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Source: I-Net - 1 February 2017

Local Overview

South Africa’s annual headline inflation was recorded at January to 6.60% y/y, showing a slight reduction from 6.76% in December and below market expectations of a 6.70% increase. It was the highest inflation rate since February 2016 as costs increased at a faster pace for food and non-alcoholic beverages and housing and utilities. Year-on-year, costs increased less for: food and non-alcoholic beverages (11.4% from 11.7% in December 2016), alcoholic beverages and tobacco (3.5% from 5.5%), clothing and footwear (5.1% from 5.3%), recreation and culture (3.7% from 7.6%) and restaurants and hotels (6.2% from 7.1%). On a monthly basis, consumer prices went up 0.6% after a 0.4% gain a month earlier. Transport prices rebounded (+1.5% from -0.4% in December) and costs rose faster for food and non-alcoholic beverages (1.6% from 0.8%) and miscellaneous goods and services (0.8% from 0.1%). The South African Reserve Bank left its benchmark repo rate on hold at 7% at its January 2017 meeting, as widely expected, saying the near-term outlook for inflation has deteriorated and growth remains weak.

Aug'16Sep'16Oct'16Nov'16Dec'16Jan'17
CPI (y/y)5.9%6.1%6.4%6.6%6.8%6.6%
PPI (y/y)7.2%6.6%6.6%6.9%7.1%5.9%

Sources: SA Reserve Bank, Statistics SA, I-Net, BER, Trading Economics, MorningStar, Reuters

South Africa posted a trade surplus of R12.04 billion in December 2016, compared to an upwardly revised R1.68 billion deficit in November and well above market forecasts of a R6 billion surplus. Exports declined to R93 billion, mainly driven by lower sales of vehicles & transport equipment (-35%), machinery & electronics (-16%), precious metals & stones (-6%), base metals (-8%) and prepared foodstuff (-14%). By contrast, sales of vegetable products and mineral products rose 34% and 15% respectively. SA’s major destinations for exports were China (11.5%), Germany (6.1%), the US (5.4%), Botswana (4.5%) and Japan (4.5%). Imports fell to R81 billion, as purchases declined for: machinery & electronics (-24%), equipment components (-53%), chemical products (-20%), base metals (-29%), textiles (-38%) and plastic & rubber (-30%). Meanwhile, mineral products imports rose 10%. Imports came mainly from China (16.9% of total imports), Germany (8.3%), Saudi Arabia (6.9%), the US (6.9%) and France (6.6%).

Considering the full year, the trade deficit in 2016 shrank to R2.92 billion compared to R52.18 billion in 2015, as exports went up 5.8% and imports grew at a much slower 1%.

31 January 201531 January 201631 January 2017
USD/ZAR11.6315.8613.47
GBP/ZAR17.4722.6116.95
EUR/ZAR13.1417.2114.54

Sources: SA Reserve Bank, Statistics SA, I-Net, BER, Trading Economics, MorningStar, Reuters

Locally, the ALSI was up a resounding 4.31% in rand terms. US foreigners invested in SA equities would have benefitted substantially as the ALSI returned 6.04% in USD as the rand strengthened against the US dollar in December. Resources led the gains on the ALSI, returning 10.74%, as commodity prices rallied in January. The Industrials index (excluding dual-listed companies) dragged on the gains of the ALSI, down 2.25%. A stark contrast to its December performance of 6.12% in ZAR. By market-cap, the Top 40 led the gains, rising 4.67% despite the rand strengthening against the US dollar. The rand, however, weakened against every other major currency in January. Small-cap stocks followed, increasing by 2.42%, Mid-caps returned 1.66% for the month.

Locally, the ALSI was up a resounding 4.31% in rand terms. US foreigners invested in SA equities would have benefitted substantially as the ALSI returned 6.04% in USD as the rand strengthened against the US dollar in December. Resources led the gains on the ALSI, returning 10.74%, as commodity prices rallied in January. The Industrials index (excluding dual-listed companies) dragged on the gains of the ALSI, down 2.25%. A stark contrast to its December performance of 6.12% in ZAR. By market-cap, the Top 40 led the gains, rising 4.67% despite the rand strengthening against the US dollar. The rand, however, weakened against every other major currency in January. Small-cap stocks followed, increasing by 2.42%, Mid-caps returned 1.66% for the month.

Source: I-Net 1 February 2017

Local fixed income markets saw steady returns over the month, with the ALBI (+1.36%) outperforming cash (+0.63%), as well as Preference Shares (+0.51%) but lagging inflation linked bonds (+1.41%). The longer end of the yield curve (12yrs+), was the best performing interest-bearing asset class, returning 1.43%, followed by 7-12yr bonds (+1.30%). The shorter end of the yield curve (1-3yrs) was the worst performer, returning +0.82%. However, over a rolling three-month period it was the best performer (+1.74%) after cash (+1.88%). SA listed property (a hybrid asset class) had a positive month returning 1.63% and has returned 15.4% over a one year period.

Source: I-Net 1 February 2017

For the month, foreigners were net sellers of R6.51 billion worth of bonds. This suggests that foreign investors are continuing to re-allocate capital from emerging markets to developed markets in anticipation of higher inflation and interest rates in the US. In January, SA’s currency returns were mixed against major global peers: It appreciated against the US dollar (-1.63%) and the Japanese yen (-0.26%) but depreciated against the euro (+0.68%) and the pound sterling (+1.51%).

Global Overview

Globally, the reflation theme which was evident towards the back-end of 2016 continued through January with equity markets rising, while bonds declined on rising expectations of improving global growth and inflation. The US dollar weakened against most major currencies following a suggestion by President Donald Trump that he favoured a weaker dollar. Global economic data, both sentiment surveys and hard data, continued to surprise to the upside, showing further gains and moving to levels consistent with improving global growth. The US earnings season got underway in January, with company results coming in above market expectations. The US economy advanced an annualised 1.9% q/q in Q4 of 2016, which was lower than the 3.5% expansion in the previous period. Nonfarm payrolls in the US increased by 227 000 in January 2017, following an upwardly revised increase of 157 000 in December 2016. Furthermore, the US trade deficit narrowed to $44.3 billion in December 2016 from a $45.7 billion gap a month earlier. Commodities rose during the month of January (+4.79%), despite the weakness in energy prices. Brent Crude oil was down 1.11% and Nickel weakened by 1.20%. Silver surged 10.23% and Platinum advanced 9.26%, while Iron ore and Gold added 5.67% and 5.22% respectively.

On a total return basis, both the global Basic materials sector and the Technology sector were the top performing sectors for the month returning 4.6% in USD, 2.7% in Pound Sterling (GBP) and 3.1% in ZAR. This was followed by the Consumer cyclicals sector which returned 3.6% in USD, 1.7% in GBP and 2.1% in ZAR. Basic materials was the top performing sector over a one year period in USD (+39.3%), GBP (+57.1%) and ZAR (+18.1%). The worst performing global sector in January was the Energy sector returning -3.1% in USD, -4.9% in GBP and -4.5% in ZAR. Furthermore, the Consumer defensive sector was the worst performing global sector over a one year period returning 7.9% in USD, +21.7% in GBP and -8.5% in ZAR.

In rand terms, global developed market equities (+0.68%) underperformed emerging market equities (+3.73%) in January. In USD, the MSCI Developed World Index added 2.35% and the MSCI Emerging Markets Index returned an impressive 5.45% for the month. Developed market property added 0.44% in USD whereas bonds fared better gaining 1.13% in USD. Looking at developed markets, the majority of global indices yielded positive returns for the month of January in rand terms. The NASDAQ (+2.60% ZAR and +4.30% USD), the Canadian TSX (+2.15% ZAR and +0.64% USD), the German DAX (+1.54% ZAR and +3.54% USD) and the FTSE 100 (+0.89% ZAR and +1.40% USD) were the top performers for the month. Meanwhile, the CAC 40 (-1.67% ZAR and +0.28% USD), the Euro Stoxx 50 (-1.15% ZAR and +0.80% USD) and the Dow Jones (-1.12% ZAR and +0.51% USD) were the worst performers for the month. In emerging markets, China’s Shanghai Composite index added 1.79% in its base currency and rose 0.89% in ZAR, while the Brazilian Bovespa equity index returned an impressive 7.38% in its base currency. The US dollar weakened against both the euro (2.67%) and the British pound (2.03%).

Spot Rates31 January 201531 January 201631 January 2017
USD/EUR1.131.031.08
USD/GBP1.511.421.26
Yen/USD117.45121.11112.78

Sources: SA Reserve Bank, Statistics SA, I-Net, BER, Trading Economics, MorningStar, Reuters

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