As a resolution to the US / China trade war progressed during February, global equity markets continued to rise. The MSCI World Index was up 2.8% for the month of February and the long-suffering All Share Index rose 3.4%.

Trump Trade War – Edging Closer to a Deal?

As the initial deadline for a trade deal of 1 March 2019 approached, global equity markets have risen steadily as US negotiators have announced regular positive updates throughout February. The most recent announcement, by US Treasury Secretary Steven Mnuchin said that the countries are now working on a 150-page agreement, with White House economic adviser Larry Kudlow adding that the two countries are “on the verge of agreeing on a historic pact”. Hopes are high that a deal will be signed in March. The trade war weighed heavily on markets in 2018, and a resolution would be a significantly positive development for global equity markets.

Global Growth Continues to Slow – US on Track, Europe is Problematic

Investors continue to keep a keen eye on the rate of the slowdown in global economic growth, which began in early 2018. Data released in February confirmed that worldwide business activity continued to slow. This is in line with expectations, however, Europe is slowing faster than expected with issues from Brexit to Italian debt dampening prospects. Germany, the largest economy in Europe, reported negative growth in the third quarter of 2018 and flat growth in the fourth quarter. The European Commission has revised its November Eurozone GDP growth forecasts of 1.9% in 2019 and 1.7% in 2020 down to a pedestrian 1.3% and 1.6%, respectively.

On the other hand, in 2018 the US economy grew by 2.9%, up from 2.2% in 2017 and 1.6% in 2016. The growth was supported by Trump’s fiscal stimulus package which included a combination of tax cuts and increased government spending. US GDP is now forecast to grow by around 2.5% in 2019 slowing to 1.5% in 2021.

Brexit – Who Will Blink First?

With a chaotic battle raging on, March will bring historic scenes to the UK Parliament. Theresa May has scheduled a vote on the revised terms of her Brexit agreement with the EU for 12 March 2019. The main difference between this deal and the deal that was rejected by the UK Parliament in January will be changes to the aspects dealing with the Irish Border backstop. If this revised deal is not passed, members of Parliament will meet on the 13 March 2019 to vote on whether to leave the EU without a deal. If Parliament votes against a no-deal departure, a third vote is scheduled for 14 March 2019 to extend the deadline for Brexit by a period, in order to provide extra time for a deal acceptable to both parties to be negotiated. Uncertainty reigns supreme!

South Africa Shares Offer Value, But Is Sentiment Against Us?

Both the SONA address and the Budget speech shed light on Cyril Ramaphosa’s plans for getting the South African economy back on track. On balance, both were well received. However, given South African politicians poor track record of implementing plans, the investment community will remain sceptical until evidence of delivery emerges. Having said this, many asset managers continue to tell us that the South African stock market is offering value. The counter-argument to this is that issues such as the state of Eskom and the never-ending stream of news about the extent of corruption in all aspects of government are dampening sentiment. Patience is required – the value in equity markets will eventually be unlocked, but when remains to be seen. So far this year the All Share index has had a positive start, up 6.2%, driven by resource shares which are up 12.5% followed by Industrial shares which are up 4.2%.

South Africa – Moody’s Announcement on SA Credit Rating

Moody’s, the only rating agency that has maintained South Africa on an investment grade rating, is due to announce its latest outlook on South Africa’s credit rating on 31 March 2019. Eskom is a major concern.

Compiled by Mike Moore, Wealth Manager