All share doubles last year’s return
Signs for 2017 look positive
THE JSE all share index had delivered double the entire 2016 return in the first three weeks of this year, said Izak Odendaal, investment strategist at Old Mutual Multi-Managers in an interview with Business Report yesterday.
The first three weeks of last year saw an 8percent loss on the JSE, wiping out more than 2015’s return as a fall in commodity prices and the weaker rand negatively affected the markets. However, since this year started the all share had shown positive growth but Odendaal warned investors that the good start to the year did not necessarily translate to the markets sustaining the gains for the rest of the year.
Positive signs
“The point is, the markets had a terrible start to 2016. This year it has been good but again we warn the investors not to take their investment decision on the first weeks’ performance of the year and assume it is going to be the trend for the rest of the year,” he said.
However, the signs for the rest of the year look positive as compared with last year.
“The rand has strengthened and is looking firm and it sailed through the global shocks of last year largely unscathed. South Africa’s investment grade credit rating is safe for the next few months, while we were still reeling from ‘nenegate’ a year ago.
“Commodity prices increased through the course of last year, most notably iron ore and coal,” he noted.
Odendaal said this was despite the economy growing less than 1percent last year.
On the food inflation front, Odendaal said South Africa looked set to have a maize surplus this year, which suggested the food inflation shock was likely to be behind us.
“White maize is trading 40 percent lower than a year ago and wheat prices 18 percent lower. Therefore, while December’s inflation number was higher than expected at 6.8 percent, it probably represents the peak in the cycle. Food inflation remains stubbornly high at 12percent,” he said.
The real retail sales numbers came out positive in November and increased by 3.8 percent year on year despite a number of downbeat trading updates from leading JSElisted clothing retailers.
Odendaal said the improvement occurred even though consumer confidence remained low. “What matters more is that the global and local economy are on a much sounder footing as we kick off the new year, and therefore market sentiment is also more positive,” said Odendaal.
The global markets were looking positive this year as well and Odendaal pointed this to a wide variety of indicators suggesting a cyclical rebound in growth started towards the end of last year.
“Global purchasing managers’ indices have improved across the developed and emerging world. Consumer confidence is at high levels in key markets like the US and the eurozone. Inflation is also increasing from worryingly low levels, which indicates improved pricing power for companies. The International Monetary Fund last week upgraded its growth forecast for advanced economies over the next two years. After relentless downgrades over the previous four years, the global growth outlook has stabilised at 3.4 percent in 2017 and 3.6percent for 2018,” he said.
US markets responded positively to Donald Trump’s election. “I must stress out that there are levels of uncertainty towards his election as president. He promised to cut taxes, spend money on infrastructure and he criticised the TransPacific Partnership trade deal, and the market responded positively at the time. Will he deliver? We don’t know for sure for now,” he said.