The end of this quarter saw one of the worst market performances in South Africa’s recorded history. The All Share Index performed negatively during the month of August as a result of local politics and global trade wars. The Johannesburg Stock Exchange (JSE) has experienced significant pressure due to large scale selling which resulted in negative returns across all sectors.
The South African business cycle remains in a depressed state with economic indicators showing further weakness. This has been the longest down turn since 1956. Real economic reform remains persistently lacking due to global trade wars along with geo political issues.
The second quarter Gross Domestic Product (GDP) outcome provided some relief, but due to the aforementioned factors, confidence remains low. A dwindling GDP, along with a significant rise in unemployment and deteriorating fiscal stance, calls for urgent economic reforms to create sustainable economic growth and employment. This would also stimulate the value of the Rand following its recent depreciation.
This persistently negative sentiment and lack of cohesion is going to make positive returns more difficult for businesses to attain. It can be easy during these times to feel despondent, particularly when the return on investments has been pedestrian over the past five years. However, one must remember that market negativity is cyclical and is often seen at this time of year. Low volumes and high volatility can cause markets to move but given the recent GDP performance, we do anticipate that South Africa may well see positive growth later in the year. As such, our preferred stocks are likely to perform well, which may result in an increase in dividend returns.
The current feeling of doom and gloom has presented first-time investors with good entry points into the markets and we believe that remaining invested in preferred stocks will provide long-term growth both in earnings as well as capital. Some of the best valuations are in the property, retail and banking sectors and these have allowed for some very good opportunities to enter the market. Going forward, we are likely to see an increase in corporate actions as some of our big stocks look to delist and create alternative listings internationally.
There are a number of complex issues being experienced globally. Brexit continues to be a complete disaster with a lack of clarity on the way forward by the decision makers in parliament. Boris Johnson is trying every conceivable tactic to get his way, although I believe this may be difficult given the resistance from not only opposition parties but by those within his own Conservative party.
America continues to engage in the trade war with China and untold damage has been caused largely due to Donald Trump’s erratic approach and volatile social media tirades, resulting in poor sentiment within the USA and globally. Although Trump has indicated that he will be meeting with China during the month of October in an effort to reach a compromise, the persistence of the trade war could cause further deterioration in global markets. The unrest and resulting riots in Hong Kong are also contributing to this downturn.
Global indexes have bounced after their recent correction and have performed satisfactorily despite the time of year. The FTSE, in the UK, has been marked by the exit of Marks & Spencer after thirty-eight years, which shows how indexes are being affected by various factors.
To those clients who were requested to submit their updated compliance documents, we really appreciate your assistance in this regard. I know this has been a tedious process, but it is an absolute necessity going forward. We will, at all times, attempt to keep this to a minimum and will only contact you for updated documentation if it is an absolute requirement.
We would like to take this opportunity to thank all of our clients for their unwavering support during these trying times and we look forward to sharing more positive news with you in the not too distant future.