(Compiled by Nic Spicer and Russell Brown)

November Overview

November was another tough month for South Africa from an economic perspective and our parastatals continued to be front and centre of most news stories. October’s CPI growth came in at 3.7% (a near nine-year low), the repo rate was held at 6.5% to remain supportive of rand and by extension the attractiveness of our bonds yields. In early December, South African Airways tail spun into business rescue, but the “FOD” tore through the engine in November when staff went on strike leading to flight cancellations, cashflow constraints and a collapse/cancellation of ticket sales. Andre de Ruyter was appointed as the turnaround CEO of Eskom, but before we can even dream of seeing the light at the end of the tunnel he needs to formulate and implement a plan to keep that very light on. Citing this poor growth environment, continued fiscal slippage as well as an ever-ballooning debt burden, ratings agency Moody’s cut the country’s outlook from stable to negative, S&P swiftly followed suit. Moody’s did however mercifully hold our debt one notch above junk, but the trajectory of their change in outlook is not looking good for future review cycles.

The table below illustrates the movement in the South African currency over the last month:

As expected, the Bank of England did not change monetary policy, although two committee members voted for a rate cut due to possible signs of a weaker labour market as average weekly earnings growth for September came in below expectations at 3.6%. In addition, preliminary estimates for Q3 GDP growth also came in under the consensus market expectation (0.3% vs 0.4% quarter on quarter). Given the upcoming General Election, Brexit headlines have been relatively subdued with electioneering and manifesto pledges dominating the news. Polls results are being released thick and fast with the conservatives currently leading labour by a healthy margin and, should it be maintained, likely sufficient for a parliamentary majority. The pound has been reacting to news but appears conflicted: a narrow lead for the conservatives could lead to a hung parliament which might lead to a second referendum and softer Brexit (or none at all), but too narrow a lead (or none at all) could also lead to a Corbyn-led government, which is anticipated to be market unfriendly.

Data readings out of the US were more positive last month as the Markit composite purchasing managers index (PMI) preliminary estimate for November showed a jump from 50.9 to 51.9 as a result of increased activity across both the services and manufacturing industries. The 2nd estimate of Q3 GDP growth was released at the end of November which showed 2.1% annualised growth, versus a market expectation of 1.9%. Also, hope around the ‘Phase One Trade Deal’ continued to buoy sentiment; although no deal has yet been reached, a lack of trade tension escalation is definitely a positive sign. But another round of tariffs are due to come into force on 15 December, so this month will be interesting to watch. With respect to monetary policy, comments from Federal Reserve Chairman Jerome Powell noting that current policy is “likely to remain appropriate”, have led markets to expect only one rate cut next year.

In a slight reversal of fortunes, European economic data released in November were rosier than previous months. October composite PMI figures showed a slight bounce from September numbers (for both services and manufacturing). Preliminary November numbers indicated a jump in manufacturing PMI, although the composite number was unchanged as services activity dipped slightly. Unemployment nudged down slightly to 8.5% – the lowest level since July 2018 and consumer confidence rose slightly to -7.2 in November from -7.6 the previous month.

Japan’s preliminary reading for Q3 GDP growth (0.1% quarter on quarter), slightly missed expectations (0.2%). As did inflation, which remained at 0.2% (year on year), whilst the market expected 0.3%. On marginally more positive news, preliminary composite PMI data for November indicated a jump from 49.1 in October to 49.7 in November – still in contractionary territory, but moving in the right direction.

China’s inflation spiked to 3.8% in October, well above estimates of 3.3%, attributed to high pork prices due to an outbreak of African Swine Fever. Retail sales growth and industrial production both slowed in October, perhaps a slight worry for Chinese authorities. On the other hand, The Caixin composite PMI increased very slightly in October to 52, largely as a result of a higher manufacturing PMI figure.

Asset Classes

In rand terms, domestic property was the best performing asset class over the course of the month with its global equivalent at the other end of the spectrum as it performed the worst. Rand strength broadly dictated the performance off all asset classes in rand terms with all global assets detracting. South African equities (which earn the bulk of their revenue offshore) also suffered from this rand strength, but on a relative basis the local stock market managed to outperform its emerging peers.

Below is a summary of performance of the broader asset classes for the month:

GPS PERFORMANCE FEEDBACK – NOVEMBER 2019

GBP Asset Classes and Currency Performance

The US was the strongest performing equity asset class in sterling terms, once again, with UK equities also performing well. EM equities were the weakest of the equity regions, falling slightly, whilst global property gave back some of their strong year to date gains as bond yields increased.

Rising global yields also led to lower bond prices on the whole, with global government bonds performing worst. Corporate bonds performed better, however, with both high yield and investment grade corporate bonds rising slightly over the month.

The pound was flat against the dollar and down 2.8% vs the South African rand but otherwise had a strong month in November. It was up 1.1% against the euro, 1.3% against the yen, 1.8% against the Australian dollar and 5.3% against the Brazilian real.

GBP ASSET CLASS PERFORMANCE FOR THE MONTH

GBP CURRENCY PERFORMANCE FOR THE MONTH

USD Asset Classes and Currency Performance

The US dollar strengthened over the month against most developed currencies. As a result asset class returns were near identical when viewed in either GBP or USD. The USD lost the most ground against the South African rand.