the recent recovery in the value of the rand.

7 While confidence can dissipate quickly, if sustained through further actions, it offers the prospect of rising levels of investment in South Africa's economy and enhanced mediumterm growth. The government recognises the need to support improving confidence with steady progress on structural reform, including in the areas of mining, energy and the SOE sector. Fiscal adjustment plans that should stabilise and eventually reduce the debt burden The 2018 budget outlines a clear strategy for addressing rising fiscal pressures, with a front loaded, revenue-driven, fiscal adjustment, supported by material cuts in expenditures in this and subsequent years needed to finance, inter alia, rising expenditure on education. The recently-announced one percentage point increase in VAT will broaden the fiscal policy response beyond the expenditure controls on which the government has increasingly relied in recent years. However, its significance goes beyond the moderate increase in revenues that the increase will allow. As the first increase in indirect taxes for over two decades, the change signals a marked, and credit positive, policy shift. Overall, Moody's now expects the government's debt burden to stabilise at around 55% of GDP over the period. The decision to revise South Africa s ratings outlook from negative to stable reflects a combination of factors, in essence Moody s argues that a combination of growth, expenditure restraint and further improvements in the breadth of the revenue base and in collection capacity should, if pursued effectively, lead to the debt trajectory stabilising in the next two to three years and ultimately reversing. Moody s did caution that the authority and capacity of the incoming administration remains to be fully tested. Also there is an acknowledgment that the divisions within the ANC, and more broadly within society, will present policymakers with diverse and sometimes conflicting political priorities which will create policy uncertainty. Two obvious examples of this are the still-to-be-agreed Mining Charter and the land appropriation without compensation initiative. In terms of the land issue, Moody s highlighted that it remains unclear how the new government will pursue its land transformation objectives, or what impact that will have on agricultural production and security. Importantly, Moody s stressed that how the government acts on the land issue will provide important insights into the government plans to balance nearer-term economic objectives against longer-term social and economic objectives. Moody s remains the only major credit rating agency to assign South Africa an investment grade rating for both its long-tern foreign debt as well as its long-term domestic debt. Overall, the tone of Moody s credit assessment of South Africa s is very positive and certainly more positive than most analysts would have anticipated. The rating agency tried their best to highlight as many positives as possible, and while they flagged some of the risks, these did not dominate any of the key discussion points. Lastly, by changing South Africa s ratings outlook to stable the risk of Moody s downgrading the country has obviously receded. However, in their statement Moody s did flag that if government is unsuccessful in delivering the planned structural reforms in the period between now and the 2019 Presidential elections, the rating review could turn negative. The Rand has strengthened as a result of a good rating s outcome. Overall, this is a solid piece of good news for South Africa!

8 2. In February 2018, South Africa s headline CPI inflation increased by 0.8%m/m. As a consequence the annual rate of inflation fell to 4.0% from 4.4%y/y in January Core consumer inflation remained unchanged at 4.1%, having fallen more than expected in prior months. This is the lowest level of core consumer inflation since December SA inflation remains well under-control and is expected to stay inside the inflation target over the coming year, with a slight upward bias. For 2017 as a whole, South African inflation averaged 5.3%, down from 6.3% in 2016, but up from 4.6% in SA inflation has averaged a respectable 5.6% over the past five years, and 6.1% over the past 10 years. For 2018 we forecast that SA inflation will average around 4.8%, including the recent increase in the VAT rate, and average 5.5% in Annual food inflation moved noticeably lower in February 2018 at 4.0%, down from 4.6%y/y in January 2018 and 4.9%y/y in December As recently as February 2017 food inflation was up at 10.0%y/y. The moderation is food inflation is, obviously, still due to the vast improvement in the summer agricultural season in Despite the improved agricultural season, the moderation in food inflation has been a little disappointing. This disappointment partly reflects the upward pressure on meat inflation, which is still relatively high at 11.4%y/y, as well as the fact that producers and retailers have been trying to extract some operating leverage. The severe drought in the western and eastern cape is also starting to have an impact. Nevertheless, consumer food inflation should continue to ease a little further in the coming months. The recent uptick in agricultural inflation suggests that the moderation in food inflation is near an end. Petrol inflation fell by -1.8%m/m in February, with the annual rate easing to 5.1%y/y from almost 15%y/y in December This largely reflects the 30c/l decrease in the petrol price during the month. Fortunately the petrol price declined by a further 36c/l in March, and is expected to rise only modestly in April Other price pressures in the month included a 6.1%m/m rise in insurance costs, a 1.9%m/m increase in books and stationery, a 1.3%m/m jump in public transport costs, and a 5.5% surge in medical service fees. While these increases are substantial, pushing the monthly rate of inflation up, they partly reflect annual price adjustments and have not added much pressure to the annual rate of change in consumer inflation. CPI excluding food and petrol is still well within the inflation target at a mere 3.9%%y/y, while core inflation (CPI excluding food, fuel and electricity) held at a very respectable 4.1%y/y. Services inflation was also recorded lower at 4.9%y/y, while administered price inflation moved further inside the target range at 4.9%y/y, mainly due to the lower petrol price. The inflation rate for pensioners has eased further to 4.2%y/y. SA inflation has surprised on the downside in recent months and is expected to remain well under control over the coming year despite the upcoming increase in the VAT rate. The VAT increase, which takes effect in April 2018 is expected to add 0.5 percentage points to the annual rate of inflation over the next year. From April 2018 onwards, SA inflation is expected to drift higher before stabilising at around 5.5% in The Reserve Bank now has a window of opportunity to cut rates next week and possibly again in May 2018 encouraged by the lower than expected inflation reading, the relatively strong Rand exchange rate and still weak economic growth. However, we expect this policy window to close during the second half of 2018 as SA inflation drifts higher and the US continues to increase interest rates.

9 3. In the final quarter of 2017, South Africa s current account deficit widened unexpectedly to -2.9% of GDP. This compares with a revised -2.1% of GDP in Q3 2017, - 2.8% of GDP in Q and -2.0% of GDP in Q The Q deficit was much worse than market expectations, which was for the deficit to improve to a mere -2.0% of GDP. In value terms, the current-account was recorded at R137.5 billion up substantially from R98.7 billion in Q (these are annualised numbers). For 2017 as a whole, the current-account deficit was recorded at -R114.3bn (-2.5% of GDP), which is somewhat better than the 2016 deficit of -2.8% of GDP and a lot better than the 2015 deficit of -4.6% of GDP. For 2018, we expect the current account to widen to around -3.0% of GDP. Crucially, South Africa was able to sustain a trade surplus in Q4 2017, for the seventh consecutive quarter, although the size of surplus narrowed noticeably from R92 billion in Q (2.0% of GDP) to R74 billion in Q (1.5% of GDP). The decrease in the trade surplus was largely due to an increase in the value of imports (+8.9%), which outpaced the increase in exports (up 6.0% in the quarter). On a trend basis, South Africa s trade deficit has systematically narrowed from a peak of -3.1% of GDP in the third quarter of 2013 to more regular surpluses in recent quarters. Unfortunately, the value of SA s merchandise exports has not managed to gain significant momentum in recent quarters partly as result of the stronger Rand. In contrast, both the volume and value of imports rose appreciably in the final quarter of This reflects both the impact of Rand strength as well as the depletion of domestic inventories in prior quarters including oil and refined fuels. In Q there was a sizeable change in South Africa s net dividend flows, which deteriorated somewhat from R62.4bn in the third quarter of 2017 to R76.8bn in the fourth quarter of the year. This deterioration reflected the net effect of a jump in dividend outflows, which rose by over R7.5bn in the quarter, as well as decline in dividend inflows (dividend inflows declined by R6.8 billion in the quarter). Unfortunately, dividend and interest outflows from South Africa are likely to remain a substantial drain on the current account in the years ahead given the large foreign holding of South African bonds and equities. There was a welcome and fairly large increase in SA s travel receipts during Q4 2017, despite the significantly stronger Rand. Although these inflows were partially offset by an increase in travel payments, the net effect was a sizeable improvement in South Africa s travel account. (The surplus on SA s travel account rose from R74.01 billion in Q to R77.65 billion in the final quarter of the year; an increase of R3.6 billion in the quarter). Importantly, the upside potential for South African foreign tourism inflows remains substantial and a clear growth opportunity for job creation and economic growth. While the domestic tourism industry was somewhat bolstered in 2015/2016 by the fact that many more South Africans chose to holiday inside South Africa rather than travel overseas given the increased cost of foreign travel, there are signs that this is starting to slowly reverse. Overall, South Africa is still not fully exploiting its full potential as a vibrant and growing world travel destination. The tourism sector has the ability to provide a much needed boost to employment, employing many low and semi-skilled service industry workers. Despite the Q narrowing of the trade surplus, South Africa is expected to hold-onto recent export gains, helped by improved world growth, a noticeable pick in world trade and some improvement in commodity prices overall. Unfortunately, the country is still struggling to improve its international competitiveness in a range of manufactured goods. In this regard, improved electricity supply and labour market stability is extremely welcome and is starting to help SA s industrial sectors at a critical time. The slump in the domestic economic activity over the past few years has meant that import demand has softened. However, the South African economy is expected to gain momentum in 2018/2019 helped by an improved political backdrop and an uplift in business and consumer confidence. This pick-up in economic activity is expected to result in a further increase in import demand, especially given the relative strength of the Rand and the upward drift in South Africa s import intensity. The increase in imports, together with relatively moderate gains in exports means that South Africa trade surplus is likely to narrow over the next few quarters, resulting in a further widening of the current account.

10 4. Stats SA released the retail sales data for January 2017 today. According to this latest survey, retail sales fell by a fairly substantial -1.6%m/m in January 2018, after recording a revised and sharp decline of 3.3%m/m in December These decline follow the November growth of 4.0%m/m, which largely related to the better than expected Black Friday. The month-on-month sales performance was worse than market expectations, which was for spending to fall by only -0.1%m/m. In the past three months from November to January retail sales rose by 0.9%q/q, but clearly this was entirely due to the strong November reading. In other words the data would suggest that after embarking on a spending spree in November and early December 2017, the consumer ran-out of steam in the beginning of the year. This has become something of a seasonal pattern in the past two to three years. Despite the larger than expected monthly decline in sales during January 2018, the annual growth in retail spending remained positive at 3.1%y/y, helped by the low base of retail activity in the beginning of Similarly, the 12-month moving average of the annual growth rate remained firmly positive at +3.2%. For 2017 as a whole, SA retail sales grew by 2.8% in real terms, with a noticeable acceleration in the second half of the year. While the recent acceleration in retail spending has been fairly broad-based, the stand-out categories include clothing and footwear, and online retailing. In recent months many retailers have offered bargains/specials, enticing the consumers with great deals. Furthermore, these sales have largely been purchased with cash, as reflected in the fact that the growth in consumer credit remains very modest and trending only moderately higher. In summary, during 2015, South African consumers were helped by relatively low inflation (4.6%) compared with an average wage increase of 7.7%. This systematically changed in 2016 as inflation moved noticeably higher, and the Reserve Bank continued to hike rates. In addition, the banks became much more circumspect in the granting of credit. The net result was that at the start of 2017 the consumer had less discretionary income available for general retail activity. At the same time consumer confidence had fallen and is still well below the long-term average. Fortunately, in recent months inflation has moved back inside the target range and is likely to remain relatively low in the months ahead. This coupled with the reduction in interest rates (July 2017 and possibly March 2018) and the discounting of retail goods has provided some support to the household sector, especially in the second half of 2017, helping retail sales gain some momentum. Unfortunately, weighing against the consumer in 2018 will be the recent tax hikes, including a 1 percentage point increase in the VAT rate. The net result is that retail spending is expected to remain positive in 2018, but could struggle to gain momentum unless there is a meaningful improvement in job creation. 5. The Monetary Policy Committee of the Central Bank of Kenya lowered its Central Bank Rate by 50 basis points to 9.5%. Inflation is well within the bank s target and economic activity started to weaken in the second half of The last time the bank cut rates was in September 2016 from 10.5% to 10%. Inflation in Kenya is below the midpoint at 4.5% for the month of February 2018 (target is %). This is down from 4.8% in January 2018 and the recent peak of 11.5% in April The high inflation rate was drought induced as food inflation raced to a peak of 21.5% in April The latest food inflation print registered 3.4% in February 2018 from 4.7% in January. Core inflation remains under control at below 5% for the last 2 years. This indicates that demand driven inflation remains benign but also points towards a weakening economy.

11 The Kenyan Shilling has surprisingly remained stable (even through the election impasse) which should be supportive towards further price stability. Year-to-date the currency is 1.9% stronger compared to the US Dollar. Private Sector Credit Extension remains depressed at 2.1% to February 2018, lower than the 2.4% recorded in December It has systematically been moving lower since the middle of All these signs pointed towards interest rate cuts at the end of last year, the interest rate caps had held back the Central Bank of Kenya from cutting the central bank rate. The interest rate regulation caps lending rates at a maximum of 4 percentage points above the central bank rate (so currently 13.5%) and sets a minimum of 70% of the bank rate for deposits (6.65%). The bank had been appealing to authorities for an amendment to the policy which has effectively curtailed the transmission mechanism. The caps (which essentially dictate lending and deposit rates that banks can offer the public) have caused banks to become more risk averse. As a result credit sector extension to the private sector was hurt and remains low. The central bank re-iterated that there was little they could do to stimulate economic activity as rate cuts had little effect on banks lending behavior and that it was rather informed by regulation. Bank s Non-Performing Loans (NPL) to gross loans ratio increased to 11.4% in February 2018 from 10.6% in December This pressure has caused banks earnings to fall over the 2017 reporting period and banks results are expected to remain under pressure in Foreign exchange reserves are picking up and now stand at $8.8 million or 5.9 months of import cover. That s the highest in over a decade. This includes the proceeds of the Eurobond issuances. The precautionary arrangement with the IMF, worth $990 million, has been extended so that should provide some additional support on top of reserves. We re-iterate that the easing bias across the Sub-Saharan Africa region is set to continue. Currencies have been much more stable supported by stronger current account balances as exports (especially commodities) have picked up meaningfully. Investor appetite into the region is slowly returning although most are still very cautious. We expect more interest rate cuts from the region as the year progresses. We expect the easing bias to continue in Kenya for the rest of the year however the outlook is still very uncertain. Loan advances remains low and inflation is expected to remain at current levels before picking up in the second half of the year. All data points towards more cuts however the regulatory interest rate caps have hampered the central bank s ability to do so. Should the law be amended then further cuts should be expected from the bank to as low as 9%. 6. The US Federal Open Market Committee decided to increase the Federal Funds target interest rate by a further 25bps, taking the target range up to 1.50% to 1.75%. The FOMC decision was unanimous. In discussing the decision, Jerome Powell, stayed away from a detailed discussion on almost all the possible contentious issues, including trade tariffs, the extent of government borrowing, how much inflation would the FOMC be willing to tolerate, and whether the FOMC will increase the number of press conferences held in a year. In making the decision to hike rates, the FOMC highlighted that the labour market has continued to strengthen and economic activity has been rising at a moderate rate. The economic outlook has strengthened in recent months. Job gains have been strong, and the unemployment rate has stayed low. On the negative side, recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings, while market-based measures of wage growth have increased in recent months but remain low.

12 There has been a modest upward adjustment to the FOMC s outlook for interest rates (the dot-plot chart) as well as inflation and growth and a downward adjustment to the expected unemployment rate. Back in December 2017, the dot-plot suggested the FOMC members expected to raise rates three times in This has now been adjusted to a firmer expectation of three hikes, and is one dot away from suggesting four hikes. The dot-plot is probably in-line with many analysts own projections, including STANLIB. The FOMC clearly thinks that interest rates will continue to rise at a gradual pace and that the federal funds rate is likely to remain below the neutral rate for some time. It is interesting to see that the FOMC expects to raise rates three more times in 2019 and twice in Each hike would be 25bps. The FOMC has not changed their policy on slowly reducing the size of their balance sheet. From our perspective, the most recent US economic data suggests that there has been a noticeable improvement in US economic activity, including employment, production and business confidence. There has also been some upward drift in US inflation, although core inflation remains below 2.0%. All of this would argue that the Fed is likely to hike rates at least two more times this year, with the risk of three hikes increasing. A more aggressive rate hiking cycle would depend on GDP accelerating to around 3% on a trend basis, employment gains remaining well above a month and wage pressure increasing. Please follow our regular economic updates on Kevin Lings, Laura Jones & Kganya Kgare (STANLIB Economics Team)

13 Rates These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY. STANLIB Money Market Fund Nominal: 7.19% Effective: 7.43% STANLIB is required to quote an effective rate which is based upon a seven-day rolling average yield for Money Market Portfolios. The above quoted yield is calculated using an annualised seven-day rolling average as at 16 March This seven- day rolling average yield may marginally differ from the actual daily distribution and should not be used for interest calculation purposes. We however, are most happy to supply you with the daily distribution rate on request, one day in arrears. The price of each participatory interest (unit) is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. STANLIB Enhanced Yield Fund Effective Yield: 7.96% STANLIB is required to quote a current yield for Income Portfolios. This is an effective yield. The above quoted yield will vary from day to day and is a current yield as at 23 March The net (after fees) yield on the portfolio will be published daily in the major newspapers together with the all-in NAV price (includes the accrual for dividends and interest). This yield is a snapshot yield that reflects the weighted average running yield of all the underlying holdings of the portfolio. Monthly distributions will consist of dividends and interest. Interest will also be exempt from tax to the extent that investors are able to make use of the applicable interest exemption as currently allowed by the Income Tax Act. The portfolio s underlying investments will determine the split between dividends and interest. STANLIB Income Fund Effective Yield: 8.38% STANLIB Extra Income Fund Effective Yield: 8.13% STANLIB Flexible Income Fund Effective Yield: 6.42% STANLIB Multi-Manager Absolute Income Fund Effective Yield: 5.59% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 23 March For the STANLIB Extra Income Fund, Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down.

14 Disclaimer The price of each unit of a domestic money market portfolio is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. An investment in the participations of a CIS in securities is not the same as a deposit with a banking institution. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from STANLIB Collective Investments (RF) (Pty) Ltd (the Manager). Commission and incentives may be paid and if so, would be included in the overall costs. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. TER is the annualised percent of the average Net Asset Value of the portfolio incurred as charges, levies and fees. A higher TER ratio does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs. Portfolios are valued on a daily basis at 15h00. Investments and repurchases will receive the price of the same day if received prior to 15h00. Liberty is a full member of the Association for Savings and Investments of South Africa. The Manager is a member of the Liberty Group of Companies. As neither STANLIB Wealth Management (Pty) Limited nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management (Pty) Limited does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial adviser in this regard. STANLIB Wealth Management (Pty) Limited is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (Licence No. 26/10/590). Compliance No.: HX Melrose Boulevard, Melrose Arch, 2196 P O Box 202, Melrose Arch, 2076 T: (SA Only) T: +27 (0) E: contact@stanlib.com Website: STANLIB Wealth Management (Pty) Limited Reg. No. 1996/005412/07 Authorised FSP in terms of the FAIS Act, 2002 (Licence No. 26/10/590) STANLIB Collective Investments (RF) (Pty) Limited Reg. No. 1969/003468/07