South African Market:

Politics continued to dominate the local news flow in April as ratings agencies and prominent global institutions alike warned that the current political crisis is a major risk to growth.

Both the IMF and the World Bank downgraded South Africa’s growth forecasts for 2016 and 2017 respectively. The IMF is now forecasting SA’s economic growth for 2016 at 0.6% from 0.7% and at 1.2% from 1.8% for 2017.

Notwithstanding this news, all of the major local asset classes had a positive month. Contributing to the month’s best performing asset class, the bond market which was up 1.9% in April, was the better than expected inflation figure of 6.3% for March. This led to speculation that the Reserve Bank may pause its upward interest rate hiking cycle at next month’s Monetary Policy Committee meeting – a positive for buyers of fixed income assets. Whilst on the topic of interest rates, Reserve Bank Governor, Daniel Mminele said at a speech in Washington last month that interest rates are unlikely to fall until inflation is back under 6%, and that this is unlikely to happen until late in 2017.

South African assets also benefitted from global investor appetite for emerging markets which saw large foreign inflows into our markets in April. These flows together with the ongoing weakness of the US Dollar, contributed to a 3.6% improvement in the ZAR/USD exchange rate.

Once again resource shares were the top performing sector of the Stock Exchange, returning 12.8% for the month on the back of a broad based rally in commodity prices. Industrial and financial shares, however, delivered marginally negative returns for the month, leaving the large number of fund managers with no exposure to resources struggling to show positive gains. The resurgence of value managers with a healthy weighting towards resource shares is notable, once again emphasising the importance of diversification when selecting fund managers.

Global Markets:

Global markets had a positive month in April, as Chinese stimulus kicked-in, the oil price maintained its recent highs, commodities continued to rally and the US Dollar continued its weaker trend.

A significant macro-economic development in April, is evidence that China’s economic stimulus is making its way into the economy. The Chinese recently reverted to a combination of infrastructure investment and lower interest rates in a bid to halt its economic slowdown. Goldman Sachs reported “that China’s hard landing scenario is now much less of a concern”. Most notable however is the impact on the commodity market. The Financial Times summed it up when it reported that “a wave of money has entered China’s commodity market this April on improved demand in the steel industry and expectations that China’s government would boost property and infrastructure construction.” The big question is how long will Beijing continue with the stimulus? A number of local fund managers believe the rally is speculative and not supported by long term fundamentals.

The emerging market rally held up in April although gains were muted. Statistics show that investor cash continues to find its way into emerging markets at the moment. For local investors, one of the ways to directly access this theme is through the Coronation Emerging Markets Fund, although another potential route is through the Coronation Optimum Growth Fund which has an allocation to the Emerging Markets Fund.

On 17th April the world’s major oil producers met in Doha to hash out an agreement to freeze oil production. The motivation for the meeting was to halt the decline in the oil price, however the talks broke down and no such agreement materialised. Notwithstanding the outcome of the meeting, the oil price closed the month higher at $48. This is 44% higher than the low of $27 reached in February this year. The oil price rally has been positive for the Sasol share price which has moved from a low of R 360 in January 2016, to close at R 464 the end of April. It goes without saying that it continues to be positive for fund managers with a high exposure to Sasol, the largest of which is Allan Gray, whose funds continue to return strong outperformance relative to their peers.

Both the US and European Central Bank meetings in April resulted in no change in US or European interest rates. The futures markets is currently pricing in a 50% probability of one US rate hike in 2016. With a slower rise in interest rates expected, the US Dollar continued its weaker trend, which contributes to the positive investor sentiment for commodities and emerging markets generally.

Finally, the gold price closed the month higher at $1292.