Market Review: November 2018



Gielie de Swardt

Global markets started the month hesitantly in anticipation of the US midterm elections. This, alongside the trade sanctions imposed on Iran and Trump’s continued criticism of the Fed increasing interest rates, contributed to investors’ unease. However, post-election gains saw the Dow Jones rise with more than 2% – the greatest post-election increase seen in over 30 years! But, the technology sector fell again later in November, led by a decline in the Apple share price. The decline allowed Microsoft to overtake the former giant as the world’s most valuable company.

The UK entered the month on the back foot, as services data was reported lower than expected. The Pound fluctuated throughout the month as Prime Minister Theresa May presented the proposed Brexit deal, accepted by EU leaders but still requiring the approval of the British Parliament at month end. However, investors remain unsure about May’s support in Parliament and tensions escalated with the Pound weakening after key persons Dominic Raab, Brexit Secretary, and Esther McVey, Work and Pensions Secretary, announced their resignations. Barclays and The Royal Bank of Scotland lost traction in the market thereafter with both entities suffering over 6% losses.

The Eurozone bobbed somewhat at month start. Italy’s services sector data showed declines from October, but France and Germany countered with positive data. The markets proceeded unsteadily with decreases in the automotive industry as the BMW share price declined. Additionally, Germany’s GDP results showed a significant drop over the past three months and Italian markets were further scrutinised ahead of budget discussions with the EU.

Asian markets showed fragile investor sentiment over the month. The Chinese economy continued to suffer from trade disputes leading up the G20 Summit at month end, even with a positive 10% increase in retail sales growth. Tables turned as Tencent released positive earnings numbers and its share price increased by 6% overnight, boosting Hong Kong markets. But as the Nasdaq fell 2%, Tencent’s shares were sold off and lost 3% of its previous gains. The automotive industry as a whole was cast in shadows following the scandal surrounding possible misrepresentation from Renault chairman, Carlos Ghosn. Nissan and Mitsubishi (Japanese-listed) were also affected, and Ghosn was subsequently arrested in Japan on accusations of understated income.

Emerging markets fared better than in October, and were boosted by lowered commodity prices. Brazil’s domestic markets continue to react favourably to newly elected Jair Bolsonaro, who committed to maintain interest rates at 6.5%. Trade tariffs against Iran’s energy sector caused a slight drop in the oil price, benefitting emerging markets overall. These benefits strengthened as Saudi Arabia announced a decrease in oil production.

The South African Reserve Bank (SARB) increased interest rates to 6.75% in November. This tightening signals that the SARB is committed to protecting the Rand and to keeping inflation close to the 4.5% mid-point of its target range. The stronger Rand led to a dip in general equities, apart from financial services companies that stood their ground. This was followed by a drop in platinum prices of over 4%, and a decline in the resources sector.

During November 2018 the FTSE/JSE All Share Index (ALSI) lost 3.17% on a total return basis, while bonds gained 3.87%. The SA Listed Property Index (SAPY) lost 1.29% in November. Cash returned 0.58%. Internationally, the MSCI World Index gained 1.14% in Dollar terms and the MSCI Emerging Markets Index ($) gained 4.13%. This November the Rand increased by 6.49% against the greenback and appreciated 6.57% against the Euro.

For the year-to-date index measures, the ALSI and listed property returned -12.26% and -24.46% respectively. The ALBI returned 7.00% and cash 6.61%. Internationally, the MSCI World Index returned -1.20% in Dollars.