CAPE TOWN 0 If one month's changes are anything to go by, JSE investors should prepare for another roller-coaster of a ride during 2020.
Although global equity markets have gotten off to a relatively strong start for 2020, much has changed in the global investing environment in the month since the last time this column was published, changes that could still easily set the tone for markets for the rest of the year.
But first, briefly, the JSE All Share Index ended 2019 up 12.5percent, a good performance considering the weak local economy, the global challenges during that year, and that the index ended 2018 8.5percent in the red.
Global markets far outran the JSE, however, with the MSCI All Country Index up 26.6percent, following a 9.4percent decline in 2018. The US’s S&P 500 index ended 2019 up 31.5percent, after a late rise due to an easing of US-China trade tensions.
In Europe, the Eurostoxx 50 Index was up 29.3percent for the year. The MSCI Emerging Market Index was up 18.4percent.
Resources stocks were last year’s leaders on the JSE, with the financial shares up by only an average 0.6percent, industrials up by 8.9percent, while locally listed property was up 1.9percent.
The JSE All Bond Index was up 10.3percent.
Arguably, the biggest geopolitical shock to markets has been the US assassination of Iranian general Qassem Suleimani, Iran’s initial retaliation being the rocketing of two US bases in Iraq, the claimed accidental shooting down by Iran of a Ukranian airliner, and the subsequent political tensions.
During the crisis, oil prices rose 10percent, US and global equities dropped a few percentage points and safe haven bond yields fell.
But these moves have turned around, as the market has swallowed a widely publicised view that neither country wants a war, and many believe the economic impact of such a conflict will be small.
Nouriel Roubini, a globally renowned economist, Professor of Economics and International Business at New York University, wrote: “The idea that a zero casualty strike on two Iraqi basis has satisfied Iran’s need to retaliate is simply naive the conflict will continue to feature aggression by regional proxies, direct military confrontations that fall short of all-out war.”
He warns even a modest spike in oil prices could trigger a downturn in the US, while growth in oil importing countries could also slow, including Japan, China, India, South Korea, Turkey and many European countries.
An easing of the US-China trade war has also buoyed markets recently.
Last week an initial agreement between the US and China was signed, wherein China agreed to buy hundreds of billions of dollars of US products over two years, while the US would cut tariffs on $120 billion (R1.73 trillion) of Chinese products to 7.5percent from 15percent. However, these negotiations are ongoing.
This is also a US election year, which, the Citadel asset management firm notes, has historically been good for US stocks.
Also boosting equities is a reasonable outlook for the global economy, with the SA Reserve Bank last week forecasting global growth at 3percent, while the UN put the figure at a more conservative 2.3percent.
One of the biggest market risks last year, and one that particularly hit locally listed property shares hard, was Brexit.
With UK Prime Minister Boris Johnson firmly entrenched after the Conservative’s victory in the December elections, most commentators believe the Brexit saga will conclude this year, with little additional direct disruption to markets.
Domestically, shares, however, face even more uncertainties.
Additional taxes from the National Budget in February, the threat of a Moody’s credit rating downgrade soon thereafter, further fiscal and services delivery problems such as at Eskom as well as low consumer and business confidence - all cloud the local investment outlook for 2020.
South Africa’s economic growth prospects in 2020 remain tenuous.
This week sees the annual World Economic Forum (WEF) talks in Davos, Switzerland. The destruction caused by the ongoing fires in Australia has sharply illuminated some of the potential impacts of the extreme weather that is predicted to accompany climate change.
Expect the drive towards environmental sustainability to become as much a part of everyday corporate lexicon this year, as it will be during the WEF talks.
If you plan to invest on the JSE this year as opposed to the bond market, which is providing good, probably less risky returns, be sure to thoroughly research the stocks that you plan to buy, or to speak to a broker or financial adviser first.
It will be a year where knowledgeable stock picking will differentiate between investors who generate returns, and those who don’t.4