The A-Z of investments in 2016
What were the most important factors that impacted investors in the past year?
A – #ALLMUSTFALL
After 2015 was largely highlighted by campaigns such as the #RhodesMustFall and #FeesMustFall movements, hopes were high that 2016 would be different. Unfortunately, our hopes were in vain as the #FeesMustFall campaign only intensified. Let’s truly hope that 2017 marks the end of these destructive #AllMustFall movements and the start of a much-needed #SAMustGrow campaign.
B – Brexit
The abbreviation for “British Exit”, which refers to the referendum held in June this year to determine whether Britain would remain part of the EU or not. It came as a great shock when the results indicated that they would in fact be leaving the EU. The news caused havoc in the markets and the pound’s value weakened drastically against the US dollar − to levels last seen in 1985.
C – Cash
I’m sure that most pensioners experienced some relief after two interest rate hikes in 2016. With money-market rates at 6.2% as at the end of 2015, the current rate of 7% surely makes for a welcome income increase.
D – Diversification
In 2016 we were yet again reminded of the fact that a welldiversified portfolio provides investors with peace of mind. Investors who were only invested in local shares at the end of 2015 would have underperformed compared to all three asset classes (as at 29 November 2016): bonds, property shares and even the money market.
E – Economy
From a local economic perspective, South Africa suffered another bad year in 2016, after recording growth of only 1.3% in 2015. Standard & Poor’s is forecasting growth of only 0.3% this year, with a slight recovery to 1.2% in 2017. Stanlib warned that SA will struggle to lift its growth rate meaningfully back up to 2% over the next two years given low business confidence, domestic policy constraints and below-average global growth.
F – Federal Reserve
2016 certainly proved to be an interesting year for the US Federal Reserve (Fed). The year didn’t kick off with the question of how many interest rate hikes would take place, but rather when the first one would take place. One cannot but wonder whether there would have been more than one hike if Trump hadn’t been elected president, but stay tuned as we believe things will get even more interesting as we move along.
G – Gold
After dropping to $1 060/ounce at the end of 2015 from $1 700/ounce at the end of 2012, I had to ask whether this was the end of the price drop at the beginning of this year. Amongst all the uncertainty surrounding Brexit and Trump, we didn’t only see the gold price recover, but also rally a bit to its current price of $1 193/ounce.
H – House prices
Higher interest rates continued to take their toll on local house prices, which, according to Absa, only rose by 4.4% over the last 12 months. For the first time in a very long time, listed properties couldn’t manage to outperform the money market. At 6% growth up to 29 November 2016,
however, they still managed to outperform local shares.
I – Inflation
Inflation is the sweet and sour sauce of 2016. The recent 6.4% year-on-year growth definitely falls outside of the level where it’s supposed to be (4% to 6%). But when we consider the great drought, higher oil prices and a rand that is still trading higher than last year’s average, we can be thankful that it wasn’t even higher.
J – JSE
After growing by only 5% last year, 2016 definitely didn’t turn out to be the local market’s turning point. On the contrary, it was a particularly poor year on the FTSE/JSE All Share Index, with a mere 1.5% growth up to 29 November 2016.
K – ‘Kite-Flyers’ Society
Debt levels are still much higher than 10, 20 or even 30 years ago. However, debt as a percentage of income has come down in 2016, from 78% at the end of 2015 to 75% currently. Let’s hope that this downward trend continues in 2017.
L – Long bonds
Long bonds managed to sidestep the 2016 interest rate hikes and looking ahead, the general impression is that rates may not stay too high for too long. Long bonds closed at 10% at the end of 2015, and at their current level of 9.2%, they may just take the prize for best-performing asset class of 2016.
M – Maimane & Malema
2016 turned out to be a good year for both the DA’s Mmusi Maimane and the EFF’s Julius Malema. There were great expectations and excitement surrounding the 2016 local municipal elections and the result was a huge success for both parties, with the ANC having lost the most supporters.