The horror: JSE heads for worst quarter in eight years
Reels from the strong rand and global risk-off trade
With one trading day left, the JSE All Share index is heading for its worst quarterly performance in nearly eight years as it reels from the effects of a strong rand and global risk-off trade.
The all share was down 7.97% for the quarter on Wednesday, having only closed higher once in the past 11 days. The last time it fell by a similar amount was in June 2010, when it lost 8.66%.
“The SA market is definitely unique compared to other global markets, heading in the opposite direction when most equity markets are in upbeat territory,” said Capicraft Investment Partners analyst Drikus Combrinck.
Combrinck said the strong rand was largely to blame for this. “But there is also a general lack of confidence following a number of recent corporate scandals.”Local fund managers have heavily positioned portfolios toward rand hedges and foreign assets, benefiting from a weaker local currency. The surprise turnaround in the rand, and the improving political environment, has seemingly caught them off guard.
In a study released by S&P Dow Jones Indices on Wednesday, known as the Spiva Scorecard, it was found that over a one-year period, 74% of actively managed SA equity funds and 67% global equity funds failed to beat the S&P SA DSW capped index and the S&P Global 1200 index respectively.
The Spiva SA scorecard measures the performance of actively managed, SA equity and fixed income funds in rands against their respective benchmark indices over one-, three-, and five-year investment horizons. Passive index investors may have fared better than those with active fund managers, benefiting from Naspers’s rise of 71% in 2017. In 2017, 74% of active funds investing in SA equities were outperformed by average benchmarks, the study found.
Over the five-year period, 79% and 93% of actively managed SA equity funds failed to beat benchmarks.The local market saw a surge in the second half of 2017, ending the year relatively well as the all share gained 17.47%. Naspers, together with banks, financials and retailers, were the main drivers. However, in the first quarter of 2018, industrials and mining stocks drove the overall index lower, with losses among financials relatively well contained. To a large extent the fortunes of the local market are linked to Naspers forming 19% of the top 40 index. Naspers has lost 15% so far in 2018.
US markets have been volatile, which may be an indication of greater nervousness on high valuations and a possible global trade war. For example, the Dow had been up more than 240 points intraday on Tuesday, before giving up all of its gains to end the session down over 300 points. The losses were even greater on a percentage basis for the Nasdaq, which fell 3% and S&P 500, which fell 1.7%.
Oanda analyst Craig Erlam said there was a similar pattern evident in the previous week, when US equity markets posted significant losses on Thursday and Friday following concerns about an escalating global trade war.
“There are a lot of risks that financial markets have shrugged off over the last couple of years, to the amazement at times of investors, but the prospect of a trade war is clearly not one of these,” he said.
The Dow has lost 3.5% so far in 2018.