Feedback on the Third Quarter of 2014

As always, we like to provide you with a summary of the major news and developments that may affect your investments and future financial plans. Here’s what we were paying attention to over the third quarter…

Interest Rate Increase:  Since the January increase of 50bp, the South African Reserve Bank (SARB) raised the repo rate again in July by 25bp to take the repo to 5.75%.

Inflation Persists: The target range was breached in Q2 and CPI inflation pulled back slightly, but remained above target in Q3 – recording 6.3% in July and 6.4% in August.

Currency in the Doldrums: The rand weakened sharply over September and ended the quarter at almost R/$ 11.30.   The weakness was attributed to a combination of both global and domestic factors, including a stronger dollar and SA’s deteriorating balance of payments.

Slumping Domestic Equities: The JSE All Share was down 2.13% for the quarter and up 9.39% for the year to end September. Financials returned 0.4%, industrials declined 6.63% and resources declined 7.1% for the quarter.

Falling Global Equities:  Global equity markets fell over the quarter as well.  In September, there was a decline in commodities and emerging market equities on the back of rumbling geopolitical and economic concerns.

The Outlook?
The global environment for equities is changing in that the period of low volatility, favourable economic recovery and stable geopolitics appears to be coming to an end.

Continuing unrest in the Middle East and Russia – together with the eventual withdrawal of liquidity in the U.S. and a potential slowdown in China – could prove unsettling for investors.

Locally, the high inflation/low growth dilemma is very likely to continue to dominate policy discussions for quite some time. Inflation will probably remain at higher levels for at least the next year. With inflation above the repo rate at the moment, monetary policy remains accommodative and this will continue to put upward pressure on the repo rate, even with relatively lacklustre growth – especially once the U.S. Federal Reserve begins normalising rates.

Source:  Coronation Fund Managers, Kagiso Asset Management