Multi Manager Insights Webinar - Setting the scene

By Nedgroup Investments

Trevor Garvin, Head of Multi-Management for Nedgroup Investments, provides a snapshot of some market highlights during Q3, both domestically and globally.

To listen to the full Multi Manager Insights Webinar go to Google Podcasts, Apple Podcasts, or Spotify. You can also watch the webinar on YouTube.

Q3 market overview
The SA equity market was up about 11.5% for the quarter. SA properties were up 4% with bonds and cash roughly flat up about 1%. In terms of the global markets measured in US Dollars, the MSCI All Country World Index was up about 16%, listed property was up 9% and global bonds up 3.7%. Q3 was very strong across all asset classes and both local and global markets. Over the quarter, the Rand actually strengthened by about 7% where the returns of global markets, measured in Rands, saw equities up 9%, property up 2% and negative Rand returns for bonds and cash.

Rand vs Dollar
The South African Rand is currently trading at about 16.60 to the US Dollar, which is certainly an improvement from 19.50 during the peak of the crisis. It is certainly one of the most liquid emerging market currencies and has been volatile relative to the Dollar over time.

Tough long-term real returns for domestic risk assets over the last decade 
As an investor, you need real returns in order to grow wealth. SA equities over the last ten years have delivered 5.5% real return, which is below the long-term average of about 6.5% - 7%. SA listed property has delivered -2% real return over the same period in contrast to the previous decade, which was a strong period of performance. SA bonds and cash delivered 3% and 1% real return respectively, which is roughly in line with their long-term averages. The global returns of these domestic assets measured in Rands were pretty strong, with close to half of the returns driven by Rand weakness.

SA stock market
The top ten performing stocks year to date were dominated by the gold mining and platinum shares, including Goldfields, Anglo American, Anglogold Ashanti, Northern Platinum and Reunert. Goldfields was up 131% and was the top performing share with the others up between 50% and 100%. The other stand-out shares were Naspers and Prosus, which dominated the index in terms of the SA stock market. The worst performing shares were dominated by the financial institutions – RMB, Nedbank, Absa, Capitec, Old Mutual and Firstrand - all down between 40% and 50%. The banking companies came out with their results over the last few weeks where we saw headline earnings per share down between 50% and 70% across all of the banking stocks. Mr Price, one of our big retailers, was the 10th worst performer down 37%.

The SA economy is struggling
The SA economy contracted by 40% in Q2, which was the worst quarterly contraction in over 30 years and we expect it to contract by 8% - 10% for the year, again the largest calendar year contraction in over 100 years. Interest rates have remained positive in contrast to the rest of the world, which have had zero to negative interest rates. The money market has delivered about 5%, which after inflation of about 3% has meant real returns of about 2%, better than in many other countries. Inflation for July was 3.2%, which is at the bottom end of the government’s target of 3%-6%. Ironically, this was a 45% increase from 2.2% in June and the biggest one-month increase since February 2016. The Dollar weakness has helped to strengthen the Rand.

Apple’s market value hits $2 trillion
Since going public in 1980, Apple reached a market cap of $1 trillion dollars after 38 years and in less than two years, has doubled its market cap, making it larger than the FTSE 100 companies in the UK and larger than the entire Russell 2000 Index in the US.

The social media universe in 2020
With a global population of about 7 billion, Facebook has 2.6 billion active monthly users, WhatsApp and YouTube have 2 billion each and Messenger has 1.3 billion. This goes some way to explain why these tech companies have been flying over the last couple of years.

The largest global economies in 2030
China, which is currently ranked number one in the world, will continue to dominate in 2030 with its GDP tripling from $23 trillion in 2017 to $64 trillion by 2030. India is currently ranked third and is predicted to surpass the USA with GDP growth of $46 trillion in 2030 compared to $9.5 trillion in 2017. USA comes in third. It’s interesting to see that the more first world developed economies, such as Japan and Germany, will fall in the rankings from 4th and 5th position to 9th and 10th position respectively. Emerging economies including Egypt, Brazil and Turkey are set to grow in terms of their demographics and economic output over the next decade.