The period ending March 31st 2016 can aptly be described as a roller-coaster first quarter in global markets. Despite the US Dollar and British Pound being under a fair amount of pressure, the period has proven to be the best quarter in decades for gold and global bonds.
We have seen the US Dollar slide to a 7 week low against the Euro and is on track for its biggest quarterly decline in 5 years, with EUR 1 buying USD 1.1391. Despite inflation in the euro area rising slightly in March, it remains in negative territory (-0.1% for the year), illustrating the continued struggle for policy makers and the reasoning behind the aggressive stimulus efforts by the European Central Bank. Oil has been fairly volatile over the period, having dropped below $27 in January and is currently hovering just under $ 40 a barrel. Oil prices remain well below long term averages as a result of record U.S. stockpiles.
January and February were dark times for global markets, with negative returns coming through across the board in almost every stock market. January saw The MSCI World index shed 6.1% (in USD), the FTSE EM shed 6.5% (in USD), and the local JSE ALSI shed 3% (in Rands). This coupled with low inflation in Europe and the US, continued low oil prices and lackluster global demand, forced the US Fed to ease off on their plans to tighten monetary policy, and saw the ECB and China provide further stimulus into the system. March began with a bang, seeing global and local equity markets recover nicely on the back of central banks’ accommodative monetary policy. Investors worldwide have been at the mercy of this relentless volatility, demonstrating the importance of focusing on the long-term objectives and ignoring the short term noise.
With the US Fed appearing more conservative in their plans to raise rates at the moment, the Gold bulls are enjoying the recent rally in the metal’s price, with the safe haven metal increasing by a whopping 16%, to $1,232 an ounce. Benefits to our local gold miners can be seen, with AngloGold Ashanti up 126.76% in the 3 months ending March 31st 2016.
This quarter has been all about the 3 C’s: China, commodity prices, and central banks. In addition to the continuous concerns regarding the slowing Chinese growth and reduced demand for commodities, the quarter ended with the S&P placing China on a downgrade warning.
Back home, the end of the quarter witnessed the Constitutional Court delivering a unanimous ruling upon President Jacob Zuma, ordering him to repay the “reasonable cost” of non-security related upgrades to his Nkandla home within 105 days. The ruling by the 11-judge court has also vindicated national Public Protector, Thuli Madonsela, and was described by Chief Justice Mogoeng as a “Biblical David” fighting against the Goliath of corruption. The Rand strengthened to a four month high against the US Dollar at R14.74, demonstrating the political ‘slice’ of the Rand’s poor valuation.
Opposition parties have applauded the ruling and continue to rally for Zuma’s removal from office, however the ANC remain loyal to its leader despite the numerous scandals that have plagued him over the past two quarters. All being said, this ruling is something to be celebrated for our young democracy, even more encouraging when one compares us to the levels of corruption seen in Brazil and Russia.
Moving forward, however, the pressure on the Rand may continue with the global economic backdrop still struggling to create demand, a poor local economy, and a political environment that is far from reliable in the eyes of international investors. Our local inflation (CPI) has been on the rise over the period and is currently sitting at 7%, which is above the 3-6% target range set by the Reserve Bank and the highest it has been since 2009. As we would expect in a rising inflationary cycle, we have also seen two interest hikes since December (raising the repo rate by 0.75% in total). Both decisions were split by the members of the SARB monetary policy committee, showing that some of the members see the depressed local GDP figures being more of an immediate threat to our economy than keeping our currency and inflation levels in control.
It is important to remember that in times of extreme volatility and uncertainty, there are always opportunities for investors. The investment theme that continues to remain the cornerstone of your financial plan is diversification across asset classes and geographies. As always, we urge you to trust in the asset managers we have independently researched and selected, to remain focused on your long-term objectives and committed to your personal financial plan.