January 2018 market overview

The year 2018 was off to a strong start with both the Nasdaq and S&P 500 closing at record highs several times during the month. Mid-month, the People’s Bank of China rose the country’s daily reference rate the most in three months and the yuan climbed to its strongest level since December 2015. The euro also hit a three-year high to the dollar as economic and investor optimism in the euro zone is starting to pick up and forex markets expect quantitative tightening soon. Among the cryptocurrencies, bitcoin tumbled below $10 000 – a nearly 50% drop from its record high in December.

January was not without its gloom, though. In the US, the euphoria over the US tax bill has made way for concerns around the rise in war-like rhetoric from President Trump concerning North Korea. And globally banks felt the blow of the Steinhoff accounting fraud. Already in the first week of the year the European Central Bank sold out of all its Steinhoff bonds.

Locally, in the last week of January the rand strengthened to below R12 to the greenback for the first time since 2015, mainly driven by dollar weakness. Against the euro, it ended the month largely unchanged. SA consumer inflation clocked in at 4.7% year-on-year.

Notably, on the local stock market the share price of Capitec Bank Holdings fell significantly on 30 January after the release of an unfavourable report by US fund manager Viceroy, the same company that published a report on Steinhoff International’s accounting misstatements a day after the resignation of the company’s CEO. In its Capitec report, Viceroy is accusing Capitec of ‘massively understating its loan defaults’. The SA Reserve Bank allayed shareholder fears by swiftly confirming that Capitec meets all prudential requirements as set out by the industry regulator.

During January 2018 the FTSE/JSE All Share Index (ALSI) eked out a meagre 0.1% on a total return basis, while bonds delivered a strong 1.9%. The SA Listed Property Index (SAPY) had a dismal start to the year, falling 9.9% in one month! Cash returned 0.60%. Internationally, the MSCI World Index gained 5.3% in dollar terms and the MSCI Emerging Markets Index ($) delivered an exceptionally strong 8.3%. For South African investors who measure their returns in rand, the 4.3% strengthening of the rand against the dollar cancelled out most of this month’s return on offshore assets in rand terms.

For the 12 months to the end of January 2018, the ALSI and listed property returned 16.1% and 3.9% respectively. The ALBI returned 10.8% and cash 7.5%. Internationally, the MSCI World Index and the MSCI Emerging Markets Index ($) rewarded offshore investors richly with dollar returns of 25.8% and 41.1% respectively. The rand appreciated by 13.5% against the US dollar but weakened by 1.6% against the euro over the past year.