South African Market:

The wonderful thing about the political fireworks that we witnessed in March is that South Africans have been so captivated by the display, that we have had little opportunity to dwell on the Protea’s valiant (but ultimately disappointing) showing in the T20 World Cup!

Slowly but surely, our democracy is holding its own and the powers that be are being held accountable for their unlawful and unconstitutional actions, as we have seen in this month’s Court of Appeal (Bashir case) and Constitutional Court (Zuma case) findings.

The Rand, somewhat aided by these developments, but mostly supported by a general improvement in emerging market currencies – which saw the monthly increase in a basket of 20 emerging market currencies increase the most in a single month since 1998 – has ended the month south of the R15 mark to the USD. Fund managers who we have spoken to this month believe the much feared sovereign credit downgrade is largely priced into our currency, and for this reason it is not unreasonable to believe that the worst is behind us in terms of the Rand, for now. As we reflect on the events of the first quarter of the year, as well as those in our fellow emerging economies, it serves as a reminder that asset allocation is arguably the most important investment decision we make for our clients, followed closely by appropriate portfolio diversification. The question of how much should be invested offshore remains a burning question.

The JSE reached its highest level for the year this month, as the All Share Index returned more than 6% with property and financial shares leading the market with returns of close to 10%, while resource shares continued their recovery.

Resource shares have been the leading light in the first quarter of 2016. Both hedge fund managers and long-only managers have been caught underweight resource stocks, and as such their relative returns have suffered somewhat this quarter. Having said that, these managers believe that their view will soon be vindicated as the case for a cyclical recovery in resource shares is not evident given the outlook for the global economy. We view this as the classic battle between “value” and “momentum” styles of fund management. “Value” managers invested in resource shares as they ticked down during the last two years, and are now benefitting from their recovery. “Momentum” managers benefitted by avoiding resources over the past two years, but are now missing out on the resource rally. Our advice is to always include funds that apply different investment styles, as over the long term they complement each other, evening out the overall volatility in an investment portfolio over time.

Global Markets:

Global markets have been defined by investor’s views of the US Dollar, and the oil price. As such each piece of data that points to a weakening or strengthening of either has ramifications across markets.

At this month’s Fed meeting, Janet Yellen adopted the stance that US interest rate policy is out of synch with much of the world, and that the result (an ever-strengthening dollar) is not necessarily the best thing for the US (or the rest world). This contributed to this month’s strengthening of commodity prices and commodity shares, as well as to emerging markets outperforming developing markets. To be clear, according to Bloomberg, markets place the probability of at least one hike in 2016 at 66%, but the Fed appears to be leaning to less, rather than more hikes.

Oil prices traded above $40 per barrel for most of the month, following expectations that a meeting taking place in Doha, Qatar, next month among representatives of 15 countries accounting for close to three-quarters of global output will have positive results for restricting oil supply. However Oil closed the month at $39 as weekly reports of a build-up in US inventories are beginning to place doubt about the sustainability of the oil rally in investor’s minds. The oil price and US share prices have been highly correlated over the past year, implying that a reversal in the recent oil rally would have the same implications for shares.

The Institute of International Finance reported that the month of March saw the largest foreign portfolio inflows into emerging markets since June 2014. No doubt, opportunistic bottom picking also contributed to this, but emerging markets have had such a torrid time of late, one does wonder if some sort of recovery rally is not imminent.

As the Eurozone continues to struggle for growth, Mario Draghi once again stepped up attempts to kick start the Euro economy by cutting interest rates and substantially increasing stimulus measures. The reaction to this has thus far been muted.

Finally it is with interest that we note that although equities have recovered all of their initial losses for the year, the gold price remains at its highs, closing the month at $ 1224.