Market performance and impact on NFMW-portfolios

Recent economic developments, market performance and impact on NFMW-portfolios

The volatility experienced in the markets (global and local) over the last couple of months can be attributed to various global and local economic data flows as well as geopolitical events. For example, the ongoing and potential US/China trade war as well as the rising interest rate environment in the US.

South Africa’s market fortunes remain very much linked to the global risk and economic environment, and of course the recent news that we entered a technical recession (i.e. two quarters of negative GDP-growth) also impacted our equity and currency markets.

However, despite the global trade war rhetoric turning markedly more hostile in August, most developed markets performed well on the back of solid corporate performance i.e. earnings growth. However, emerging market equities and bonds struggled as investors continued to pull capital from developing countries in the wake of the recent crisis in Turkey (political and trade clashes with the US) and uncertainty around Argentina’s IMF bailout package.

In South Africa, fears of land expropriation without compensation continue to weigh on sentiment with foreigners typically avoiding local equities in favour of bonds. This, together with the recent news that South Africa entered a technical recession (i.e. two quarters of negative economic growth), created the “perfect storm” for the rand to significantly depreciate against most developed world currencies – notably a 15% depreciation against the dollar since 31 July 2018.

Summary of index and portfolio performance

Although we have seen some volatility in markets over the short term based on the most recent news flow, the overall impact on the NMFW-portfolios was limited due to a well-diversified investment strategy.

We have experienced a 4.8% increase in our local equity market between the 1 st and 29 th of August, only to see the gain disappear over the last week (with a pullback of -5.1%) after the news flow on Turkey, Argentina and South Africa’s lasts economic growth figures. Similarly, the rand lost 10.5% of its value against the dollar during August and another 5% during last week.

The South African 10y bond yield also spiked from around 8.6% to 9.2% on the back of the mentioned news flow, resulting in a negative return on bond holdings of around 3.5% since the start of August.

However, despite the market turmoil, the returns on the NFMW-portfolios for the month of August remain fairly robust and at this stage are estimated to be as follows:

Conclusion and outlook

Following from our previous communication we again would caution investors against too much optimism.

Although the US economy and other developed markets are still experiencing decent economic growth, South Africa’s growth scenario has decoupled from the rest of the world during the last few of years. It will take time and commitment from government to correct this scenario. Therefore, as noted before, expect volatility in the global and local market over the short term.

The table below indicates the most recent and longer-term returns experienced by the various NFMW portfolios up to 31 July 2018.

<p> As long-term investors, it remains of utmost importance to focus on longer term return prospects and investment strategies, as short-term volatility and any reaction thereto could easily result in incorrect investment decisions. </p>

At the NFMW we remain committed to provide well diversified investment portfolios which will provide solid real returns and capital growth over the long term.

Kind regards
Sean Samons
Principal Executive Officer