Market snapshot: February

The theme for February seems to have been the tightening of purse strings. In his State of the Nation Address president Zuma called for an overhaul of state-owned enterprises and a cut in wasteful expenses. Minister Gordhan echoed this message in his 2016 National Budget speech, announcing more centralised procurement for the state and an array of tax increases that will hit consumer pockets in the coming year.
The January CPI data release showed that inflation has breached the upper limit of the Reserve Bank’s target range, fuelled by a weaker rand and higher import costs. This is the signal that more interest rate hikes may be necessary in future, which would put even more pressure on consumers beleaguered by debt. Just before month-end news leaked that Barclays plc is planning to slowly exit Africa by selling out of its majority shareholding in Barclays Africa. In its official statement on 1 March it stated regulatory pressure as the main reason for its decision, particularly the level of capital it is required to hold in respect of its shareholding in Barclays Africa.
February was also a challenging month for other emerging economies. Hong Kong stocks fell in their worst start to a lunar new year since 1994 on concerns over the strength of the world economy. Also in the East, the People’s Bank of China took action to boost the waning economy by lowering their reserve requirements for Chinese banks, which freed up an estimated 700 billion yuan in funds for banks to make loans. On the same day as the delivery of SA’s Budget speech, Moody’s followed in the footsteps of S&P’s and Fitch, and downgraded Brazil’s government bonds to junk status. This did not aid the battered rand, often used as proxy among traders for other emerging market currencies.
Among developed economies, the UK banking index hit a 7-year low during the month on concerns around profitability in a low-growth, low-interest environment. The MSCI World Index declined by 0.7% for the month on a total return basis in dollar terms and the MSCI Emerging Markets Index weakened by 0.2%.
The FTSE/JSE All Share Index gained 0.6% on a total return basis in rand during February 2016. With the strengthening of the rand, dollar investors in our local stock market gained 1.3%. The top performing sectors of the month were Industrial Metals and Gold Mining. The All Bond Index (ALBI) declined by 0.77% this month. Inflation-linked bonds gained 0.35%, while cash returned 0.53%.
Source: I-Net, Bloomberg, Deutsche Bank and Sanlam Investments | One-month total returns up to 29 Feb 2016