A Brief Look Back on the Last Quarter of 2017 (Q4-17)

The final quarter was undoubtedly quite a rollercoaster ride for market-watchers, yet the sentiment going into 2018 was generally very positive. Here are the key figures to consider…

The SARB left the repo rate unchanged at 6.75% at their final meeting of 2017. Notably, the market is pricing in a cut of .25% over the next 12 months.

With lower food inflation being the main driver, inflation moderated rather steadily in 2017.   In the year to November, CPI averaged 5.5% (6.2% for the same period in 2016). Inflation is expected to remain low in early 2018, the main driver remaining moderating food inflation.

The rand strengthened significantly in December following the election of Cyril Ramaphosa as ANC president. The rand appreciated from USD/ZAR 14.48 in November, to USD/ZAR 12.38 at the end of December. While the elective conference has eradicated some of the political uncertainty that dominated in 2017, much still remains, notably:

• Governance at a number of key state institutions remains uncertain;
• Growth is weak;
• It is unclear as to what degree the new ANC leadership will be able to make changes to key leadership positions within government and related institutions.

With the above factors in mind, the rand could be vulnerable to some disappointments in the government’s ability to deliver the necessary reform in the short term.

Local listed property delivered a total return of 8.3% for the quarter.

Financials returned 19.2% in Q4-17.  This return reflects a significant swing in sentiment on the back of Mr. Ramaphosa’s election as ANC president.   His appointment is seen as supportive for both fiscal discipline and a recovery in economic growth. Intra-party conflict and divisiveness over economic policy does mean reform will be hard fought.

The Industrial Index returned 4.7% in Q-17.   A major contributor to this sector’s returns over 2017 was Naspers.  Industrial stocks had a poor year up until Q3-17, as policy uncertainty and poor consumer sentiment undermined the domestic economy.

The Resource Index returned 4.9% for Q-17.   The sector is heavily dependent on policy certainty to promote investment.   It remains to be seen whether Mr. Ramaphosa can bring stability to resource policy.  2017 was a relatively good year for commodity prices, a sector supported by Chinese demand.

Global share markets continued to perform very well in Q4-17.   The US market was propelled higher towards year-end, as it became clear that the Trump administration would be able to deliver on its promise of tax reform.

Global listed property ended the year on a strong note.

Source:  Coronation Fund Managers