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JOHANNESBURG - Emerging market equities were the place to be in 2017. The MSCI Emerging Markets US dollar index returned a massive 37.75% for the year with income distributions reinvested, thereby outperforming developed market equities as measured by the MSCI World Index’s return of 23.07% in dollar terms.

The South African stock market, as measured by the FTSE/JSE Africa All Share Index, also fared better than developed market equities from a global point of view with a return of 33.78% in terms of dollars and with dividends reinvested. The dollar’s weakness contributed to the outperformance as the local bourse returned 20.95% in rand terms.

The performance of the South African financial markets in the last quarter was massive, especially for an investor who had invested in the South African markets through the dollar. An investment in the FTSE/JSE Africa All Share Index at the end of the previous quarter would have yielded a return of more than 17% in dollars with dividends reinvested.

Similarly, investments in other South African asset classes, such as the All Bond Index and FTSE/JSE Africa SA Listed Property Index, would have yielded returns of 11.89% and 18.57% respectively in terms of dollars.

Cash deposits

Even cash deposits as measured by the Stefi Composite Index would have yielded 11.43% in dollar terms. And that was despite a weak economic environment, credit rating downgrades by rating agencies and the Steinhoff debacle.

The South African bond market kicked sand in the eyes of other bond markets in 2017 with a total return of nearly 22% in dollars - way ahead of the 7.0% return of the global bond market as measured by the JP Morgan Global Government Bond Index and the estimated 9.70% of emerging market government bonds as measured by the iShares Emerging Markets Government Bond Index Fund.

Listed domestic property’s returns of 29.57% in dollars for 2017 were nearly five-fold that of the European Public Real Estate Association/National Association of Real Estate Investment Trusts Developed Index.

The financial sector on the JSE was one of the major beneficiaries of the stronger rand in the last quarter with the FTSE/JSE Africa Financials Index returning nearly 16% on the back of the FTSE/JSE Africa Bank Index’s massive return of more than 28% with dividends reinvested. The stronger rand, on the other hand, impacted negatively on the local investors’ returns on offshore assets, especially in the final quarter of last year, as the rand values of offshore cash, real estate and global bonds came under pressure.

Precious metals were some of the worst-performing sectors on the bourse as the strong rand and weak metal prices continue to threaten the sustainability of the industry.

Although the platinum sector returned 5.6% in the last quarter of 2017, it still recorded a negative return for the year.

The FTSE/JSE Africa Gold Mining Index returned minus 2.67% for the year.

Large cap shares led the charge on the local bourse in 2017, with the FTSE/JSE Top40 Index returning 23.07% with dividends reinvested. Despite a solid return of 11.58% in the final quarter of the year, the FTSE/JSE Africa Mid Cap Index returned a paltry 7.36% for the year while the FTSE/JSE Small Cap Index disappointed with a return of 2.95%.

Was the final quarter of 2017 as good as it gets?

Ryk de Klerk was co-founder of PlexCrown Fund Ratings and is currently a consultant for PlexCrown Fund Ratings.

-BUSINESS REPORT