Market Analysis - April 2017



April was a great month for large-cap shares on the JSE, not so much for mid-cap and smaller companies, which suggested that investors were hunting for relative safety in a highly volatile environment. We have had everything from war talk with North Korea to the French and UK elections -- never mind all the stuff President Jacob Zuma and the ratings agencies were doing on the local stage.


In the global picture, we saw wild swings in sentiment (every time Donald Trump spoke) between the crazily optimistic and the exact opposite. It’s no surprise that share prices, commodities, gold, and bond yields swung around like mad and there was no obvious safe haven to be found. The biggest movers were Nasdaq and the Hang Seng, each up over 2%.

These bipolar switches between mania and depression once again taught us that the only way to ride it out is to stick with a sensible strategy: in Emperor’s case, finding a fine balance between momentum indicators, fundamental value, and technical analysis. There is little point in overreacting to short-term good or bad news; your timing has to be impeccable for it to work. We prefer to take a longer view.

In a generally directionless and nervous market, the heavy weighting of Naspers (up 9.6%) in the JSE helped the Top 40 index rise 4.2%. The index is up 7.2% since the beginning of the year. The best performing sectors were consumer services and technology, up 7.2% and 5.9% respectively. The worst was resources, specifically the gold miners which ended down almost 3%.

The good performance by Naspers boosted our portfolios, as did the contribution of Sappi (up 8.9%). Much of this was due to the rand, which despite some short-term bounces has lost all its gains for the year. It remains at the same level as December 2016. Since it is impossible to base investment decisions on the projected currency rate, we remain committed to our basic investment principles. These days there is less and less correlation between the rand’s relative value and asset prices -- with the obvious exception of US stocks held by our DBX-tracker index fund holdings, which did very well in a difficult environment.

Despite all the negative press, we do see an offshore commitment to South Africa, regardless of the political noise. There is still plenty of value in the JSE, our capital markets, and the financial system that sustains them, and the world can see it -- and is buying into it.

On the downside, the worst performing shares on the JSE Top 40 were Gold Fields and Anglo American, both down around 6%. While we believe strongly in the prospects for iron ore and other commodities, based on predictions for an upswing in both Chinese steel exports and the effects of Trump’s promised infrastructure plans, local producers Kumba and Assore suffered last month from a lack of conviction -- and perhaps an overreaction to bad news -- about prospects for global growth by international money managers.

Moving on to Emperor’s segregated portfolios and unit trust funds, the performance was as follows: the global unit trust was up 1.61%; Robert Falcon Scott was down 1.91%; the local unit trust was down 1.94%; the Sir Edmund Hillary fund was down 3.52%; and Sir John Ross was down 4.57%. All funds were hurt by their holdings in Kumba, Assore, Anglo American and Sibanye, but we have full conviction that basic materials remains a sector to watch.

All Emperor bundles ended the month positively with returns above 1.2%. Bond and fixed-income ETFs such as the Newfunds Govi and Newfunds Ilbi came back strongly in April. The Newfunds Govi  increased 2% in April after losing almost 4% in March. The Emperor Aggressive bundle is up 4.4% for the year, while all the conservative Elbrus bundles are up 2.5%.

In closing, let me stress that despite the political nonsense our market confidence has not changed and we continue to increase exposure to the market. In terms of risk, our in-house “bubble indicator” has increased all year and is currently at 100 from a low of 50 in January. This means that high dividend-payers and value shares are underperforming the overall market, and at their lows right now are beginning to look more attractive indeed.


All the best and thank you for your continued support.


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