February 2020 economic review
February kicked off with ill-boding, as international investors erased $393 billion from China’s benchmark stock index and dumped commodities on fears about the coronavirus and its economic impact. Before the end of the month the virus had spread to Europe, with Italian stocks plummeting on more than two hundred confirmed cases of coronavirus. As factories and schools shut down in multiple jurisdictions across Asia, investors across the world saw their growth assets being buffeted amidst the uncertainty.
SAA cancels routes and Eskom considers voluntary retrenchment
In South Africa the woes of its state-owned enterprises continued. South African Airways (SAA) had to cancel a slew of routes in an attempt to salvage the business, and the joint Business Rescue Practitioners of SAA announced that it’s exploring the sale of some of the embattled airline’s assets, and has confirmed that staff cuts will have to be made. Eskom too announced to employees that it will be offering voluntary retrenchment packages to managers in non-core operations, as well as employees over the age of 60.
SA corporates remain beleaguered, Anglo Gold exits SA
In terms of SA companies, Tongaat Hulett started trading again early in the month, but saw its share price plunge more than 60% on the first day of returning to the stock market. Preference shareholders in financial services and private equity group Ecsponent faced the business defaulting on its payment obligations after losing 90% of its market capitalisation in the past year. Also in February, AngloGold took the final steps to exit South Africa as it sold its remaining SA assets to Harmony gold for about $300 million.
The 2020 National Budget full of surprises
In the last week of the month, Minister Mboweni delivered a National Budget with several surprises for SA taxpayers. There were no increases in VAT, dividends tax, capital gains tax or estate duty, and even some relief in terms of income tax. With no significant increase on the revenue side of the Budget, as Treasury is gearing the country for economic growth, dramatic cuts will be necessary on the expenses side in coming years. Government indicated that it is targeting the state wage bill to achieve its fiscal goals.
February a ‘punch on the nose’ for all major growth assets
The FTSE/JSE All Share Index (ALSI) lost 8.99% on a total return basis, while property investors got yet another shock – a further 15.69% of value was wiped off the SA Listed Property Index (SAPY) in February! The All Bond Index (ALBI) returned -0.04%, and cash returned 0.54%. During February 2020 the rand weakened by 4.88% against the dollar and by 3.96% against the euro. Taking into account the currency movement, the MSCI World Index returned -3.99% in rand terms; the Bloomberg Barclays Global Aggregate Bond Index 5.59%.
Over 12 months the gap between international and local performance is widening
For the 12 months to 29 February 2020, the MSCI World Index gave South African investors a strong 17.07% total return in rand terms; the Bloomberg Barclays Global Aggregate Bond Index returned even more (20.75% in rand). The rand weakened by 11.89% against the greenback and 7.93% against the euro during the past year. The ALSI lost 5.71% and listed property (the SAPY) returned a dismal -19.09%. The ALBI and cash returned 8.91% and 7.26% respectively.
International equities remain the 10-year top performer
Over the long run (10 years to 29 February 2020), international equities were the top performing main asset class from a South African investor’s perspective, with the MSCI World Index giving an annualised total return of 16.86% in rand terms. International bonds gave 10.30%. Locally, the ALSI returned 9.91% per year and listed property 8.04%. The ALBI and STeFI delivered 8.73% and 6.52% per year respectively over the 10 years to 29 February 2020.