The Rand strengthened by another 2% in October, now 13% stronger since the start of the year.
Another month of dispersion between “Rand-hedge” and “SA Inc” shares, but also a significant dispersion on the commodity front. “Bulks” (industrial commodities such as Iron Ore) rallying, while precious metals pulled back a bit.
The primary concern is the convergence of returns at low levels. Low returns from every asset class over the last 12 months (graph shows all returns in Rand for the 12 months to end October 2016):
The ALSI declined 2.5% in October bringing the 12-month return to -3.4%. All three of the primary sectors closed the month lower. Resources were down 3.4%, Industrials decline 2.9% and Financials closed 0.8% lower. However, there were some dispersions within the different sectors.
Resources. A large divergence between the “Bulks” (general miners) and “Precious Metals”. A sharp rise in Iron Ore prices (+15% in October) benefitted the performance of Anglos (+8%), Kumba (+10%), African Rainbow Minerals (+18%) and Assore (+23%). However, softer Gold and Platinum prices saw these sectors coming under pressure. Implats was down 22% and Anglogold and Gold Fields respectively closed the month 19% and 18% lower. Sasol was basically flat (-0.4%) for the month.
Industrials. A clear split between the heavy-weight Rand-hedge Industrials and the ‘SA Inc’ sectors. Shares such as BAT (-12%), Mediclinic (-10%), Steinhoff (-7%) and Naspers (-5%) saw some of the biggest declines! On the other side of the spectrum, Shoprite was up 3%, Tigerbrands gained 1% and retailers such as Mr Price (1%), Woolies (1%) and Truworths (1%) all posted modest gains.
Financials. Banks had a strong month gaining 3%, but the Life companies, especially Old Mutual (-8% in October), came under some pressure. Sanlam however was up 2%.
SA Listed Property
The SA Listed Property Sector (SAPY which excludes the UK property companies (Capital & Counties and INTU)) had a decent month, gaining 0.5%. Sector returns were driven by positive gains from SA Corporate (+2%) and Redefine (+1). NEPI also had a strong month gaining 7%.
The UK counters (Capital & Counties and INTU) had another tough month, respectively falling 7% and 12%. Since the start of the year, Capco is down 54% and INTU had lost 39%.
These dispersions in returns led to significant performance differences between funds in the Domestic RE sector. Over the 12 months to end October the return dispersion ranged between +8% and -12%.
After a fairly muted month, the ALBI jumped 1% on the last day of the month with the NPA dropping their charges against Gordhan. The ALBI gained 0.6% in October. YTD, the asset class has rallied 16% with yields recovering all of the lost ground from December last year (‘Nenegate’).
While the (conservative and measured) MTBPS was fairly well received, all eyes are now focused on the looming credit-rating announcement by the S&P in early December.
While the 0.6% return on the ALBI sounds fairly measured, placed in a global context, our bond market did exceptionally well. In October global bonds had a substantial sell-off with the Barclays Global Aggregated Bond Index falling 3.0% (in US$). This marks the worst month on global bonds in almost 6 years! A bit more hawkish comments from central banks and inflation picking up (very marginally) on the back of higher commodity prices are fuelling sentiment of an hike in rates in the US (in Dec), pushing yields higher.
Global equities declined 1.7% in October. From an SA perspective, the MSCI ACWI was down 3.6% in rand-terms over the month as the stronger Rand placed additional pressure on returns. What is important, is that the returns from most multi-asset funds were boosted by the tailwind from a weaker Rand over the last few years. This has turned in 2016, with offshore allocations negatively impacting returns due to Rand strength.
YTD, the Rand has strengthened by 13% against the USD. While global equity markets have gained 4.8% in USD over this period. In Rand-terms, the MSCI ACWI is down -8.8%.
Over the last year
Looking a bit further back, returns on all asset classes remain muted over the 12-months to the end of October, resulting in very muted returns from key UT sectors. The General Equity sector average is down -3.1% over 1 year while the MA High-Equity sector has declined -0.2%.
Returns for the last 12 months remain very muted for basically all asset classes:
ALSI: -3.4% (turned negative)
Cash: 7.2% (best performing asset class)
Bonds: 6.9% (strong gains since the start of the year, offsetting the declines from Q4 last year)
SA Property: 2.2% (decent returns YTD (+9.4%))
Foreign Equity: -0.4% (in ZAR) and +2.1% (in USD) (a big swing from tailwind to headwind in terms of return contributions)