Volume 16 Issue 11 – December 2018

“History will point out some of the things I did wrong and some of the things I did right” – George H W Bush

COMMENT AND OUTLOOK – A Tough Year Is Closing

2018 is drawing to a close and November proved to be another difficult month for the markets. There was a high level of volatility during the month as investor sentiment shifted on news flow. The US markets ended the month slightly positive and remain positive by small percentages for the year to date. In Europe things were a bit worse with all the major markets down for the month and in negative territory for the year to date. In Asia markets were mostly positive for the month but all remain negative for the year to date with the Chinese and Hong Kong markets still significantly down for the year. South Africa did not escape the volatility and the JSE All Share index was down 3% for the month dragged lower by some of the big market cap stocks. Financials were just about the only sector that had a good month. The JSE was down 15% for the year to date at the end of November. There was slight recovery in early December but that is reversing now.

at one stage (The Rand) was trading at R13.50 to the USD.

The Rand had a good month against most currencies and at one stage was trading at R13.50 to the USD. Interest rates were raised by 0.25% in November and this decision was based on a slightly higher outlook for inflation with CPI going over 5 percent on an annualised basis for the first time in a while. The oil price fell quite a bit more and at one stage was trading at USD 60 per barrel. This together with the stronger Rand has provided much needed relief for motorists ahead of the holiday season as fuel prices have dropped substantially. South Africa has returned to positive economic growth with a significant 3rd quarter improvement. The US Federal Reserve softened its approach to the prospect of further rate hikes and this led to some USD weakness. It may be because inflation in the US is being contained. Low unemployment is at levels not seen in many decades and the US economic growth remains strong. There are some concerns being expressed about the sustainability of US growth. The trade disputes between the USA and China escalated and that was a contributing factor to market turbulence. US President Trump and Chinese President Xi have just met and they reached an agreement to hold off on the imposition of any further trade tariffs until March 2019. The markets reacted very positively to this and then promptly reversed some of the gains made when President Trump made some contrary announcements about trade tariffs. Economic growth in Europe slowed further but a positive outcome was that the Italian government has agreed to revisit its budget in order to reduce the planned deficit. That should ease tensions in the EU. British Prime Minister Theresa May is having a hard time selling her Brexit deal to the UK parliament and there is still much uncertainty about what will be the final terms of Britain’s departure from the EU. Most UK citizens seem to be wishing it had never happened.

The fact that we are back into load shedding with its impact on the economy is directly attributable to the wrongdoing at Eskom

In SA much focus has been on the Zondo Commission of Inquiry into State Capture Past and present senior members of government have been testifying about how the State was compromised under the leadership of former president Zuma. It is clear from the initial evidence given that the concept of State Capture did not just evolve. It was a deliberate and cynical strategy to gain access to state resources for personal gain by a select few connected to former president Zuma. The fact that the country has been placed in a precarious financial position as a result of the wrongdoings, particularly at Eskom, Transnet, SAA and Denel, did not seem to be of any concern to those who were party to this grand heist. They must be held accountable and the fact that there is a new head of the NPA who is completely untainted gives hope that perhaps there will be consequences for what was done. The fact that we are back into load shedding with its impact on the economy is directly attributable to the wrongdoing at Eskom.

There are signs that the worst may be behind in SA in terms of the decline we were facing.

Looking forward, there is much to be concerned about but there are pockets of hope. There are signs that the worst may be behind in SA in terms of the decline we were facing. A general election will be held in SA in 2019. It is important that a Ramaphosa-led ANC wins with a comfortable majority as the prospect of a coalition government is not a good one. It will also strengthen his hand, as having an electoral mandate gives him the authority to implement changes that he might not be able to at present while he completes the term of former president Zuma. The election outcome will be the result of a number of factors. If urban voters return to vote for the ANC in this election it will help them achieve a majority and there are signs they will. The DA will most likely lose some support but remain the official opposition. The EFF who looked as if they were on a growth trajectory may be the surprising losers in the election. Recent allegations about their involvement in the VBS Bank scandal and other corrupt practices have damaged their image. It is going to be a hard fought election. Britain’s departure from the EU and a possible slowdown in the USA plus the prospect of a major debt default are factors that will continue weighing on investment markets into 2019.

Source: Twinoaks
the-acorn-brief Twinoaks Investment Management (Pty) Ltd (Twinoaks) is a FSB approved Discretionary Financial Service Provider – No 849. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Twinoaks has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. For any further information concerning this publication, please contact Twinoaks.