Taking Stock of the Fourth Quarter, 2016

In South Africa and around the world, this quarter was a financial and political rollercoaster ride…

The SA Reserve Bank left the repo rate unchanged at 7% in November.  In total, the SARB has raised interest rates by 200bps since January 2014. Notably, the SARB may be at the peak of its rate hiking cycle.  At this stage, rate cuts are not expected in 2017.

CPI inflation accelerated to 6.6% y/y in November from 6.4% in October. Inflation may have peaked in November and it is believed that it will moderate in 2017 to 5% by year-end.  The main driver of this trend is lower food inflation, as rainfall allows for more normal summer crop production – reducing feed and cereal costs.

The rand was volatile in Q4, trading in the range of USDZAR 14.34 – 13.33.   Rising commodity prices were a positive underpin to the currency.  Negatively, domestic and global political developments have heightened uncertainty and are likely to remain a source of volatility in coming months.

Following two consecutive quarters of negative returns, SA listed property experienced a recovery during Q4 with a return of 1.3%.

Financials returned 2.9% for the quarter; industrials – 4.7% and resources 1.2%.

Globally, a major event for equities was the election of Donald Trump as the next US president.  While markets were soft going into the election, they rallied thereafter and closed the quarter with a 1.2% return. Equity markets are attributing Trump with being able to kick-start the US economy through a mixture of fiscal measures and infrastructure programmes.  While this is feasible it remains to be seen what will eventually transpire.

Source:  Coronation Fund Managers