South Africa JSE All Share Index – Major Events in 2017: Chart

The South African equity market had a tumultuous ride in 2017. Despite the many political and company specific collapse the JSE All Share Index had a decent run with a gain of 21% for the year. With Zuma thrown out of power and replaced by Cyril Ramaphosa as President, South Africans can now look forward to a more economic reforms and growth this year and beyond.

The chart below shows the key events and the movement of the index in 2017:

Click to enlarge

Source: Monthly Insights – Feb 2018, Cannon Asset Managers

An excerpt from the report:

From January 2016 to May 2017, the Johannesburg Stock Exchange’s All Share Index (ALSI) moved largely in a sideways direction. However, fast-forward six months, and the bourse reached successive record highs. Having started 2017 at 51,020 points, the overall index hit a high of 61,211 points in late November, the highest level in its 130 years history, before ending the year at 59,504 points. During this period, the ALSI managed to shrug off a few setbacks including President Jacob Zuma’s intervention to remove finance minister Pravin Gordan early in 2017, as well as the recessionary economic conditions that marred the business landscape. The graph above suggests that this year-end surge was helped along by various events such as the rally in the US market on the back of tax reform proposals and fiscal stimulus in the US. A stronger dollar also benefitted the large dual-listed companies which generate most of their income offshore and dominate the overall index.

Naspers, which owns about 33% in Tencent, the Hong Kong-listed Chinese multinational, also helped lead the ALSI’s gains. The stock’s price doubled in 2017, a rare sight for such a market heavyweight as it momentarily touched a price of R4,000 per share. Naspers makes up around 21% of the index and, as such, any movement has a substantial impact on the bourse. While the index gained 21% in 2017, if Naspers is excluded from this, the gain was only 8%. It took the efforts of both a downgrade by the S&P ratings agency of South Africa’s credit ratings as well as a collapse of Steinhoff after its financial statements scandal to pull the index down. Nonetheless, it ended 2017 dramatically as the market cheered Cyril Ramaphosa’s ANC leadership victory, reverting to the upward trajectory.

From a global investor perspective, emerging markets like South Africa are prone to major political shakeups once in a few years and the impact of political and economic uncertainties must be taken into account when making investment decisions.

The History of U.S. Debt: Chart

The national debt has been steadily increasing for many years now. Currently the Total Public Debt Outstanding stands at over $20.0 Trillion. Out of this giant mountain, the Debt Held by the Public is over $15.0 Trillion.

The US national debt has risen significantly since the 1980s. The chart below shows the history of US debt:

Click to enlarge

Source: Oppenheimer Funds

In a video which can be found hereBrian Levitt of Oppenheimer discusses some of the myths of the national debt.

Readers can also click on the below pdf document to review the content.

Download: The Truth About Debt

Vanguard: How to Navigate Through Market Volatility

Global markets have turned volatile in recent weeks. Earlier this month when US markets crashed for a few days market experts were out in full force saying rising interest rate, valuations, etc. were the reasons for the sudden change in the direction of the market. Some simply said that markets were due for a correction after a long bull run. Amid all these noises and distractions many investors may be worried on what they should do in times like these.

According to an article at Vanguard UK, downturns in the market are not rare and a typical investor will experience such events many during the long-term. From the article:

It’s important to remember that corrections and bear markets are not unusual. Research by Vanguard’s Investment Strategy Group shows that since 1980, globally significant market events such as corrections or bear markets have happened about every two years. The typical investor will have to endure many such events over his or her lifetime.

Market downturns aren’t rare

Market downturns aren't rare

Source: Vanguard analysis based on the MSCI World Index from 1 January 1980 through 31 December 1987, and the MSCI AC World Index thereafter. Both indices are denominated in US dollars. Our count of corrections excludes those that turned into bear markets. We count corrections that occurred after a bear market has recovered from its trough even if stock prices haven’t yet reached their previous peak.

It’s also important to put volatility into historical context. Market uncertainty can cause investors to diverge from their asset allocation plans as they try to insulate themselves against turmoil. But trying to time these events can lead to costly mistakes. In many cases, timing the market for re-entry simply results in selling low and buying high.

Many downturns barely register when taking a long-term perspective

Many downturns barely register when taking a long-term perspective

Note: Intraday volatility is calculated as daily range of trading prices [(high – low) / opening price] for the S&P 500 Index. Sources: Vanguard calculations, using data from Yahoo! Finance.

Indeed, the markets’ best and worst trading days have often happened close together. In fact, the worst trading days actually happened in years with positive performance.

The markets’ worst days and best days are often close together

The markets' worst days and best days are often close together

 

Source: How to navigate through market volatility, Vanguard UK, Feb 7, 2018

The article notes some strategies for investors to navigate uncertain markets. Readers may want to read the full article at Vanguard site.

Emerging Market Shocks and Rebounds

Emerging markets also tend to bounce back sharply after major market declines. This phenomenon is similar to developed markets where dramatic falls are followed by strong recoveries in the following months and years.

The table below shows some large emerging market crashes and the ensuing rebounds:

Click to enlarge

Source: Emerging-Market Resilience, Franklin Templeton

Emerging markets are not prone to declines not only due to local issues but also due to global events. For example, rising US interest rates can adversely affect emerging market stocks.

Though EM stocks got crushed during the Global Financial Crisis of 2008-09 they soared back like a rocket to gain over 135% in two years.

Related ETFs:

  • iShares MSCI Emerging Markets ETF (EEM)
  • Vanguard MSCI Emerging Markets ETF (VWO)

Disclosure: No Positions

On The Importance of China in Emerging Markets

China has the second largest economy in the world with a GDP of over $11.4 Trillion. The country is also one of the largest trading partners in the world. The US is China’s largest trading partner and China exports more goods to the US than it imports.

Below are some fascinating facts about China from a recent by Justin Leverenz at Oppenheimer Funds:

  • China’s GDP is larger than the combined GDPs of Africa, Latin America, India and Russia.
  • The country’s equity market capitalization at about $12 Trillion is the second largest in the world after the US.
  • In the MSCI Emerging Markets Index, China accounts for 29.7% of the index. When MSCI includes A-Shares in August this year the portion will rise to over 37%.

A short excerpt from the piece:

China’s role as a trading partner puts it in a unique position. Indeed, it is the largest trading nation in the world, at $3.96 trillion in net trade activity in 2015. That year, 101 countries and regions had more trade with China than the United States, while 43 (mostly developed countries) had less. In 2014, China accounted for 48% of Taiwan’s exports, 34% of the Philippines’, 33% of South Korea’s, 49% of South Africa’s, 28% of Chile’s, and 24% of Malaysia’s.

 

Click to enlarge

 

Source: On the Ground in China: Observations from the Middle Kingdom by Justin Leverenz , Oppenheimer Funds

In addition, China is also a voracious consumer of many of the major commodities. For example, according to the author China consumes some 13% of Russia’s oil, 28% of Brazil’s iron ore, 33% of Indonesia’s thermal coal, and 40% of Chile/Peru’s copper. Chinese traders are also major importers of Cobalt from Congo which is used in batteries for electric vehicles according to an article in WSJ this week.