FTSE/JSE All Share Performance Chart
What goes down must go up….and down and up again. Much has been said about the volatility on world markets, and the accompanying graph shows the JSE is no exception. Over the past year the bulls and the bears battled it out on an almost monthly basis as the bourse was buffeted by both domestic and international factors. The good news is that, as shown by the performance table charting the last five years, medium to long term investors have scored handsomely. From the high of a return of 26.68 in 2012, to the low of a return of 5.13 last year, the JSE continues to show that shares must be part of your investment portfolio.
Can the Rand Recover?
Experience has taught us that the direction of the rand, how far, or when it will fall or rise against hard currencies such as the USD is notoriously difficult to predict. The last time the rand’s tumble was this dramatic was in 2001 when it collapsed from R7.60 to the USD to R13.84. Recently the rand’s fall has been more dramatic. There are differing views as to where the rand will go to from here. One is that we are in a period of sustained weakness for a while. Reasoning for this view is as follows:
Happy Holidays
It has been an interesting year on the financial front, what with South Africa having three finance ministers in one week, downgrading by credit agencies, and the volatility which we have become used to on the JSE. But your investments have held up in spite of a challenging 2015, and we look forward to continuing to grow them in 2016. All the very best for the festive season from Castle Investments.
SA Risks Junk Status
On Friday, 4 December, Fitch Ratings and Standard & Poor’s cut SA’s credit rating from stable to negative (BBB-), bringing the country closer to a junk rating.
A reason for the downgrade included:
- Weakening Growth domestic product (GDP) growth performance and estimates of it weakening further.
South Africa’s economy narrowly avoided a recession in the third quarter of 2015 with an annualised growth of 0.7% because of electricity shortages, low global demand and falling commodity prices.
Some economists now believe that the risk of a junk rating is not impossible.
Source: Bloomberg
Expected Asset Class Returns over the next 10 Years
In March 2014, we posted an article (which included a graph prepared by Coronation Fund Managers) which detailed their expected view of asset class returns over the next 10 years “Looking ahead at Markets and Inflation”. This has been updated, and you will notice there have been a few changes. As with all predictions, however, this is just a forecast and things can certainly change quickly.
Source: Coronation Fund Managers
Interest Rate Prognosis
Yesterday the South African Reserve Bank (SARB) hiked the repo rate by 25bps to 6.25%.
In essence the Reserve Bank:
- Is more concerned that inflation will move to the upper end of the target range and that a number of factors, namely, electricity prices, the exchange rate and higher food inflation, could push inflation above the target on a persistent basis.
- Acknowledges that the economy remains very weak but their primary mandate is to keep inflation under control.
The tone and focus of the Reserve Bank’s statement together with an expectation that inflation is expected to move higher in 2016 suggests that the Reserve Bank will continue to increase interest rates in 2016.
Source: Kevin Lings, Chief Economist, Stanlib