Rand, bonds and listed property shares surprise in January

PRETORIA – SOUTH African financial markets recorded steady recovery during January. 

Higher returns on bonds and listed property shares surprised investors, and the rand had one of its strongest recovery months in more than a year. 

Foreign sentiment towards South Africa is improving and more and more signs of a steady recovery of the economy are emerging.

The news on Thursday that the US Federal Reserve (Fed) turned dovish and foresaw a strong possibility that no further increases in US interest rates were on the cards also fuelled renewed risk appetite for emerging markets assets. 

South African bond yields dropped to an eight-month low. Local-currency bonds returned 7.8 percent during January alone, the strongest on the globe. 

The announcement on Friday that US hiring of workers in January topped all forecasts and that wages cooled down, supported stock markets. Non-farm payrolls increased by 304 000, the most in a year. 

The US government shutdown, nevertheless, pushed up the unemployment rate to 4 percent from 3.9 percent in December. 

The Fed’s decision to keep US interest rates unchanged for now as well as the healthy job data boosted shares on Wall Street and most of the early losses in the month were recovered. 

The Dow Jones industrial index lost more than 13.23 percent from the beginning of October up to Christmas. Since the beginning of the year the index has recovered again by more than 7 percent, staying almost flat over the last three years. 

On the JSE, almost all indices recorded a steady and more stable growth during the first month of 2019. The all share index gained by 2.7 percent, and recorded a healthy 3.4 percent rise over the last three months. 

The industrial 25 index (given the big weight of rand hedging stock), despite the stronger rand, improved by 0.9 percent for the year-to-date and 2.3 percent since the beginning of October. 

In the same manner, the resources index increased by 2.7 percent during January and 1.9 percent over the quarter to date. 

Financial and listed property shares, however, were the major gainers. The financial 15 index improved by 6.8 percent during January, advancing by 5.2 percent over the last three months. Listed property, after losing more than 25 percent in 2018, bounced back strongly by 9.2 percent last month and gained 10.5 percent since the beginning of October. 

Given signs of lower global risks on emerging economies, the rand had one of its strongest months over the last year. The rand/dollar exchange rate improved by 8 percent since the beginning of the year, trading at levels lower than R13.30 to the greenback last Thursday. 

The local currency appreciated by 7.4 percent against the euro since the end of December 2018, touching the R15.24 level on Friday. Against the pound, the rand also moved stronger during January by almost 5 percent, trading last Friday at R17.43. 

This week, investors await the release of the Sacci business confidence index for January. 

The SA Reserve Bank will announce the latest level of foreign exchange reserves, while Standard Bank will publish its latest Purchasers Managers Index (PMI).

On the global markets, the attention will turn to the release of various countries’ employment data, retail sales, PMI indices and interest rate decisions by some central banks across the globe. 

Chris Harmse is the chief economist at Rebalance Fund Managers. The views expressed here are his.


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