Executive Summary: June 2017

June proved to be yet another difficult month for most South Africans.  Although the Springboks provided some euphoria over the weekends, we were soon to be brought back to reality when the Sunday newspaper arrived.

 

 

 

Political instability and very low consumer confidence assured that it was a tough month for investors, with most asset classes failing to deliver returns higher than Cash, which yielded 0.6%. Property was up 0.3% while Government Bonds lost 0.9%. Equities were the worst performing asset class and depreciated 3.5% while the Rand strengthened by 0.6%.

I perused the latest ‘Corion Report’ by Corion Capital and hereby provide you with relevant statistics that will hopefully provide some clarity and perspective:

All three major equity sectors were negative over the past month. Financials lost 2.1% but remain marginally positive year-to-date. Resources fell for the second consecutive month, ending down 3.0%. Industrials were the sector most affected by the selloff and depreciated 4.2%.

asset cals

 

Only six of the shares in the FTSE/JSE Top 40 Index appreciated during the month, highlighting the general negative sentiment of the market during June. In contrast, two shares in particular stand out for their gains. Mr Price returned 6.9%, following favourable results at the end of May, whilst Capitec gained 6.6%.

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Some interesting facts

  • Internationally online giants such as Amazon have fundamentally changed the retailing landscape. According to Forbes, Amazon is now the world’s third-largest retailer.

Below is an illustration of the dramatic change in market value of selected international retailer’s over the last decade.

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  • The cost of educating a child is the number one priority for many parents. Education inflation has approximately been 3.5% higher than the headline inflation rate over the last eight years. Should a family currently earn an income of R500 000 per year and spend R50 000 on education (i.e. 10% of their income on education) in 20 years’ time, educational costs will have grown to an estimated 20% (assuming the family’s income grows at the inflation rate).

 

  • In May, foreign ownership of South African bonds reached 40.1% of government bonds. This is the highest on record and up from 35.9% in January 2017

 

Below is a summary of the asset class returns over the short term, compared to the longer term (which is annualized). The illustration asserts the point that growth has been low throughout all the sectors, especially in the last 2 years.  Through this phase of the economic cycle, it is especially important to stick to your long-term goal and strategy.

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If you have any questions about this article or any other information, please feel free to consult your financial advisor at Bovest Wealth Management.

 

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