INTERNATIONAL MARKETS
MARKETS MIXED AFTER US ELECTION RESULT

Global developed equity markets were, for the most part, strong in November with US markets especially accelerating their rally following the US Presidential election and the surprise win of Republican, Donald Trump. What seemed to be driving these advances has been the confluence of Trump’s (intended) policies — business-friendly, including significant corporate tax cuts, higher spending on infrastructure and financial and environmental deregulation. These are seen as supportive of rising inflation and/or economic growth, hence sharply rising US treasury yields, and a strong dollar, which has in turn driven a massive rotation out of emerging market into developed market stocks and specifically US shares.

Major US indices reached a string of new, record highs during the course of November and for the month, the Dow Jones Industrial Average (DJIA) gained 5.4%, its best monthly performance since March with the index also breaking through the 19,000 mark for the first time ever. The S&P 500 Index rose 3.4% for the month and the Nasdaq advanced by 2.6% (the best month for both since July).

On the US economic data front, upbeat consumer price inflation (CPI) and initial jobless claims data was reported, while the flash Reuters/Michigan consumer sentiment index rose to its highest level since June last month. October US retail sales data also rose, posting its strongest performance in two years. The higher retail sales figures further lifted expectations of an interest rate hike at the US Federal Reserve’s (Fed’s) meeting on 13- 14 Dec.

In the UK, Chancellor of the Exchequer, Philip Hammond, noted in his Autumn Statement that the country’s economy will grow at a slower pace in 2017 than previously expected following the Brexit vote. Elsewhere, European Central Bank (ECB) President, Mario Draghi, in his statement to the Europe-an Parliament, indicated that the Eurozone is recovering at a “moderate to steady pace and unemployment is falling”.

The FTSE 100 Index ended November 2.5% down, while Germany’s DAX retreated 0.2% for the month, the French CAC closed 1.5% higher. China’s Shanghai Composite Index climbed 4.8% compared to October, while the Hang Seng ended November 0.6% down. The official gauge of China’s factory activity was up for a second month. In Japan, the Nikkei 225 Index reached a 10-month high in November as the Japanese yen fell to an eight-month low against the US dollar. The index closed the month 5.2% higher.

LOCAL MARKETS
VOLATILITY CONTINUES FOR CURRENCY AND MARKETS

Decisions by ratings agencies and meetings of the National Executive Committee (NEC) of the ruling ANC had the biggest impact on market movements in November. The rand strengthened the most in nearly a month during the last week of the month before retreating again. The bounce came after senior members of the NEC tabled a motion for President Jacob Zuma to step down and SA narrowly avoided a junk rating from Fitch and Moody’s. Fitch changed its outlook for the country to negative (from stable), warning that continued political instability could result in a further downgrade, while Moody’s said that political infighting, low growth and unemployment pose the greatest risks to the local economy. However, following a post-NEC media briefing by the ANC on the weekend’s events (and the President staying put), a global bond selloff as well as concerns around a US interest rate hike in early December, the rand weakened again to end the month 4.2% down vs the US dollar. For the year to date the local currency has gained 9.1% against the US dollar.

On the JSE, it was a mixed bag in November with the FTSE JSE All Share Index losing 0.8% compared to October (-1.0% for the year to date), while resource shares showed a turnaround after October’s dismal performance and the Resi-10 posted a 6.9% rise for the month (+31.3% year to date). The Indi-25, which includes a number of dual-listed UK shares and other rand hedges, was down for the third month running, losing 4.4% for the month (year to date the index is now 12.0% in the red). After retreating 1.8% for the month in October, the Fini-15 rebounded to end November 1.2% higher (the index is still down 4.0% for the year to date).

Assore and Grindrod were the two top performing shares on the JSE in November, both gaining 25.1% compared to October, followed by Barloworld which was up by 22.4% for the month and construction company Murray & Roberts, up by 21.9%. The jump in Assore’s share price was on the back of an impressive iron ore rally which saw the iron ore price gaining 26% in November alone. Assore has a 50% interest in Assmang and along with other iron ore miners including Kumba (+21.5% for the month) tracked the rally in the iron ore price which rebounded in November to above $80/tonne – levels last seen in early 2015. The rally in iron ore and other metal prices came about on the hope that Trump would keep his campaign pledge to invest $500bn in upgrading the US’ infrastructure.

The bump in the Murray & Roberts share price happened after it was announced that the Gauteng provincial government had agreed to pay R1.3bn to the company in disputed Gautrain bills. Business Day reported that, according to Murray & Roberts, an arbitration process between its 33%-owned Bombela Concession Company and the Gauteng government had reached a settlement whereby Bombela will be paid R980mn within five days, and up to a further R294m over two years.

The worst performer for the month was Pan-African retailer Choppies Enterprises (-28.6%) due to a subdued economy and disappointing full year results. Lower gold and platinum prices (7.8% down in dollar terms for the month) caused a decline in the share prices of gold and platinum producers with Harmony Gold the worst performer in the sector and the second worst performer overall for the month at 23.2% down compared to October. This was despite the company reporting production results for the three months ended 30 September, which showed that it had recorded its highest ever revenue of R5.25bn, while net debt decreased 51.0% year on year from R1.08bn to R528mn. Additionally, Harmony produced 10.0% more gold than in preceding quarter.

The lower gold price also caused a decline the share price of Sibanye Gold, at -26.6% the third worst performer on the local exchange in November. Gold Fields closed the month at 18.6% down compared to October and Impala Platinum dropped 18.5% for the month. A relatively sombre trading update from Woolworths (-16.9% for the month) in mid-November dealt a blow to already weak investor sentiment towards the retail sector, indicating that the current slow economic conditions and lower discretionary spending are also impacting Woolworths’ wealthier customers.

On the economic data front, SA posted a trade deficit in October, after September’s surprise surplus while both CPI and PPI advanced more-than-expected in October. Last week, the South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC), in a widely-expected move, kept interest rates on hold. The troubles of the vehicle industry continues and a decline of 9.6% in new vehicle sales compared to November 2015 was reported. Following the announcement the National Association of Automobile Manufacturers (Naamsa) commented that conditions in the new vehicle market, with the exception of the light commercial vehicle segment, has remained extremely challenging. Export sales of new motor vehicles reflected a noteworthy year on year improvement and remained on target for a new annual record. An increase of 12.1% was recorded with the total of 31 508 in export sales, compared to 28 113 in November last year.

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