Eco­nomic, po­lit­i­cal risks to set the tone

The Star Early Edition - - PRICES - Dr Chris Harmse, Chief econ­o­mist, Re­bal­ance Fund Man­agers

GLOBAL and do­mes­tic eco­nomic and po­lit­i­cal risks, will, just as last year, de­ter­mine mostly the out­come of fi­nan­cial mar­ket’s move­ments dur­ing this year.

The pos­si­ble ef­fects of the sur­prise win of the US elec­tion by Don­ald Trump last year, given his fis­cal stim­u­la­tion prom­ises, as well as the stronger-than-ex­pected US econ­omy, boosted US share prices to new record lev­els.

The Dow Jones in­dus­trial av­er­age in­dex nearly touched the 20 000 points level at the end of last year and recorded an an­nual in­crease of 12.3 per­cent. Most bourses of other de­vel­oped economies also recorded strong growth last year. In the UK, the FTSE 100 gained 13.9 per­cent and the Dax in Ger­many was up by 7 per­cent.

Shares on the JSE, how­ever, strug­gled last year given the al­most re­ces­sion lev­els of the econ­omy, the volatile cur­rency, in­creas­ing in­fla­tion and geo-po­lit­i­cal cir­cum­stances that have threaten to change South Africa’s sov­er­eign debt rat­ing to junk.

The all share in­dex ended the year al­most flat (-0.1 per­cent), a mere 40 points lower than the close at the end of 2015. The all share to­tal re­turn in­dex dur­ing last year has in­creased by a mere 2.63 per­cent.

On the cap­i­tal mar­ket, the All Bond in­dex to­tal re­turn gained 15.33 per­cent as the best per­form­ing as­set class dur­ing the year. Listed prop­erty (to­tal re­turns) ended the year also on a high level, grow­ing by 10.2 per­cent.

Bonds and prop­erty shares ad­vanced on the back of a sur­prise strength­en­ing of the rand, es­pe­cially dur­ing the lat­ter part of last year.

Share prices started the New Year on a pos­i­tive note. Im­proved sen­ti­ment to­wards higher eco­nomic growth, bet­ter man­u­fac­tur­ing, food pro­duc­tion and ex­ports for South Africa dur­ing this year boosts a bet­ter out­look. The all share in­creased last week by 562 points (1.1 per­cent). In­dus­tri­als were up by 823 points (1.3 per­cent), while the fi­nan­cial in­dex gained 179 points (0.4 per­cent).

Given the strong in­creases in gold and plat­inum prices dur­ing the first week of the year, the Re­sources 20 in­dex gained 500 points or 1.6 per­cent.

Listed prop­erty con­tin­ues to per­form strongly as the in­dex was up by 1.3 per­cent over the week. The rand ex­change rate moved side­ways dur­ing last week in an­tic­i­pa­tion of the US jobs data. The cur­rency traded weaker by 9 cents (0.6 per­cent) against the dol­lar last week at R13.66 at the close of the JSE on Fri­day.

This week in­vestor’s at­ten­tion will be on the ef­fect of the US job data that was re­leased on Fri­day.

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