As we face the uncertainty of what the New Year will bring, we would like to take stock of the year 2017 and some of the major events that affected investments and the world as we know it.
2017 certainly was a year filled with political insecurity across the globe. Starting with Donald Trump’s inauguration in January 2017, his dramatic approach to conducting business as the president has not failed to amaze people. From cancelling the Trans-Pacific Partnership, his stance on immigration and climate change, his potential links to Russia during his campaign, his ongoing battles with Kim Jong Un to the Twitter outbursts, he certainly has provided a new flare to the US presidency. However, it must be said that markets have reacted favourably, leading to what is referred to as the “Trump bump.” The post-election optimism, which has been reflected in the prices of U.S. stocks, bonds and
the dollar, and in measures of business and consumer sentiment, was based on expectations of a rapid-fire series of initiatives designed to boost economic growth. The S&P 500 has generated USD returns of 19.42% for the year, with the Nasdaq composite up 28.24%.
In the UK, Brexit has continued to flood the headlines with Article 50 of the Treaty on the European Union being invoked in March 2017. This meansthat the UK is due to leave the EU on 29 March 2019. Talks have been taking place on three aspects of how Brexit will work, focusing on how much the UK owes the EU, what happens to the Northern Ireland border and what happens to UK citizens living elsewhere in the EU and EU citizens living in the UK. Theresa May was originally against Brexit during the referendum campaign but is now in favour of it because she says it is what the British people want. She has had and will continue to have a challenging task steering the UK through this time. Theresa May surprised almost everyone by calling an election for 8 June (it had been due in 2020). She said she wanted to strengthen her hand in Brexit negotiations with European leaders. However Mrs May did not increase her party’s seats in the Commons and she ended up weakened, having to rely on support from the 10 MPs from Northern Ireland’s Democratic Unionist Party. The predictions of immediate doom and gloom for the UK weren’t however entirely accurate, despite a weakening of the Pound, which has since regained some momentum, the economy has continued to grow at 1.8% in both 2016 and 2017. Inflation has been on the rise, but unemployment has fallen.
The Eurozone economy has continued to perform robustly, with GDP increased by 2.2%, the fastest pace since 2007. While a stream of positive economic data continues to flow in, the political situation has become notably more uncertain. In November, coalition talks to form a new government failed in Germany, a country that has for years been a beacon of stability in the Eurozone. In the short term, the turmoil is unlikely to have any economic repercussions; however, a strong government is needed to pass key structural reforms. In Spain, the political situation remains turbulent as a stand-off continues between the central government and Catalan regional authorities. Meanwhile, Italian elections are on the horizon in early 2018. Euro area countries are still waiting to see how Brexit negotiations will play out and what impact the result will have on their economies and the region.
Terrorist and large scale attacks have continued to shock the world in 2017. While other global issues that continue to create concern are the humanitarian crisis in areas such as Yemen and Somalia, the ongoing refugee crisis across Europe from countries such as Syria and Libya and the more recent genocide of Rohingya Muslims in Myanmar.
A year ago, who would have guessed we would be discussing Zimbabwe under major 2017 events. In November, elements of the Zimbabwe Defence Forces (ZDF) gathered around Harare and seized control of the Zimbabwe Broadcasting Corporation and other areas of the city. Despite repeated comments that it was not a coup, it in many ways reflected it, only ending with the resignation of 93 year old Mugabe after 37 years as President, who was replaced by Mnangagwa. It’s uncertain what the future holds for Zimbabwe, but the outcome was welcomed by the local and international community with hope.
Back home the year has not been any quieter, with our own political and economic events playing out over the period. As a result of various cabinet reshuffles and poor medium-term growth prospects due to structural weaknesses, South Africa’s debt rating has suffered a few blows with downgrades from ratings agencies over the course of the year. Despite the fact that the initial impact has not been as devastating as what was expected, the longer term effect of downgrades is negative. They have already provided a blow to business and investor confidence and it is expected that as a consequence, this will lead to lower (or stagnating) economic growth and fewer new jobs being created.
The Steinhoff debacle in December surprised the South African investors by announcing accounting irregularities and the departure of its chief executive officer. Allegations of earnings manipulations, uncontrolled acquisition sprees and tax fraud are just the tip of the iceberg; the list of concerns and unknowns is long. This event was a classic example of how diversification often saves the day. As a result of diversified exposure across various different asset classes and shares, unit trust managers were able to limit the effect of the fall in share price on portfolios.
After 4 days of waiting, the leadership results of the ANC 54th National Conference came through on 18 December 2017. With Cyril Ramaphosa claiming victory against Nkosazana Dlamini-Zuma as President. There has been increasing pressure for Jacob Zuma to either step down or be removed, given that he is no longer in charge of the ANC, resulting in two centres of power. The Rand firmed by almost 4% against the US Dollar as a result of the outcome, suggesting optimistic consumer and investor confidence in growth prospects with Ramaphosa in charge.
The all-share index ended the year 17.47% higher, with Iron Ore producer Kumba as the best performer at 137% and unsurprisingly Steinhoff as the worst performer at -93%. The Rand experienced some highs and lows over the course of the year; commencing at R 13.80 to the US Dollar. After the cabinet reshuffle in March, it fell from R 12.40 to R 13.90 in a week. The high was reached at R 14.47 amidst rumours of another reshuffle to oust Cyril Ramaphosa, however the reshuffle never happened and the Rand started to strengthen in the run-up to ANC national conference. By Thursday 28th December 2017, the Rand had continued to strengthen to its two and a half year high of R 12.23.
Recapping on the above events, we certainly find ourselves living in uncertain times. We trust that you find the following articles both informative and interesting and wish all our clients the very best for 2018.