Investment Report, January 2012
Renewed international risk appetite helped to drive domestic financial asset prices higher during January and get 2012 off to a good start. An improvement in US economic data, the stabilisation in the European debit crisis and better than expected news from China helped to lift investor sentiment. The slight deterioration in domestic economic conditions was largely ignored. The FTSE/JSE All Share Index rose 5.7% and was lifted by an 8.3% surge in the resources sector which benefitted from improved global growth conditions. Financial and industrial shares rose by 6.5% and 3.6% respectively.
The South African Reserve Bank left interest rates unchanged at their last meeting, but the Governor’s tone became more hawkish. The peak in inflation has been revised upwards and the inflation rate is not seen falling below 6% before 2013. While the inflation outlook has been revised upwards, growth estimates have been adjusted downwards. Growth estimates for 2012 from most economists range between 2.5% and 3% - below the long term trend growth rate. Much depends on household spending which has continued to remain robust in recent months. The latest retail sales figure, although decelerating somewhat, has been firm and vehicle sales continued to improve.
International investors’ demand for emerging market bonds and the stronger rand helped the All Bond Index to deliver 2.1% for the month. This compares to a 4.8% return from the listed property sector which benefitted from declining bond yields and a strong run in the equity market. The rand flexed its muscle and appreciated by 3.5% against the US dollar to close January at a three month low of R7.79. The rand strengthened against all the major currencies during the month