Economic, political risks to set the tone
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.