The end of the second quarter (June) proved rather eventful for investors eyeing global markets: heated political arguments around debt repayments in Greece; the U.S. Federal Reserve’s ‘almost confirmation’ of a 2015 interest rate hike and uncertainty over China’s economic outlook dominated the news headlines and fuelled a bearish sentiment.
Yet despite all this, the global economic picture is actually improving, with the U.S. leading the recovery and the UK not far behind. Unemployment numbers in the U.S. and UK are also showing steady improvements. Some economists are forecasting a U.S. Fed interest rate hike in September 2015, and potentially another hike in December 2015.
South Africa’s outlook remains shaky. This is underscored by low levels of business confidence, a constrained consumer and low levels of competitiveness to take advantage of the weaker rand. Eskom’s electricity crisis remains the biggest detractor of business and consumer confidence.
The SARB left interest rates unchanged in the second quarter, but at the end of their May meeting two of the six members of the Monetary Policy Committee (MPC) voted for a 25bps hike – which indicates that they felt strongly about the risks to the inflation outlook. This suggests that a resumption of the interest rate hiking cycle is likely in coming months.
Consumer Price Inflation (CPI) accelerated to 4.6% in May. The faster pace of inflation has largely been driven by rising retail fuel prices and a weaker exchange rate. The rand traded in a range of USD/ZAR 11.60 to USD/ZAR 12.40 in the first half of the year.
How Your Investments are Faring…
Domestic equities: Financials declined by -2.3% in the second quarter; Industrials performed well with a return of 1.7% for the quarter; and Resources lagged with a return of -4.9% in the second quarter.
Developed markets returned 0.15% for the quarter and emerging markets, 1.10%.
Property: Global property experienced a very tough second quarter, in contrast with a strong first quarter as more investors started focusing on expected rising interest rates in the U.S.
Locally, property was hit by the realisation that interest rates may increase sooner rather than later.
Source: Coronation Fund Managers / Sesfikile Capital (Pty) Ltd.