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The Star Late Edition - - COMPANIES -

AST year (2016) is likely to be re­mem­bered for the key po­lit­i­cal events that, although build­ing up for a num­ber of years, came to the fore in a pro­found man­ner. The winds of change that be­gan dur­ing 2016 are likely to con­tinue into 2017 and be­yond. The world is suf­fer­ing from a cri­sis in trust.

A re­view of as­set class per­for­mance over 2016 serves as a pow­er­ful re­minder that “mean re­ver­sion” in as­set class pric­ing does oc­cur. Losers of 2015 be­came the win­ners of 2016.

The year be­gan with Chi­nese growth con­cerns hit­ting com­mod­ity prices and emerg­ing mar­kets in a bru­tal man­ner. Jan­uary saw the Rand weaken to al­most R17 to the US Dol­lar, while some min­ing shares were priced in a man­ner that ques­tioned their long-term sol­vency.

As the year pro­gressed, con­cerns re­gard­ing Chi­nese growth fears sub­sided, to be re­placed by un­cer­tainty around po­lit­i­cal regime change, notably in the de­vel­oped economies of the UK and the USA as well as Brazil.

Commodities and emerg­ing mar­ket as­set classes en­joyed a strong come­back from early 2016 lows, to end the year as the best per­form­ing as­set classes, with emerg­ing mar­ket eq­ui­ties re­turn­ing 11.6 per­cent in Dol­lars, in­clud­ing div­i­dends.

Global eq­ui­ties con­tin­ued to “climb a wall of worry”, with mar­kets trending higher de­spite in­vestor con­cerns about an un­cer­tain po­lit­i­cal and eco­nomic en­vi­ron­ment, the prospect of higher in­ter­est rates, a bull mar­ket into its eighth year, and ended the year at close to their record high, re­turn­ing 8.5 per­cent for the year in Dol­lars, in­clud­ing div­i­dends.

The Dol­lar rose to its high­est lev­els since 2003, while US long bond yields spiked sharply from mid-year lev­els (with bond prices de­clin­ing) in an­tic­i­pa­tion of higher in­ter­est rates.

The Rand was one of the best per­form­ing emerg­ing mar­ket cur­ren­cies, strength­en­ing by 11.7 per­cent rel­a­tive to the US Dol­lar. Rand strength meant off­shore in­vest­ments were a head­wind to re­turns.

Do­mes­tic bonds, which ex­pe­ri­enced a record worst year in 2015 fol­low­ing Nenegate last De­cem­ber, were the best per­former of the ma­jor as­set classes dur­ing 2016, re­turn­ing 15.5 per­cent.

Do­mes­tic eq­ui­ties, mea­sured by the JSE’s All-Share In­dex, re­turned a low 2.6 per­cent, in­clud­ing div­i­dends.

A look at the per­for­mance of the All-Share In­dex con­stituents dur­ing 2015 and 2016 il­lus­trates, with some ex­cep­tions, a sim­i­lar re­ver­sal whereby the win­ners of 2015 were the losers of 2016 and vice-versa.

Re­sources were the win­ning eq­uity theme last year, af­ter un­der­per­form­ing the ALSI for six con­sec­u­tive years.

The as­set class re­turns of 2016 set the scene for an in­ter­est­ing and chal­leng­ing year ahead.

Although the econ­omy and fi­nan­cial mar­kets are al­ways marked by un­cer­tainty, there is no doubt we live in ex­tra­or­di­nary times with a wide range of pos­si­ble – even plau­si­ble – eco­nomic and mar­ket out­comes. Ap­pro­pri­ate risk man­age­ment needs to take this into ac­count.

With this back­drop, we are ask­ing South Africa’s in­vest­ment man­agers for their thoughts on the in­vest­ment out­look for 2017 and be­yond.

At the out­set, we need to cau­tion about the lim­i­ta­tions of fore­cast­ing. This is partly be­cause the com­plex­i­ties of to­day’s global econ­omy, and the re­sponse of hu­man be­hav­iour to events, can­not be cap­tured in eco­nomic mod­els.

In a re­fresh­ingly hon­est self-ap­praisal, An­drew Hal­dane, chief econ­o­mist of The Bank of Eng­land, re­cently ad­mit­ted that his pro­fes­sion is in tur­moil, hav­ing failed to fore­see the 2008 global fi­nan­cial cri­sis and mis­judg­ing the im­pact of the Brexit vote due to the in­abil­ity of eco­nomic mod­els to cope with

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