Given the level of political uncertainty, July was remarkably stable in terms of overall market conditions. The JSE was helped to a large extent by improving sentiment in the greater MSCI Emerging Markets index, especially China, which made equities the top performing asset class for the month (up 7%). By contrast, property returned 3.6% in July and bonds 1.5%.
The markets since May and during the first part of June have been marked by grim deterioration driven almost entirely by local political factors, particularly the proposed changes to the Mining Charter. Therefore, during June, we cut the net exposure of all our funds down to 60%. During July, for our Robert Falcon Scott fund, we moved away from leveraged products (CFDs) and into equities. Along with less risk, the reduced gearing also translated into lower costs.
Global and local political risk remained high in May, which was reflected in a generally subdued stock market. All investors are by now well aware of the volatile and unstable domestic environment which resulted in the ratings downgrade, and the expected but unwelcome news that the country has fallen into recession.
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.