Quarterly Update June 2019

After a great first quarter in 2019, investment returns have disappointed during May.

We all hoped that the investment markets would respond positively to a strong election result for Cyril Ramaphosa, but there is a far bigger influence on global markets and that is the Trump initiated trade war between the United States and China.

As we have mentioned before, South Africa is a small market in the context of the world and local politics do not have such a great effect on our investment returns.

The United States is the biggest economy in the world and their politics have a much more significant influence on global markets including South Africa. President Trump is indicating that he plans to impose additional tariffs on Chinese imports into the United States.  All this has a negative effect on global markets particularly emerging markets such as South Africa.

Another major global factor is Brexit. While not having as big an effect on global market as Trump’s trade war with China, it does have a significant effect. Markets do not like uncertainty and the drawn out Brexit negotiations represent uncertainty. This was aggravated by the UK Prime Minster being forced to resign – more uncertainty.

The last major influence on global markets was a significant decrease in the price of oil; this was a consequence of the trade war outlined above. If the trade war continues for a lengthy period it could cause a global economic slowdown, thus decreasing demand for oil.

The decrease in the oil price had a negative effect on South African oil company, Sasol as an example.

While emphasising that global economic and political factors have a greater influence on South African investment returns than local factors, one positive event this week was the announcement of Cyril Ramaphosa’s new cabinet.  While neither being as lean, nor quite as clean as we had hoped for, the retention of Tito Mboweni as Finance Minister and Pravin Gordhan as Public Enterprises Minister was well received by the market.

Our asset consultants, Fund House, generally retain what is termed an “overweight offshore” position in all our model portfolios.  In simple language this means that your offshore exposure is greater than your local exposure.

Peter Foster