A Volatile 2019: Everything You Need to Know

For market watchers and investors, the biggest surprise of 2019 was arguably the generally good performance of global equities. Overall, global equity prices were supported by the accommodative stance of monetary authorities. Also, interest rates were kept low – and even cut – in some geographical jurisdictions.

On local shores…

The South African equity markets lagged global markets during 2019.   However, after a dismal 2018 in which the SA equity market lost around 8.5% of its value, local investors were rewarded this year with an inflation-beating return.

Notably, the performance of the market was driven by only a few sectors, namely platinum and gold counters.

Financial markets in SA also had to negotiate the general election in May.  The post-election environment did little to restore confidence in our economy, which remains under severe pressure.

The enormity of the challenges was brought home starkly during Finance Minister Tito Mboweni’s Medium-Term Budget Policy Statement.  The Minister painted an alarmingly gloomy picture of the most crucial issues facing our economy, namely, fiscal slippage, state expenditure and debt stabilization.

Peering into the crystal ball: financial markets in 2020

Whilst entering the 12th year of global economic expansion, there are indications that global growth is continuing to lose momentum. 

The Chinese economy is predicted to grow by more than 5% (this year’s figure should reach around 6%), and the US by 2% (2019: 3%).   The expected growth rate for SA is just over 1% (2019: 0.5%).

2020 may not see a repeat of the strong global returns investors enjoyed this year.   Consensus global earnings growth expectations are high, which opens the door for disappointment.  This year’s market performance drove valuations higher and, although not in bubble territory, valuation levels are elevated.  Additionally, global bonds aren’t offering fair returns at the moment. 

The SA viewpoint

Encouragingly, bond yields are trading at attractive levels.

The February 2020 Budget will be a key indication as to whether the government is committed to fiscal consolidation. The nation’s attention will be sharply focused on this event!

SA equity valuations remain attractive, in contrast with their global peers.   Whilst one can’t predict returns over the short term, history does suggest that valuation is a crucial ingredient for decent longer-term returns.  The good news is that SA equities are generally priced to reward investors over the longer term.

In essence, many of the challenges that faced investors in 2019 haven’t disappeared – and the investment environment will remain difficult, both globally and at home. That said, fortune always favours the brave (and the persistent!).

Source: Sanlam Private Wealth