Boom & Gloom: December 2015

Boom & Gloom

Boom & Gloom: December 2015

Our view of the investment markets

This table reflects our view of the relevant assets, based on expected performance.

table 1

Overview

The US Federal reserve bank increased the funds rate to 0.5% (a 0.25% hike). This is the first change to the rate since 2008. The implementation of the so called “lift off” brought some certainty to the market regarding US monetary policy.

However, the impact of the Federal Reserve’s decision on 16 December 2015 was dwarfed by South African policy error. On 9 December 2015, Jacob Zuma fired the respected finance minister Nhlanhla Nene replacing him with an unknown David van Rooyen.

The shocking announcement sent the Rand tanking to an intraday low of R15.24 to the Dollar. The sell-off continued as the Rand broke through R16 to the Dollar by Friday 11 December. Zuma’s shocking decision was revised four days later, replacing van Rooyen with Nene’s predecessor Pravin Gordhan, where after the Rand recovered to around R15 to the Dollar. The policy error damaged investor confidence, making a full recovery of the Rand unlikely in the near future.

Risk drivers

The global risk focus has shifted from the US lift off to Chinese growth fears and the oil glut.

The oil glut, driven by producers fighting a turf war, has driven commodity prices into the ground as the cost of production drops. This was further aided by soft Chinese consumption. The lower level of Chinese fixed investment in both infrastructure and property construction are causing a drop in manufacturing capacity utilisation. This in turn is driving massive product dumping by Chinese producers globally, which in turn is causing a sharp slowdown in global industrial production ex China.

The softer Chinese growth also drove massive capital disinvestments out of China. It is estimated that $1 trillion shifted from China in 2015, of which $269 billion shifted in November and December alone. This placed unbelievable strain on the Yuan.

SECTOR PERFORMANCE

Total return to 31/12/2015

graph 3

COMMODITY PERFORMANCE

graph 4

In December 2015 some green shoots appeared in the commodity market as base metal prices retraced slightly and platinum was up 7.4%. Crude oil had a terrible month, selling-off more than 16%

 

If you have any questions, feel free to comment below.

Eugene Goosen

Eugene Goosen

 

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