MARKET OVERVIEW Q Volatile times ahead

Transcription

1 MARKET OVERVIEW Q Volatile times ahead

2 E X E C U T I V E S U M M A R Y Global growth momentum is certain to slow down but the economic expansion is not at risk (with the exception of a significant escalation in trade tensions or a different shock). While global economic momentum indicators have peaked, and both monetary and fiscal policy settings remain supportive for growth, we anticipate only a moderation in growth after last year s acceleration. Volatility is likely to pick up after the lows of 2016 and 2017 as major central banks respond to better growth, however, policy normalisation in other key developed economies is likely to lag the U.S. Federal Reserve s steady march. In contrast, the rhetoric by emerging market central banks has become more dovish. The normalisation of liquidity conditions by developed market central banks is only likely to become a headwind for emerging market currencies once the main global central banks tip over to an outright hawkish stance. Global debt has continued to increase on both a nominal and relative basis to GDP. A large portion of the additional debt is used for consumption and for purchasing assets instead of investments. This has rendered some economies vulnerable to rising interest rates and falling asset prices. The trade tensions between the U.S. and China could undermine the constructive economic outlook if the situation escalates. The expectation is that the two sides are likely to move toward negotiations before significant damage is done. While a major escalation of trade protectionism is likely to be avoided, this remains a key aspect to keep an eye on. Risk assets have shifted lower since mid to late January with key equity benchmarks rolling over and/or faltering, equity volatility rising markedly, credit spreads widening, and government bond yields retreating (until recently). While higher inflation appears to have slid down the list of concerns for investors, there are fundamental forces pushing global core inflation higher. The risk now is that markets are discounting the likelihood of higher inflation in developed markets. Global equity markets will remain volatile in the near future as investors absorb trade tensions and the shifts in the cyclical interest/inflation outlook. Stock prices are likely to undergo another spike given the positive earnings backdrop. The stock market has not yet fully priced in the higher inflation rates and bond yields, which are expected over the next 6-12 months. This process will take time, indicating that volatility will persist. It is expected that emerging markets will also continue to be volatile, however, a solid global trade cycle is expected to steadily encourage global investors to look towards emerging markets for opportunities. Emerging markets more favourable stage in the macroeconomic growth and interest rate cycles, as well as attractive valuation, explain why it is expected to outperform developed markets in the coming months. The bearish long-term trends for the dollar are being brought to the fore by the nationalist rhetoric from the Trump administration. Against the context of decent global export growth, the U.S. dollar should be inversely correlated with export-orientated currencies (as has been the case in the past). With that said, currencies of emerging market economies that depend on hot money to finance current account deficits are vulnerable, especially as U.S. policy rates and Treasury yields rise. 2

3 F I R S T Q U A R T E R I N R E V I E W Global The International Monetary Fund (IMF) raised its global growth forecast to 3.9% in 2018 and 2019, with the U.S. tax cuts and better global growth momentum sighted as two main positive contributors. With that said, data released at the end of the quarter showed that the world s biggest economy slowed less than previously estimated in the final quarter of 2017 with GDP expanding 2.9%. The U.S. dollar weakness continued well into the month of January as fears of a possible U.S. government shutdown, coupled with the protectionist rhetoric from the Trump administration, put further pressure on the greenback. Global bond yields increased, with the yield on the 10-year U.S. Treasury jumping above the 2.6% mark for the first time since March The optimistic outlook regarding stronger growth and higher inflation triggered concerns that the pace of monetary policy tightening by global central banks may be more aggressive than initially anticipated. The U.S. Fed kept interest rates unchanged but echoed the sentiments regarding improved growth and inflation projects. The European Central Bank (ECB) also left rates and asset purchases unchanged with the ECB President, Mario Draghi, reiterating that there would only be a small chance of a rate hike in US GDP GROWTH 4.5% 3.7% 3.5% 2.8% 2.5% 1.2% 1.1% 0.1% 4.6% 5.0% 2.1% 0.6% 3.9% 2.0% 1.4% 0.9%0.8% 3.5% 2.1% 1.4% 3.1%3.2% 2.9% -2.1% Source: Thompson Reuters Global equities experienced solid performance in the month of January with continued support from macroeconomic conditions. The MSCI World Index gained over 5%, while the MSCI Emerging Market Index reflected the risk-on sentiment, returning over 8%. Global fixed interest markets were driven by currency returns as was mirrored by the Barclays Global Bonds Index, which returned 1.1% in the month while commodities took advantage of the dollar weakness. Volatility hit global financial markets early in February as indications of rising wage and price pressures in the U.S. rattled investors and caused concern regarding market valuations and asset allocations. Market participant s concerns regarding rising bond yields intensified, especially as key global central banks continued to throw in their support behind the global reflation outlook. Sentiment swayed away from risky assets while global equity markets traded in negative territory. U.S. markets fell sharply from recent record highs, with both the Dow and S&P 500 representatives confirming they were in correction territory. The VIX fear gauge of expected volatility spiked to nearly 40 after trading mostly between a high of 16 and a low of nine since the U.S. election in November With that said, calm returned relatively quickly, risk appetite improved and equity prices recovered. Risk aversion faded rapidly as the VIX fell under 20, while other economic statistics largely confirmed that the global economic upswing continued in the final months of 2017 and early

4 The MSCI Emerging Market index fell by 4.6%, marginally underperforming the MSCI World index which returned negative -4.1% due to the sharp market correction that occurred in the month of February. Global bond indices felt the pressure of higher bond yields. Despite higher bond yields - with the U.S. 10-year Treasury yield rising to a new multi-year high of 2.9% - the U.S. dollar remained weak. President Trump s suggested radical changes to trade tariffs further contributed to dollar weakness. The announcement pulled down the dollar due to concerns that the move would derail the positive global trade momentum. The Fed s relatively hawkish FOMC minutes, followed by U.S. Fed Chair Jerome Powell s upbeat testimony on the U.S. economy and inflation outlook, drove a recovery in the dollar in the second half of February. The U.S. and China continued their tit-for-tat quarrel on trade. Following U.S. President Donald Trump s announcement of 15% steel and 25% aluminium tariffs across the board, it later became evident that the tariffs were targeted at China as other countries could apply for exemptions on a case-by-case basis. Since then, Trump announced additional tariffs on US$50 billion worth of imports from China. In retaliation, China responded with equally harsh measures, initially announcing tariffs on US$3 billion U.S. imports and later updating this to US$50 billion U.S. imports. This translated into a weaker U.S. dollar and sent global equity markets into negative territory as the risk-off sentiment ensued due to fears of a potential trade war. The U.S. Fed lived up to expectations and increased rates by 25 basis points. The central bank signalled that it is likely to raise interest rate three times in 2018 as opposed to four hikes This saw the U.S. dollar lose ground against a basket of major currencies. The BOE left rates unchanged at 0.5% but noted that the tightening of monetary policy over the forecast period would be appropriate as inflation is projected to be above the 2% target in 2019 and Earlier in the month, the ECB President announced that the central bank would keep interest rates unchanged. Draghi, however, announced that stimulus in the region could soon come to an end. 450 US NON-FARM EMPLOYMENT CHANGE ' Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Source: Thompson Reuters The latest U.S. jobs report showed that the U.S. economy added jobs in the month of March (which was below market expectations), however, the impressive February jobs print was revised even higher to The closely observed average hourly earnings figure was less worrying, increasing by 0.3% and rising to a 2.7% annualised pace. Nonetheless, easing inflationary pressures witnessed in the month of March weighed on both the greenback and global bond yields. This was reflected in the performance of global bonds as the Barclays Global Bond Index returned 1% for the month of March. Global equities had to endure another month of losses in March as global equity markets were caught in the crossfire of the trade dispute. For the quarter, the MSCI World Index was down -1.1% while the MSCI Emerging Market Index was up by 1.4%. On Wall Street, the S&P 500 gave up -1.1% and the tech-heavy Nasdaq was up 2.5%. In Europe, the FTSE 100 shed -7.6%. On the commodities front, Brent Crude returned 4.3% for the three months, while gold s safe-haven appeal resulted in the yellow metal gaining 2.9% for the quarter. Platinum, on the other hand, was flat. 4

5 D O M E S T I C The beginning of the year was characterised by optimism regarding global growth prospects, firmer commodity prices, U.S. dollar weakness and improved political sentiment. This continued to support the rand in the month of January. It was clear that market participants perceived the Ramaphosa win in December as a positive change in the ANC leadership structure. Chinese economic growth exceeded the government s growth target of 6.5% and was another supportive factor for risk and commodity currencies (such as the rand). Towards month end, concerns regarding the tightening of policy by key global central banks translated into a rise in global bond yields. The U.S. dollar traded stronger as the rand weakened along with most emerging markets. Nonetheless, the rand had a solid month, finishing 4% firmer against the U.S. dollar. Local bonds were the best performing assets class in the month of January with the All Bond Index returning 1.8%. The yields on the S.A. 10-year remained anchored between 8.4% and 8.6% during the month and edged higher towards month end, taking guidance from U.S. Treasuries. Even amid the stronger rand, the South African Reserve Banks (SARB) decided to err on the side of caution by leaving the repo rate unchanged at 6.75%. The central bank adjusted its inflation forecast downwards with headline inflation expected to average 4.9% in 2018 and 5.3% in The SARB also pointed out the increase in international oil prices and the impact of possible further sovereign credit rating downgrades as an upside risk to inflation. Although the SARB anticipated more favourable growth prospects, South Africa saw the biggest negative change to the IMF s 2018 and 2019 GDP forecasts. The institution projecting growth of 0.9% for both years, down from 1.1% and 1.6% respectively. The IMF cited increased political uncertainty and a commensurate decline in confidence and investment levels as reasons for the downward revision. Later in the quarter, fourth-quarter growth figures showed that the economy s GDP growth improved by 3.1% (quarter-on-quarter). Overall GDP growth for 2017 came in at a better-than-expected 1.3% (up from 0.6% in 2016). SA GDP GROWTH 5.1% 3.8% 3.8% 3.2% 2.4% 2.6% 2.3% 2.0% 1.8% 1.3% 0.8% 0.7% 4.2% 2.1% 1.7% 0.5% 0.2%0.3% 3.6% 1.0% 0.4%0.5% 2.9% 3.1% 2.3% -0.8% -1.6% -2.1% Q1 `11 Q3 `11 Q1 `12 Q3 `12 Q1 `13 Q3 `13 Q1 `14 Q3 `14 Q1 `15 Q3`15 Q1`16 Q3'16 Q1'17 Q3'17 Source: Thompson Reuters February was an eventful month on the political front. The State of Nation Address (SONA) was postponed as the National Executive Committee (NEC) decided to recall Jacob Zuma as the country s president. At the eleventh hour, Jacob Zuma reluctantly resigned as the President of South Africa paving the way for Cyril Ramaphosa to be sworn in as the new President of South Africa. While the change in leadership was largely priced in, there was a knee-jerk reaction which saw further strengthening in the rand post the announcement while local markets rallied. President Ramaphosa s maiden SONA saw the rand touch R11.58 to the U.S. dollar during the delivery of the speech as the president aimed to restore investor confidence by continuing to talk tough against corruption, highlighting the urgent need for the creation of jobs (especially among the youth) as well as the efficient running of state-owned enterprises (SOEs). The National Budget set the country on a faster, albeit tougher, path towards fiscal consolidation. Consolidation measures for 2018/19 are set to be achieved through tax collection totalling R36 billion. This included the major step in the decision to increase value-added tax (VAT) by 1% to 15%. The dramatic changes in South Africa s 5

6 political leadership and a sounder national budget supported the rand, making it the second best performing emerging market currency in February. The eagerly awaited cabinet reshuffle saw the reappointment of Nhlanhla Nene as finance minister and Pravin Gordhan as public enterprise minister, which was welcomed by the market. The reappointment of some cabinet ministers (who were redeployed to different portfolios) was interpreted as a clear sign that the balance of power within the ANC remains fragile and fluid. The SARB finally pulled the trigger at the March MPC meeting as the central bank decreased the repo rate to 6.5%. SARB Governor, Lesetja Kganyago, explained that inflation forecasts had remained largely unchanged, with the stronger rand likely to mitigate the temporary inflationary effect of the VAT increase. The SARB s internal forecast model pointed towards a more moderate path of interest rate hikes, with one hike of 25 basis points by the end of This is compared to two to three hikes at the time of the January meeting this year. The SARB communicated that the decision to relax policy by 25 basis points does not signal the start of a cutting cycle. Moody s credit rating agency left the country s long-term credit rating unchanged at Baa3. The agency s decision to change the country s outlook from negative to stable was a welcomed surprise. Moody s communicated a more positive stance toward the country s institutional strength given the adoption of a more transparent and predictable policy framework. Nonetheless, the credit rating agency cautioned that the ability of the new administration to push through with the promised and required reforms remains to be tested. The credit rating reprive, coupled with a weaker U.S. dollar resulted in the local unit dipping below R11.70 against the greenback for the first time that month. Local bonds mirrored the stronger rand as the yield on the S.A. 10-year dipped below 8%. For the quarter, the JSE ALSI returned -5.9% as the rand has held steady compared to other emerging market currencies, appreciating 4.4% against the U.S. dollar. The rand strength was reflected in the weak performance of the big rand hedge counters with the Industrial 25 Index declining -8.7%. The Resources 20 and the Financial 15 Index also dragged the bourse lower, returning -2.6% and -1% respectively. The S.A. Listed Property Index was down 19.6% due to huge falls in the shares of Resilient, Fortress and NepiRock (which make up a sizeable proportion on the South African Listed Property Index). This severely hurt the sector following allegations of share manipulation. Foreigners maintained their net buyer position of local bonds with the All Bond Index up 8% while cash returned 1.7% for the three-month period. 6

7 G L O B A L O U T L O O K The recent IMF World Economic Outlook report projects that advanced economies will continue to expand beyond their potential growth rates for 2018 and 2019 before decelerating. Growth in emerging markets and developing economies is projected to rise before evening-out. For most countries, the current favourable growth rates will not last with future growth prospects appearing challenging for advanced economies and many commodity exporters. Nonetheless, global growth seems on track to reach 3.9% this year and the next. IMF GDP GROWTH FORECASTS FOR % 3.9% 2.5% 1.6% 2.4% 1.5% US UK Euro Area China South Africa World Source: IMF World Economic Outlook April 2018 There are some threats to the IMF s growth forecast. Firstly, monetary policy might tighten sooner than expected if excess demand emerges. This is a notable possibility in the U.S. where fiscal policy has turned more expansive, even as the economy nears full employment. Secondly, monetary tightening would leave highly indebted countries, businesses and households vulnerable. Finally, an escalating cycle of trade restrictions and retaliation might not be far off, with the first shots in a potential trade war already fired. The conflict could intensify if fiscal policies in the U.S. drives its trade deficit higher without action in Europe and Asia to reduce surpluses. Recent growth numbers showed that the Chinese economy proved resilient in Q1, mainly due to stronger-thanexpected property investment. We anticipate that the previous interest rate increases will dampen housing demand in the coming months. The Chinese economy is likely to gradually decelerate but policymakers have been loosening monetary conditions throughout this year as to ensure a soft landing. In terms of commodities, the industrial side of the economy should cool sufficiently to dent commodity demand while rising U.S. shale production should cap crude oil prices. 7.7% 7.5% 7.8% 7.7% 7.4% 7.5% 7.3% 7.3% CHINA GDP GROWTH 7.0% 7.0% 6.9% 6.8% 6.7% 6.7% 6.7% 6.8% 6.9% 6.9% 6.8% 6.8% 6.8% Source: Thompson Reuters Hostile trade rhetoric from President Trump is nothing new, however, the translation of such rhetoric into actions is new, as is the retaliation by China. The joint value of U.S.-China trade impacted by the latest round of tit-for-tat 7

8 tariffs is not yet of sufficient scale to tip the world into an all-out trade war and a consequent recession. Investors should caution against taking the recent trade war threats at face value and being quick to act. While these developments should be monitored closely, one needs to remember that there is an element of gamesmanship involved, especially with the U.S. mid-term elections around the corner. The U.S.-China face-off is by no means limited to U.S.-China bilateral trade. China is a manufacturing hub that imports components from Asian suppliers, whose ultimate target is global markets. Any disruption of global supply chains would negatively impact growth prospects in emerging market economies with close logistical relationships with China, such as Korea, Malaysia, Taiwan and Thailand. To date this year, the currencies of the three most manufacturing trade-sensitive emerging market economies (Korea, Mexico and Taiwan) have outperformed. Even with the protectionist growls coming from Washington, the performance of these currencies has been in line with what one would expect at a time of decent global trade momentum. If the protectionist stance and actions were to persist beyond the mid-term electoral cycle in the U.S. and threaten investment plans, such currencies would be candidates for a downgrade. Global financial conditions are expected to remain generally accommodative during The continued easing of lending conditions (notably in the euro area) is expected to offset the anticipated gradual rise in long-term interest rates. The normalisation of monetary policy in the U.S. and the UK is expected to proceed without triggering large or prolonged increases in financial market volatility. Under the baseline forecast (barring some vulnerable economies), most emerging markets are expected to face accommodative financial conditions with higher policy rates but with sustained risk appetite. Most emerging market economies are also likely to continue the recent record of generally contained sovereign bond spreads and strong equity market performance. The U.S. dollar has been consolidating its losses since January. Theoretically, higher inflation, higher bond yields and additional interest rate hikes should be supportive of the U.S. dollar, however, the greenback s overall outlook remains cloudy. Generally, when a country increases its deficit year-on-year and rakes up higher national debt, its currency tends to falter (the Reagan tax cuts in 1985 and the Bush tax cuts in 2001 as a case in point). In addition, the dollar has typically weakened during previous Fed hiking cycles. The protectionist stance of the Trump administration and any escalation in trade war concerns also remain bearish for the U.S. dollar. Global equities have been forced to digest several credible threats this year, including a drop in the U.S. dollar, a spike in the U.S. and developed government bond yields, an escalation of trade tensions and concerns about the surge in the Libor-OIS spread. Nonetheless, the growth outlook should be the key focus for equities as opposed to bond yields. For that reason, it is expected that the bond-stock correlation will remain firmly inverse. While some of the growth data points have weakened, this decline is far from universal and is taking place from an elevated starting point. Regionally, the key positives for the U.S. are starting to move behind us, given that the bulk of the positive impact from the tax cuts are now in earnings estimates. Meanwhile, the Eurozone fundamentals continue to look decent with the softness observed due to political developments in the region a possible buying opportunity. We remain overweight global equities. We maintain an underweight position on developed market government bonds with a 6-12-month horizon, with yields expected to be range-bound in the near term. Real yields remain very low by historical standards and relative to economic growth. There is, however, a bias to the upside if the economic expansion persists and limited downside prevents an unexpected deterioration in U.S. growth. Risks to inflation expectations and U.S. Fed policy are also to the upside, meaning there is possibility that inflation could be higher while the U.S. Fed could also increase the pace of interest rate hikes. Global bond yields will lag the U.S. rise but will continue to move higher. The growing budget deficit in the U.S., combined with Fed balance sheet shrinkage and tapering by the ECB and Japan, will reinforce the positive risks for yields. D O M E S T I C O U T L O O K The IMF upgraded South Africa s growth forecast and now estimates that the country will reach 1.5% and 1.7% growth in 2018 and 2019 respectively (up from 0.9% estimated previously for both years). The revised optimistic outlook hinged on positive political developments as well as the expectation that improved business confidence 8

9 should lead to an increase in investments. Reform initiatives are also important for the investment outlook, as they are fundamental to sustaining higher growth rates. At the peak of the boom in the late 2000s, South African investment levels peaked fractionally above 23% of GDP. High-growth countries typically achieve investment rates of at least 25% of GDP, and often more. The emerging market average for the last decade has been over 30% of GDP. South Africa currently invests less than 20% of GDP. In a bid to bolster domestic growth and attain the 30% investment to GDP target set out in the National Development Plan, a task team has been assembled to try and communicate the country s fundamental strengths and structural reform efforts. Should the envoy prove successful, the results could be transformative. The rand outperformed substantially in January and, even though consolidation has taken place since, the local unit looks relatively expensive when compared to its commodity and emerging market peers. This suggests that the currency has room to depreciate if market sentiment towards South Africa takes a less optimistic turn. Financial conditions are currently favourable for South Africa but it is unclear how long this can last. While growth prospects have been revised upwards, the rand is driven by the very modest growth prospects of South Africa s domestic demand, along with its dependence on global portfolio capital inflows to finance its current account deficit. This makes South Africa vulnerable to rising global interest rates and any political missteps following President Ramaphosa s victory. Local inflation has continued to surprise on the downside in recent months but appears to have reached rockbottom in the current cycle. While inflation is expected to remain under control over the next year (despite the increase in the VAT rate), it will likely increase in the first half of 2019 before stabilising at around 5.5% for 2019 as a whole. The SARB may have lowered the repo rate but the central bank s stance remains hawkish, therefore, the expectation is that the SARB is likely to keep rates on hold rather than to cut interest rates further. The yield on the S.A. 10-year continues to be supported by the National budget (which returned to a path of fiscal consolidation), the credit rating reprieve (by Moody s) as well as the rate cut by the SARB. Nonetheless, both headline and core inflation are set to remain within the SARB s 3% - 6% target band over the forecast period. The rand might continue to be supported by emerging market risk appetite, global growth and, in time, a weaker dollar. A major area of concern remains the dollar trend and possible aggressive rate hikes by the U.S. Fed could result in the dollar strengthening this year. This could offset any improvement in both domestic sentiment and fundamental economic indicators. Given the aforementioned points, we remain on-weight regarding the local bonds position. On the local equities front, a key assumption is that President Ramaphosa s administration will push through enough reform to restore S.A. Inc. The margin improvement story appears to be well supported by the following factors - firstly, improved real growth should boost margins via operating leverage. Secondly, a strong rand should reduce imported input costs and finally, restored business confidence also hints at higher margins. Over the past two years, S.A. had the highest beta of all the emerging markets, indicating that one needs to be cognisant of external triggers such as the possibility of commodity price weakness. Fluctuations in the oil price, a stronger U.S. dollar (or weaker emerging market currencies) and the negative impact of a possible trade war. In addition, weaker-than-expected global growth would not be supportive to local equities. Valuations are between fair value and stretched and, while local equity earnings have been depressed relative to their long-term trends (particularly in resources and financials), they do have the potential to improve, assisted by a favourable global tailwind. We remain on-weight South African equities. HEADLINE INDICES 1 MONTH 3 MONTH 12 MONTH Africa All Share -4.18% -5.97% 9.60% Africa Top % -6.32% 10.97% Africa Mid Cap -3.42% -3.63% 2.31% Africa Small Cap -1.33% -1.27% -2.77% Africa Fledgling 1.60% 1.27% -1.05% Africa Resource % -2.65% 11.52% Africa Industrial % -8.74% 6.85% Africa Financial % -1.08% 25.47% 9

10 Africa Financial and Industrial % -7.01% 11.44% Africa Capped All Share -3.33% -4.73% 8.91% Africa Shareholder Weighted -5.00% -6.76% 9.41% ALL SHARE ECONOMIC GROUP INDICES Africa Basic Materials Index -2.10% -3.85% 10.42% Africa Industrials Index -4.90% -1.71% 17.00% Africa Consumer Goods Index -1.16% -7.51% % Africa Health Care Index 0.69% -1.94% -4.02% Africa Consumer Services Index -8.37% % 23.30% Africa Telecommunications Index -4.07% -5.18% 1.32% Africa Financials Index -3.10% -3.56% 17.58% Africa Technology Index % % % ALL SHARE SECTOR INDICES Africa Chemicals -1.78% -3.36% 6.62% Africa Electronic & Electrical Equipment Index -2.74% 8.13% % Africa Industrial Engineering Index -9.22% -1.08% % Africa Automobiles & Parts Index -3.52% 6.98% -6.52% Africa Beverages Index -1.07% -3.01% 1.21% Africa Food Producers Index -8.02% -8.17% -0.84% Africa Health Care Equipment & Services Index 4.91% 2.68% -1.87% Africa Pharmaceuticals & Biotechnology Index -3.84% -6.88% -6.46% Africa General Retailers Index 0.92% 9.22% 25.59% Africa Travel & Leisure Index -7.74% 2.07% % Africa Media Index % % 25.16% Africa Support Services Index -4.62% -3.41% -8.83% Africa Industrial Transportation Index -6.70% % 22.52% Africa Food & Drug Retailers Index -2.18% 0.35% 20.40% Africa Fixed Line Telecommunications Index 2.30% 10.02% % Africa Banks Index -3.34% 4.17% 45.25% Africa Non-life Insurance Index 8.24% 24.44% 32.27% Africa Life Insurance Index -4.45% 1.17% 25.36% Africa General Financial Index -6.64% -2.40% 0.31% Africa Equity Investment Instruments Index 0.50% % % Africa Technology Hardware & Equipment Index 0.00% 0.00% 0.00% Africa Software & Computer Services Index % % % Africa Gold Mining 6.10% % % Africa Platinum & Precious Metals % % % Africa SA Listed Property - (SAPY) -0.96% % -7.09% BONDS, CASH & INFLATION All Bond Index 2.07% 8.06% 16.23% Stefi Composite 0.60% 1.76% 7.45% CPI (Pevious Month) 0.38% 1.43% 3.81% 10

11 CPIX (Previous Month) 0.28% 1.53% 3.71% CURRENCIES Rand Dollar Exchange Rate 0.25% -4.46% % Rand Pound Exchange Rate 2.34% -0.82% -0.14% Rand Euro Exchange Rate 1.40% -1.87% 2.02% Dollar Euro Exchange Rate 1.04% 2.59% 15.65% Dollar Yen Exchange Rate 0.39% 6.02% 4.56% Naira Dollar Exchange Rate -0.42% -0.14% 14.13% COMMODITY PRICES Brent Oil (USD/Barrel) 7.36% 4.34% 29.67% Gold (USD/oz) 0.56% 2.19% 6.08% Platinum (USD/oz) -5.06% 0.07% -2.13% Copper ($/Ton) -3.85% -6.59% 14.29% CRB Index 0.87% 1.17% 6.36% Global Bonds 1.26% 2.17% 7.60% S&P % -1.14% 11.86% Nasdaq -2.88% 2.32% 19.48% MSCI Global Equity -2.11% -1.15% 14.20% MSCI Emerging Mkt -1.83% 1.47% 25.37% C O N T A C T U S Third Floor, The Cliffs Office Block I Niagara Way Tyger Falls Carl Cronje Drive Bellville 7530 Disclaimer: This document is confidential and issued for the information of the addressee and of clients of Novare Holdings (Pty) Ltd (Registration No. 2005/035231/07) ( Novare ) only. It is subject to copyright and may not be reproduced in total or in part without the prior written consent of Novare. There are risks involved in buying or selling any financial product and past performance of a financial product is not necessarily indicative of the future performance. The value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The information contained in this document is for indicative purposes only and are not deemed to be final. It is provided in good faith and has been derived from sources believed to be reliable and accurate. However, no representation or warranty, express or implied, is made in relation to the accuracy or completeness of this information. The opinions and estimates expressed herein constitute the judgement of Novare and are subject to change without notice. This document does not constitute an offer to buy or a solicitation of an offer to buy or sell units in any jurisdiction in which an offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer of solicitation and is for information purposes only. The following entities form part of the Novare Group: Novare Actuaries and Consultants (Pty) Ltd (Registration Number: 2001/008015/07)( NAC ) is an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act, No. 37 of FSP No. 815 (CAT I & CAT II). NAC is approved by the Financial Services Board in terms of Section 13B of the Pension Funds Act, 24 of 1956, as an Investment Administrator: 24/ 454. Novare Capital (Pty) Ltd (Registration Number: 2013/190032/07)( NC ) is an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act, No. 37 of FSP No (CAT I). Novare CIS (RF) (Pty) Limited (Registration Number: 2013/191159/07) ( NCIS ) is an authorised Management Company registered according to the Collective Investment Schemes Control Act (CISCA) and regulated by the Financial Services Board of South Africa. Novare Investments (Pty) Ltd (Registration Number: 2000/018539/07) ( NI ) is an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act No 37 of FSP No. 757 (CAT I, CAT II, CAT IIA). NI is approved by the Financial Services Board in terms of Section 13B of the Pension Funds Act, 24 of 1956, as an Investment Administrator: 24/ 456. NI is a member of the Association for Savings and Investment SA. Novare Equity Partners (Pty) Ltd (Registration number: 2007/020662/07) ( NEP ) is an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act No 37 of FSP No (CAT I and CAT II). NEP is approved by the Financial Services Board in terms of Section 13B of the Pension Funds Act, 24 of 1956, as an Investment Administrator: 24/ 554. NEP is a member of the South African Council of Shopping Centres. NEP is a member of South Africa-Nigeria Chamber of Commerce. Novare Wealth(Pty) Ltd (Registration Number: 2014/136255/07) ( NW ) is an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act, No. 37 of FSP No (CAT I). 11