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The Weekly
Focus
A Market and Economic Update
6 March 2017
Contents
Newsflash ..................................................3
Market Comment ...................................................................................................................... 3
Other Commentators ............................................................................................................... 3
Economic Update ......................................6
Weekly Market Analysis .............................9
Rates .......................................................10
STANLIB Money Market Fund............................................................................................... 10
STANLIB Enhanced Yield Fund............................................................................................ 10
STANLIB Income Fund .......................................................................................................... 10
STANLIB Extra Income Fund ................................................................................................ 10
STANLIB Flexible Income Fund ........................................................................................... 10
STANLIB Multi-Manager Absolute Income Fund................................................................ 10
Newsflash
US market analyst, Steve Sjuggerud, is recommending gold as a buy.
Market Comment
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The JSE ALSI is slightly higher early Monday morning versus a week ago this time.
The Financial & Industrial Index is steady, while the Resources Index is slightly higher. The
JSE Financials Index is +1.3% over the past week to its highest level since last August,
buoyed by a +9.7% gain in Standard Bank on its good results, especially the final dividend
which was up +18% on last year’s final dividend.
Standard Bank’s share price is trading at its highest level since August 2015.
The European Banks Index apparently gained 9% last week.
The MSCI World Index is up +0.4% in dollars over the past week while the MSCI Emerging
Markets Index is down -1% in dollars, pausing after a strong rally which saw it gain +13.4%
in dollars since late December.
The SA Listed Property Index is down -0.7% in the past week, although bond yields are
down a bit too (usually good for listed property). But listed property looks fine on the charts.
Global listed property in dollar terms is unchanged over the past week, despite a rise in the
10-year US bond yield from 2.33% to 2.48%, on the back of high expectations of a rate hike
next Wednesday from Janet Yellen and the Fed.
So far since December, each rise in the US 10-year yield has peaked at a lower point than
the previous rise, which could be a sign of a peaking in yields, although this is by no means
conclusive as yet. The yield reached 2.59% in December versus today’s 2.48%.
I notice that over the weekend US market analyst, Steve Sjuggerud, is recommending gold
as a buy. He says the big hedge fund traders have turned negative on gold, gold is now
what he terms “hated”, it is coming off a big decline in the second half of last year and yet it
has lately embarked on an uptrend.
Other Commentators
US Market Analyst, Elaine Garzarelli
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Shares continue to surge due to Trump’s speech last week, strong consumer confidence,
higher house prices and declining employment claims.
A bear market is unlikely to occur until the Fed tightenings lead to an inverted yield curve,
which is when short-term rates rise above long-term rates.
Currently the 10-year yield is at 2.48% whereas the Fed Funds rate is at 0.66%. So it would
take a long string of tightenings for short rates (over 182 basis points) to rise above long
rates.
So it would most likely be a long time from now before an inverted yield curve becomes a
problem.
Garza’s quants model remains at 74.5%, which is bullish. Shares usually rise during Fed
tightening cycles and generally peak after the last tightening. The Fed is still in the early
stages of raising rates, so it will probably be some time before the end of the cycle occurs.
The number of bullish advisors (her contrarian indicator) rose to 63.1% (a 30-year high)
from 61.2%. So it still ranked bearish in her model.
With the latest rise in share prices, consumer net worth is on track to rise about +9% yearon-year in the first quarter. Consumer confidence rose +3.2 in February to a 16-year high
and is 22% higher than last year, which supports discretionary spending.
Nominal wages and salaries rose a solid +4.5% year-on-year in January.
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US manufacturing was held back by a strong dollar and excess inventories over the past
few years, but the latest stats indicate better times ahead for manufacturing. The February
ISM (institute of supply management) PMI or purchasing managers index rose to 57.7 in
February, the highest level in over two and a half years.
With the S&P 500 Index up +6.4% so far in 2017, the Health Care sector (+9.5%) has
overtaken the IT sector (+8.9%) for pole position, followed by Financials (+7.2%), then
Consumer Discretionary (+6.6%).
Telecomms is the worst sector at -4.8%, followed by the Energy sector with -3.7%.
Over the past 6 months, the S&P 500 Index has returned +9.7%, with Financials the best at
+25.2%, then IT at +13.4% and Industrials +12.1%.
Real Estate has done worst with -3.5%.
BCA Research
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Market momentum continues to trump all else, with the stock market surging to new highs.
The forward price-to-earnings ratio (PE) on the US market has climbed to 18, its highest
level in well over a decade. The scope for further expansion in the PE ratio is limited.
Also the S&P 500 Index is trading about 9% higher than its 200 day moving average, which
is quite high.
There seems to be a fairly high degree of complacency creeping in about the market,
amidst buoyant profit and economic expectations.
BCA expects the Fed to raise rates three or four times this year, starting next week. This
should drive the trade-weighted dollar up further by around +5% or so over the remainder
of the year.
BCA sees greater upside for the dollar against emerging market currencies.
Last year BCA correctly predicted a Trump victory and also that global banks would
outperform.
Since September when they made the call, global banks have risen by +25% in dollars and
have outperformed the MSCI All Countries World Index by 14%.
The thesis for this outperformance remains intact: improving business and consumer
confidence should continue to support credit demand, while stronger economic growth will
reduce nonperforming loans.
Also bank valuations remain attractive, especially European banks over a period of the next
12 months.
Below we show a chart of the STANLIB European Equity Feeder Fund, converted into
euros.
In rand terms, the unit price is low because of rand strength, but in euro terms, as the graph
shows, the unit price is moving up nicely, heading towards the previous all-time peak from
2015.
As you can imagine, in pound terms, the fund is at an all-time record high.
Shares listed in the UK comprise around 30% of the fund.
In rand terms, the fund’s unit price rose from a low of 150c in 2011 to a high of almost 450c
at end 2015 and is now trading at 366c, almost -19% below its record high, purely thanks to
the rand’s gain against the euro and pound.
Source: I-Net Bridge
Paul Hansen
Director: Retail Investing
Economic Update
1. SA recorded a surprise trade deficit in January 2017 of -R10.8 billion. On a trend
basis SA's trade account has improved measurably over the past year, helped by
some pick-up in the value of exports
2. SA petrol price decreased by 8/cl due to the rand strengthening against the dollar
from R13.60 to R13.30.
3. SA total new vehicle sales recorded a slight decline of 0.1%y/y in February, with
vehicle exports virtually unchanged.
4. Nigeria's latest GDP figures show that 2016 was one of the worst years on record,
contracting by 1.5% for the whole of 2016.
5. The Kenya National Bureau of Statistics released inflation statistics for the month of
February 2017, indicating that inflation has risen sharply to 9.04% from 6.99% in
January.
1. In January 2017, South Africa’s trade balance recorded a surprise deficit of -R10.8
billion. This compares with a revised trade surplus of R12.4 billion in December 2016.
The market was expecting a small trade deficit of around -R3.4 billion for the month,
although the trade data is extremely difficult to forecast accurately on a month-by-month
basis, especially since the data is not seasonally adjusted and prone to revisions. South
Africa has recorded a trade surplus in five of the last nine months.
During 2016 as a whole South Africa recorded a trade deficit of only -R2.9 billion, compared
with a deficit of –R52.2 billion during all of 2015. This improving trend is expected to
continue into 2017, with South Africa recording more regular trade surpluses. In fact, over
the past year, the country has recorded an average monthly surplus of R0.67 billion.
During January 2017 exports fell by -R13.0 billion (-14.0%m/m), while imports rose by
R10.1 billion (+12.5%m/m). The rise in imports was concentrated on an increase in vehicle
parts (+R4.3 billion) as well as some machinery (+R2.3 billion) and base metals (+R1.8
billion). South Africa’s imports have risen by only 2.5% in Rands over the past year. The
sluggish growth in imports is closely linked to the country’s overall economic performance.
Unsurprisingly, South Africa’s tax collection of import duties has been well behind budget.
Given that economic growth is expected to remain relatively subdued over the coming year,
import demand should also remain relatively subdued in 2017.
The fall in exports during January 2017 was unfortunately broad-based and included a
massive R2.9 billion drop in the value of vehicle exports, a R2.8 billion drop in coal exports,
a R1.8bn slump in machinery exports and a R1 billion dip in food exports. Nevertheless, in
dollars terms, South African exports are up almost 37% over the past year. This is the best
export performance South Africa has achieved since 2011, and partly reflects the benefit of
significantly higher commodity prices.
In conclusion, South Africa’s trade balance has generally improved over the past
year, at least on a trend basis, helped by a combination of slowing import growth
and a pick-up in exports. Higher international commodity prices have provided
welcome relief to South Africa’s balance of payments in 2016/2017. Unfortunately,
the slowdown in import growth largely reflects the weakness in the South African
economy, rather than an improvement in import substitution. Unsurprisingly, the
collection of import duties has been well behind budget over the past year. This
overall trend in the trade account is expected to continue during 2017, which should
help to further narrow South Africa’s current account deficit, having already helped
to reduce the pressure on the Rand exchange rate.
2. Last week, the Department of Energy announced that the petrol price (95 and 93 ULP
& LRP) decreased slightly by 8c/l with effect from Wednesday, 1 March 2017.
The latest announcement means that the price of 95 Octane (ULP, Gauteng) will now cost
R13.54c/l. The price of diesel (both grades), also decreased, but by a minimal 2c/l.
Gas will decrease by 2c/kg while the price of paraffin will decrease by a more welcome
10c/l (retail price).
During the latest fuel price review period, from 27 January 2017 to 22 February 2017, the
average Rand/US Dollar exchange rate was somewhat firmer at R13.30 compared to
R13.60 in the previous period. The relative strength of the Rand against the US Dollar
during the month led to a lower contribution to the Basic Fuels Price on petrol, diesel and
illuminating paraffin.
The petrol price decrease in March 2017 will have a minimal effect on the monthly
consumer inflation rate. Importantly though, the cost reprieve is probably temporary,
because on 1 April 2017, the fuel levy will increase by 30c/l along with the RAF levy, which
will increase by 9c/l as per the latest announcement in the 2017/18 budget review.
3. In January 2017, total new vehicle sales (as reported by the Department of Trade and
Industry and confirmed by NAAMSA) totalled 48 113, falling by 31 units or
0.1%y/y. Export sales remained virtually unchanged, recording only a slight increase
of 65 vehicles or a gain of 0.2%.
Passenger vehicles sales declined by 4.4%y/y, down from positive growth of 4.7y/y
last month. The car rental industry made a strong contribution and accounted for 31.8% of
new car sales in January 2017 and managed to maintain its strong contribution accounting
for 19.1% of new car sales this month (excluding BMW). Domestic sales of new and light
commercial vehicles, bakkies and mini buses at 14 416 units during February reflected a
significant improvement of 1 277 units or a gain of 9.7% compared to the 13 139 light
commercial vehicles sold during the corresponding month last year. Sales of vehicles in
the medium and heavy truck segments of the industry recorded a welcome gain of 705
units and 1592 units respectively.
Overall, the headline figure for vehicle sales, along with the latest PMI indicator
suggest a mild recovery in the medium term economic outlook. If the economy starts
showing signs of improvement and interest rates remain stable as expected in 2017, the
sector could hopefully see some improvement in the second half of 2017. However,
household expenditure remains under pressure given the latest tax hikes tabled in the 2017
budget. It would therefore be prudent to anticipate a very moderate improvement in the
sector for 2017, if at all.
4. The Nigeria Bureau of Statistics released the fourth quarter 2016 GDP numbers for Nigeria
last week. The latest figures indicate that the Nigerian economy contracted by
1.3%y/y from -2.2%y/y in the previous quarter. The growth rate in the same period of
2015 was recorded at a far higher rate of 2.1%. This means the Nigerian economy
contracted by 1.5% for the whole of 2016, which is the first outright recession in
Nigeria in 25 years. The Nigerian economy averaged growth of 7.6% between 2004 and
2013.
Disappointingly, the Non-Oil sector has drifted back into negative territory at -0.3%y/y, after
coming out of recession in the third quarter of 2016 when it grew by 0.03% y/y. Growth in
the sector was recorded at -0.18% and -0.38% in the first and second quarters of 2016
respectively. The Non-Oil sector contributed 92.85% of total GDP output in the final quarter
of 2016. As the largest part of the economy, the non-oil sector is the main driver of growth
in the Nigerian economy.
Agriculture was, once again, one of the better performing parts of the economy, recording
growth of 4%y/y, driven by crop production. The agricultural sector has been a relatively
stable part of the Nigerian economy for year. Furthermore, the government and Central
Bank have directed a great deal of initiatives towards strengthening this part of the
economy as it has the potential to employ a large part of the population.
Manufacturing and Construction, which recorded double digit growth in 2014, continued
their recession into the fourth quarter of 2016. Hopefully these turn around in 2017, helped
by planned government expenditure. Telecommunications held up again with growth at 1%
y/y, the same figure as the previous quarter.
The Oil Sector experienced another deep contraction in the fourth quarter when it fell by
12.4%y/y, however this was an improvement on the -22% contraction y/y in the third
quarter and -17.5% in the second quarter of 2016. The Oil-Sector is now 7.15% of the
Nigerian economy. Oil production improved to 1.9 Million Barrels Per Day (MBPD) from
1.63 MBPD in the third quarter and 1.69 in the second quarter. Oil production in 2016 was
plagued by militant attacks on pipelines in the Niger Delta. Encouragingly, peace talks with
the militants have resulted in fewer disruptions in production and in addition, Nigeria has
been exempted from the oil production cuts agreed by OPEC members.
The issues which plagued the economy in 2016 are expected to reverse in 2017. It is clear
however that going forward the country will need to find a new path of growing the economy
which is not dependent on oil. The government is attempting to implement its well laid out
[and delayed] plans from 2016, which include increased capital expenditure.
A Eurobond of $1 billion was successfully issued to the market. There are talks of another
$500 million bond issue, which is likely to also be successful as there seems to be an
appetite for the paper on the market.
The Central Bank of Nigeria seems to be working on another de-valuation of their currency.
This should help ease the liquidity issues in the economy. It has already loosened some of
its policies surrounding the currency.
5. The Kenya National Bureau of Statistics released inflation statistics for the month of
February 2017 which indicated that inflation in Kenya rose quite sharply to 9.04% from
6.99% in January and 6.35% in December 2016. This is the highest inflation rate in almost
5 years and is the first time inflation has breached the target band since January 2016. The
m/m inflation rate accelerated to 1.8% from 1% in the previous period.
The main price pressures came from food inflation which rose to 16.5% from 12.5%. This is
the highest food inflation has been since March 2012 (16.24%). Food is the biggest portion
of Kenya’s CPI basket, while food production in the region is very sensitive to weather
conditions.
Non-Food inflation is still within the target at 3.2%. However, a weaker currency and lower
energy output has the potential to put upward pressure on prices. Transport inflation was
recorded at 4.26%y/y from 1.85%y/y. Lower fuel prices have had an anchoring effect on the
overall headline inflation figure in 2015 and 2016. The unfavourable base effect (from
higher oil prices and weaker Kenya Shilling) has meant that the inflation rate will rise further
in the months ahead.
The Shilling has been under pressure lately, and the higher inflation figure could lead to
further weakness. At this rate inflation could hit double digits as soon as the next print
(March) and stay at elevated levels for the first half of the year. This is likely to put pressure
on the Central Bank of Kenya to hike rates and maintain positive real rates. An interest rate
hike to 12% (currently 10%) is not out of the question.
Please follow our regular economic updates on twitter @lingskevin
Kevin Lings, Laura Jones & Kganya Kgare
(STANLIB Economics Team)
Weekly Market Analysis
Currencies / Indices /
Commodities
Friday’s
Close
03/03/17
Weekly
Move (%)
YTD
(%)
Indices
* MSCI World – US Dollar
1848.98
0.44
5.58
* MSCI World – Rand
24138.16
1.10
0.21
931.07
-1.32
7.98
* MSCI Emerging Market – Rand
12154.93
-0.68
2.48
All Share Index – US Dollar
3970.35
-0.44
7.30
All Share Index – Rand
51708.61
0.19
2.08
All Bond Index
548.33
0.20
2.81
Listed Property J253
2151.89
-0.37
2.32
* MSCI Emerging Market – US Dollar
Currencies
US Dollar/Rand
13.02
0.64
-4.86
Euro/Rand
13.69
0.42
-5.23
Sterling/Rand
15.80
-0.80
-5.35
Euro/US Dollar
1.06
0.58
0.96
55.76
-0.32
-1.87
Gold Price $/oz
1234.62
-1.78
7.30
Platinum Price S/oz
998.00
-2.82
10.52
Commodities
Oil Brent Crude Spot Price ($/bl)
Source: I-Net Bridge
Rates
These rates are expressed in nominal and effective terms and should be used for
indication purposes ONLY.
STANLIB Money Market Fund
Nominal:
7.12%
Effective:
7.35%
STANLIB is required to quote an effective rate which is based upon a seven-day rolling average yield for Money
Market Portfolios. The above quoted yield is calculated using an annualised seven-day rolling average as at 03
March 2017. This seven- day rolling average yield may marginally differ from the actual daily distribution and should
not be used for interest calculation purposes. We however, are most happy to supply you with the daily distribution
rate on request, one day in arrears. The price of each participatory interest (unit) is aimed at a constant value. The
total return to the investor is primarily made up of interest received but, may also include any gain or loss made on
any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield,
but in an extreme case it can have the effect of reducing the capital value of the portfolio.
STANLIB Enhanced Yield Fund
Effective Yield:
8.18%
STANLIB is required to quote a current yield for Income Portfolios. This is an effective yield. The above quoted yield
will vary from day to day and is a current yield as at 03 March 2017. The net (after fees) yield on the portfolio will be
published daily in the major newspapers together with the “all-in” NAV price (includes the accrual for dividends and
interest). This yield is a snapshot yield that reflects the weighted average running yield of all the underlying holdings
of the portfolio. Monthly distributions will consist of dividends and interest. Interest will also be exempt from tax to the
extent that investors are able to make use of the applicable interest exemption as currently allowed by the Income
Tax Act. The portfolio’s underlying investments will determine the split between dividends and interest.
STANLIB Income Fund
Effective Yield:
8.69%
STANLIB Extra Income Fund
Effective Yield:
8.33%
STANLIB Flexible Income Fund
Effective Yield:
8.04%
STANLIB Multi-Manager Absolute Income Fund
Effective Yield:
5.93%
Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of
participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A
schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS
can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in
the overall costs.” The above quoted yield will vary from day to day and is a current yield as at 03 March 2017.
For the STANLIB Extra Income Fund, Fluctuations or movements in exchange rates may cause the value of
underlying international investments to go up or down.
Disclaimer
The price of each unit of a domestic money market portfolio is aimed at a constant value. The total return to the
investor is primarily made up of interest received but, may also include any gain or loss made on any particular
instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an
extreme case it can have the effect of reducing the capital value of the portfolio. Collective Investment Schemes in
Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as
well as up and past performance is not necessarily a guide to the future. An investment in the participations of a CIS
in securities is not the same as a deposit with a banking institution. CIS are traded at ruling prices and can engage in
borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request
from STANLIB Collective Investments Ltd (the Manager). Commission and incentives may be paid and if so, would
be included in the overall costs. A fund of funds is a portfolio that invests in portfolios of collective investment
schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. Forward
pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international
investments to go up or down. TER is the annualised percent of the average Net Asset Value of the portfolio
incurred as charges, levies and fees. A higher TER ratio does not necessarily imply a poor return, nor does a low
TER imply a good return. The current TER cannot be regarded as an indication of future TERs. Portfolios are valued
on a daily basis at 15h00. Investments and repurchases will receive the price of the same day if received prior to
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member of the Liberty Group of Companies.
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particular investor, the investor understands that there may be limitations on the appropriateness of any information
in this document with regard to the investor’s unique objectives, financial situation and particular needs. The
information and content of this document are intended to be for information purposes only and STANLIB does not
guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management
Limited does not expressly or by implication propose that the products or services offered in this document are
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