MARKET REVIEW December 2017
Contents Global Market Review 1. Global Market Data Table 2. Global Market Commentary 3. Global Market Performance Graph 4. Global Sector Performance 5. US Dollar vs International Currencies 6. Commodities Performance Local Market Review 1. The South African Rand 2. The JSE All Share Index 3. 5 Year JSE All Share Index 4. 5 Year JSE All Share Index vs Global Indexes (USD) 5. The JSE All Share Index Subsectors 6. The South African Fixed Income & Property
SKYBOUND CAPITAL Global Market Review
Data Tables INTERNATIONAL INDICATORS LOCAL INDICATORS Closing Price December 2017 November 2017 Year to Date 2016 Closing Price December 2017 November 2017 Year to Date 2016 MSCI World (US$) 2 103 1,26% 1,99% 20,11% 5,32% Top40 Index 52 533-1,38% 1,33% 19,66% -4,14% MSCI Emerging Markets (US$) 1 158 3,36% 0,15% 34,35% 8,58% Mid Cap Index 80 245 4,47% 2,22% 3,68% 23,42% JSE All Share 59 505-0,45% 1,34% 17,47% -0,08% Small Cap Index 60 971 3,25% -3,26% -1,04% 15,92% MSCI China 89 2,00% 1,66% 52,34% -1,38% Resources 36 293-1,06% -1,52% 13,03% 26,44% Stoxx Europe 600 389 0,64% -2,16% 7,68% -1,20% Industrials 79 085-4,79% 1,48% 23,03% -10,41% S&P 500 2 674 0,98% 2,81% 19,42% 9,54% Finanicals 17 873 9,63% 5,70% 18,54% -1,03% Platinum Producers 20-5,47% -6,52% -1,01% 50,46% Oil Spot 66,87 5,19% 3,58% 17,69% 52,41% Gold Producers 1 304-10,30% 5,54% -4,31% 28,85% Gold Spot 1 303 2,20% 0,30% 13,09% 8,56% Platinum Spot 931-1,29% 2,58% 2,99% 1,16% 10 Year Governenment Bond 8,60% 4,35% -1,37% 1,28% 5,12% JSE Listed Property 2 464 4,21% 1,92% 17,15% 10,20% Rand / Dollar 12,38 9,64% 3,06% 9,80% 11,33% All Bond Index 588 5,60% -0,97% 10,16% 15,45% Dollar / Pound 1,35-0,04% 1,84% 9,42% -16,14% Rand / Pound 16,73-9,81% -1,17% -1,29% -25,69% Dollar / Euro 1,20 0,85% 2,22% 14,12% -3,10%
Commentary SOUTH AFRICA The JSE All-Share ended the month of December down 0.45%. By sector the largest gainer was the Financial sector that closed the month positively, up 9.77%, supported by double digit positive returns in the month from FirstRand (+19.34%), RMB Holdings (+18.34%), Barclays Africa (+15.34%). By sector, the worst performer was the information Technology sector, down 9.39%, weighed down by a 19.83% drop in EOH Holdings Ltd. In addition, consumer discretionary stocks dropped by 8.41%, weighed down by declines in Steinhoff International (-91.73%), Steinhoff Africa Retail (-13.78%), and Naspers (-6.42%). Among specific shares, the Steinhoff accounting scandal dominated headlines in December, which saw its shares price drop over 90% during December. At this stage, it appears that losses within the group have been masked in off-balance sheet entities, thus inflating earnings. It has been announced that the entity s financials will need to be restated from its 2015 financial year. The Rand recorded its worst level of R14.47 and its best level of R12.43 against the US Dollar in 2017. The Rand strengthened considerably against major currencies, as markets priced in Cyril Ramaphosa to win the ANC presidential election, who is seen as a market friendly presidential candidate. During the 7 th to the 29 th December, the Rand strengthened by 9.87% to settle at the R12.38/$ mark, where the local currency has continued to trade well below the R13/$ mark, however, market participants anticipate the Rand to weaken back to a fair value of mid R13/$. Lastly, on a local economic front, data was released in early December, indicated that the third quarter GDP grew by 2%. The largest contributor to the third quarter s growth was the agricultural sector, which comprises of 44.2% of the national GDP, adding 9.6%. Mining production increased by 5.2% YoY (est. 4.1%) amid better-than-expected October mining data. Lastly, YoY headline inflation slowed to 4.6% for November (Oct 4.8%) and MoM inflation slowed to 0.1% from 0.3% in October 2017. UNITED STATES The S&P 500 ended the month of December up 0.98%, reaching the 2673.61-point mark. By sector, the largest gainer was the Telecommunications Services sector which closed the month positively (up 5.77%). The Dow Jones and NASDAQ Composite Index advanced in December, adding 1.84% and 0.43% respectively. US equity markets performed well throughout 2017 and finished December with further gains. Improving earnings growth was the main contributor for the positive performance in 2017. In addition, the estimated fourth quarter earnings growth for the S&P 500 was 10.9%, with all 11 sectors anticipating growth from third-quarter levels. Fixed income investment vehicles experienced a relatively more volatile year compared to equities, amid the Federal Reserve (Fed) raising interest rates three times in 2017. Market participants anticipate that the Fed will continue raising interest rates at least two times in 2018. Although these interest rate hikes indicate the central bank s confidence in the US economy, it could have a negative impact on fixed income markets. Lastly, the Fed s latest quarterly economic projections has forecasted US economic growth to be 2.5% (previously 2.4%) for 2017 and 2.5% for 2018, which has taken into account the effect of the new tax legislation. EUROPE The STOXX 600 added 0.43% for the month of December. By sector, Basic Resources featured as the strongest performers, up 9.89%. In contrast, Utility stocks featured as the worst performers, down 3.89%. The FTSE 100 attributed positively to the gauge, featuring as the region s top performer, up 4.93%. In contrast, the German DAX and French CAC 40 Index ended the month in negative territory, down 0.82% and 1.12% respectively. In Europe, political risks remain elevated, amid the inclusive German election and stalled coalition talks, which rattled European markets mid-december. In addition, Italy s political landscape has shifted significantly over the past five years, where populist parties have gained significant traction while traditional centre-left parties have lost support. Italian President, Sergio Mattarella, has scheduled Italy s first election in 5 years for 4 th March 2018. In response to the solid global economic growth, the European Central Bank (ECB) has kept its asset purchases at 30 billion per month in 2018, however, given the low inflation and the likelihood that price pressures will remain low for the majority of 2018 in the Eurozone, the ECB will probably only raise interest rates in 2019. Lastly, the economic growth in the UK slowed down to 1.5% in 2017 (2016: 1.6%). The 0.1% cut in growth output implies a 9 billion decrease in fiscal revenue. This coupled with a sharp depreciation in the Pound has increased inflation in the UK. This may force the Bank of England to increase interest rates at least once in 2018 to combat rising inflation. CHINA AND ASIA Asian equities ended the month of December up, with MSCI Asia Pacific Index adding 2.00%. The Hang Seng featured as the region s top performer up 2.54%, followed by a 0.18% increase in the Japanese Nikkei 225 Index. In contrast, the Shanghai Composite Index fell 0.30%. Among specific nations, China has embarked on a new five-year political cycle. During the previous five years, stimulus in property and infrastructure markets were prioritised to soften the economic slowdown. The 19 th Party Congress have stated that they have shifted their focus from quantity of growth to quality of growth for the next five years. Growth in China is expected to slow down to 6% in the medium term, amid tightening financial conditions. Chinese Policy makers have clamped down on shadow financing and credit growth has fallen to almost 10- year lows. Monetary policy in China is expected remain stable, however authorities could step in, should economic growth drop below 6%..
Performance Graph (USD) 12,00% 10,00% JSE Africa All Share Index; 10,06% 8,00% 6,00% 4,00% 2,00% 0,00% MSCI Asia Pacific Index; 2,00% MSCI World Index; 1,26% S&P 500 Index; 0,98% STOXX Europe 600 Index; 0,64% -2,00% -4,00% -6,00% JSE Africa All Share Index MSCI World Index S&P 500 Index STOXX Europe 600 Index MSCI Asia Pacific Index
Sector Performance (USD) 10,0% 8,0% 7,5% 6,0% 5,7% 6,0% 4,0% 4,5% 4,2% 3,7% 3,2% 4,9% 3,7% 2,0% 2,1% 0,6% 1,8% 2,5% 1,9% 1,6% 1,9% 1,0% 0,0% -0,1% -0,1% -2,0% -4,0% -6,0% Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology -4,9% Materials Telecom Service Utilities Developed Markets Emerging Markets
YEN PER US DOLLAR US DOLLARS PER AUSTRALIAN DOLLAR US DOLLARS PER POUND US DOLLARS PER EURO MONTHLY REVIEW Performance Analysis (USD vs Global Currencies) 1,36 1,21 1,35 1,35 1,20 1,20 1,19 1,34 1,18 1,33 1,17 1,32 1,16 114 0,79 0,78 0,78 113 0,77 112,69 0,76 112 0,75 0,74 111 0,73
Market Performance (Commodities) 1 Year Bloomberg Commodities Index Commodities ended the month of December mostly higher, with the Bloomberg commodity index adding 2.88%. The global oil benchmark recorded its sixth consecutive month-on-month gain to close at a two year high of $66.87 per barrel. Metal prices rose during December, supported by firm Chinese economic growth. Aluminium featured as the top performer, recording a price reversal of 11.08%. However palladium featured as the best performer for a second consecutive year, adding 55.29% in 2017 (2016: 21.57%). 91 89 87 85 83 81 COMMODITY PRICES (US$) Closing Price December 2017 November 2017 Year to Date 2016 Gold 1 309,30 2,84% 0,21% 13,68% 8,63% Platinum 934,20-0,88% 2,49% 3,62% 1,11% Palladium 1 061,00 5,40% 2,80% 55,29% 21,57% Copper 330,05 8,68% -2,06% 31,73% 17,35% Silver 17,15 4,66% -1,86% 7,23% 15,84% Aluminium 2 258,25 11,08% -5,28% 33,31% 12,52% Oil Spot 66,87 5,19% 3,58% 17,69% 52,41% Coal 100,80 4,13% -3,10% 14,03% 74,70% Natural Gas 2,95-2,38% 4,45% -20,70% 59,35% Sugar 15,16 0,53% 2,31% -22,30% 28,02% Cocoa 1 892,00-7,62% -2,20% -11,01% -33,79% Coffee 126,20-0,08% 0,96% -7,92% 8,17% Corn 1,20 0,85% 2,22% 14,12% -3,10% 79 77 75 60% 50% 40% 30% 20% 10% 0% -10% 1 Year Gold, Platinum and Palladium Gold Platinum Palladium
SKYBOUND CAPITAL South African Market Review
Performance (South African Rand) During the month of December, the Rand recorded its worst level of R13.70 and its best level of R12.43 against the US Dollar. The Rand strengthened considerably against major currencies, as markets priced in a Cyril Ramaphosa victory of the ANC 2017 presidential election, who is seen as a market friendly presidential candidate. During the 7 th to the 29 th December, the Rand strengthened by 9.87% to settle at the R12.38/$ mark, where the local currency has continued to trade well below the R13/$ mark, however, market participants anticipate the Rand to weaken back to a fair value of mid R13/$. Closing Price December 2017 November 2017 Year to Date 2016 Rands/US Dollar 12,38 9,64% 3,06% 9,80% 11,33% Rands/Pound 16,73 9,81% 1,17% 1,29% 25,69% Rands/Euro 14,96 8,30% 0,83% -3,51% 13,99% 14,00 13,80 13,60 13,40 13,20 13,00 12,80 12,60 12,40 12,20 12,00 RANDS PER US DOLLAR 18,90 RANDS PER POUND 18,40 12,38 17,90 17,50 3 Year Rand vs US Dollar 17,40 16,90 16,73 16,50 15,50 16,40 15,90 14,50 13,50 16,50 RANDS PER EURO 12,50 11,50 12,38 16,00 15,50 15,00 14,96 10,50 14,50 9,50 14,00
Performance (JSE All Share Index) 0% -1% -1% -2% -2% -3% -3% -4% -4% -5% JSE All Share Index Cumulative Performance 30% 25% 20% 15% 10% 5% 0% 24,89% 24,30% 21,77% Top 10 Performers 20,02% 19,34% 18,31% 18,06% 17,72% 17,53% Performance of 10 Largest Index Members JSE All Share Index Monthly Performance 10% 5% 0% -5% -10% -15% 7,05% -10,22% -3,06% -4,64% -3,73% 3,95% 5,29% 5,49% 8,00% 6,00% 4,00% 2,00% 0,00% -2,00% 0,88% 4,21% 1,78% 3,38% -0,47% 6,97% 2,38% -1,67% 6,12% 1,34% -4,00% -3,11% -3,64% -6,00%
5-Year JSE Performance (ZAR) 65 000 60 000 59 505 55 000 56 085 52 729 50 000 49 372 45 000 40 000 35 000 30 000
5 Year JSE vs Leading Global Indicators (USD) 100% 80% 82,3% 60% 53,5% 40% 31,8% 20% 24,6% 0% 2,2% -20% -40% S&P 500 Index MSCI World Index MSCI Asia Pacific Index STOXX Europe 600 Price Index JSE Africa All Share Index
Performance (JSE All Share Index Subsectors) Closing Price December 2017 November 2017 Year to Date 2016 Top40 Index 52 533-1,38% 1,33% 19,66% -4,14% Mid Cap Index 80 245 4,47% 2,22% 3,68% 23,42% Small Cap Index 60 971 3,25% -3,26% -1,04% 15,92% Resources 36 293-1,06% -1,52% 13,03% 26,44% Industrials 79 085-4,79% 1,48% 23,03% -10,41% Finanicals 17 873 9,63% 5,70% 18,54% -1,03% Platinum Producers 20-5,47% -6,52% -1,01% 50,46% Gold Producers 1 304-10,30% 5,54% -4,31% 28,85% Dec Forward P/E Nov Forward P/E Oct Dividend Yield Top40 Index 15,65 15,09 2,93% Mid Cap Index 12,82 12,35 3,55% Small Cap Index 10,36 9,85 4,04% Resources 12,61 12,35 3,72% Industrials 19,45 19,43 2,10% Finanicals 12,04 10,57 4,22% Platinum Producers 23,28 24,19 0,00% Gold Producers 13,22 14,05 1,73% 6% 4% 2% 0% -2% -4% -6% Market Cap Performers Top40 Index Mid Cap Index Small Cap Index
South African Fixed Income & Property Relative Property Performance Top & Bottom Performers 8,0% 6,0% 4,0% 2,0% 0,0% -2,0% -4,0% -6,0% 15,0% 10,0% 5,0% 0,0% -5,0% -10,0% -15,0% -20,0% 10,6% 10,3% 10,2% 9,5% 9,5% 0,1% 0,1% -3,4% -7,0% -15,0% FTSE/JSE SA Listed Property Total Return Index FTSE JSE All Share Index Total Return Value ALBI Total Return Index STeFI Cash Rate 9,50% SA 10 Year Government Bond Yield 6,6% 6,4% Spread of Dividend Yield vs Government Bonds 9,30% 9,10% 6,2% 6,0% 5,8% 8,90% 5,6% 8,70% 8,50% 5,4% 5,2% 5,0% 8,30% 4,8%
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