This segment of our October 2015 newsletter is a good illustration of how unpredictable global investment markets and geo-politics can truly be. Ten months into 2016 and we still have not seen any further US Federal Reserve hikes, despite Ms. Yellen’s ongoing pandering to the global community, begging the question “how healthy is the US economy in reality?”
Furthermore, the forces that kept markets on the edge of their seats 12 months ago have been replaced by a new bag of global issues that are indeed keeping markets on the edge of their seats still.
From the US Primary elections, to the Brexit vote last quarter, it is plain to see that voters and investors are frustrated and confused, and their actions have amounted to a vote of no confidence in the policies of the political class. They are tired of the same rhetoric from politicians and are seemingly opting for the “unknown” and leaning towards policy makers who promise to shake things up.
With the uncertainty in developed markets, we have seen some encouraging numbers come out of emerging market equities, posting some substantial gains noted in the MSCI EM index over the last 3, 6 and 12 month periods, with commodity stocks still leading the way.
In China, GDP is expected to be 6.5% to 6.7% for the third quarter, slightly lower than the previous 3 quarters. Despite economic growth in the world’s second-largest economy having fallen this year to its lowest rates since 1993, we are seeing ongoing efforts by Chinese authorities to transition the country into a market-led and consumer based economy. In many ways, the economy is still robust, and supply-side reform is designed to help cut overcapacity in sectors such as steel making and coal mining, while encouraging consumer spending and the services sector.
Back home, we witnessed what is quite possibly the turning point in South African politics and a shining example in the quality of our democracy. August 3rd saw South Africans use their vote to demand better service delivery and policy making in our country, hurting the ruling party at the polls and sending a clear message to parliament.
With 4 of the 5 major metros now under new management, it will be interesting to see if corruption can be ousted and real change implemented.
Global investors rewarded the results of the local government election as was seen by gains in the rand, JSE and bond markets.
As we find ourselves a year later, with a host of different uncertainties and issues, we still take comfort in the benefits of diversification and our approach to structuring client portfolios with a long term goal in mind.
We trust you find the content that follows both interesting and informative.