The A-Z of investments in 2016

A – #ALLMUSTFALL 

After 2015 was largely highlighted by campaigns such as the #RhodesMustFall and #FeesMustFall movements, hopes were high that 2016 would be different. Unfortunately, our hopes were in vain as the #FeesMustFall campaign only intensified. Let’s truly hope that 2017 marks the end of these destructive #AllMustFall movements and the start of a much-needed #SAMustGrow campaign.

B – Brexit

The abbreviation for “British Exit”, which refers to the referendum held in June this year to determine whether Britain would remain part of the EU or not. It came as a great shock when the results indicated that they would in fact be leaving the EU. The news caused havoc in the markets and the pound’s value weakened drastically against the US dollar − to levels last seen in 1985.

C – Cash

I’m sure that most pensioners experienced some relief after two interest rate hikes in 2016. With money-market rates at 6.2% as at the end of 2015, the current rate of 7% surely makes for a welcome income increase.

D – Diversification
In 2016 we were yet again reminded of the fact that a well-diversified portfolio provides investors with peace of mind. Investors who were only invested in local shares at the end of 2015 would have underperformed compared to all three asset classes (as at 29 November 2016): bonds, property shares and even the money market.

E – Economy

From a local economic perspective, South Africa suffered another bad year in 2016, after recording growth of only 1.3% in 2015. Standard & Poor’s is forecasting growth of only 0.3% this year, with a slight recovery to 1.2% in 2017. Stanlib warned that SA will struggle to lift its growth rate meaningfully back up to 2% over the next two years given low business confidence, domestic policy constraints and below-average global growth.

F – Federal Reserve
2016 certainly proved to be an interesting year for the US Federal Reserve (Fed). The year didn’t kick off with the question of how many interest rate hikes would take place, but rather when the first one would take place. One cannot but wonder whether there would have been more than one hike if Trump hadn’t been elected president, but stay tuned as we believe things will get even more interesting as we move along.

G – Gold

After dropping to $1 060/ounce at the end of 2015 from $1 700/ounce at the end of 2012, I had to ask whether this was the end of the price drop at the beginning of this year. Amongst all the uncertainty surrounding Brexit and Trump, we didn’t only see the gold price recover, but also rally a bit to its current price of $1 193/ounce.

H – House prices

Higher interest rates continued to take their toll on local house prices, which, according to Absa, only rose by 4.4% over the last 12 months. For the first time in a very long time, listed properties couldn’t manage to outperform the money market. At 6% growth up to 29 November 2016, however, they still managed to outperform local shares.

I – Inflation

Inflation is the sweet and sour sauce of 2016. The recent 6.4% year-on-year growth definitely falls outside of the level where it’s supposed to be (4% to 6%). But when we consider the great drought, higher oil prices and a rand that is still trading higher than last year’s average, we can be thankful that it wasn’t even higher. 

J – JSE 
After growing by only 5% last year, 2016 definitely didn’t turn out to be the local market’s turning point. On the contrary, it was a particularly poor year on the FTSE/JSE All Share Index, with a mere 1.5% growth up to 29 November 2016.

K – ‘Kite-Flyers’ Society
Debt levels are still much higher than 10, 20 or even 30 years ago. However, debt as a percentage of income has come down in 2016, from 78% at the end of 2015 to 75% currently. Let’s hope that this downward trend continues in 2017. 

L – Long bonds
Long bonds managed to sidestep the 2016 interest rate hikes and looking ahead, the general impression is that rates may not stay too high for too long. Long bonds closed at 10% at the end of 2015, and at their current level of 9.2%, they may just take the prize for best-performing asset class of 2016. 

M – Maimane & Malema
2016 turned out to be a good year for both the DA’s Mmusi Maimane and the EFF’s Julius Malema. There were great expectations and excitement surrounding the 2016 local municipal elections and the result was a huge success for both parties, with the ANC having lost the most supporters.

N – Nest egg
Just as in 2015, South Africans performed horribly when it came to saving in 2016. At the turn of the millennium, South Africans still managed to save around 2% of their personal incomes annually. In 2016, this level has dropped to a tragic -2%.

O – Oil
2016 turned out to be a much better year for oil producers. After dropping to $37/barrel by the end of 2015 from $110/barrel at the beginning of 2014, its current price of $47/barrel is definitely an improvement.

P – Prime rate
At the end of last year, there were rumours that interest rates may rise even further in 2016. Little did we know then that we would see two interest rate hikes in one year. Luckily, they were two relatively small hikes of 0.5 percentage points and 0.25 percentage points respectively, taking us to a prime rate of 10.50%. Let’s hope that these hikes are a thing of the past for now, so that we can sail through the Trump storm without the added burden of more interest rate hikes in 2017.

Q – Quantitative easing (QE)
After the Fed announced the initial round of QE in November 2008, later followed by further rounds, it seemed as though they had found some traction in the US and that they were coming to an end at the beginning of 2016. Recently, things were still relatively uncertain regarding just how strongly they will phase out these “easings”, but with Trump in the driver seat, 2017 will prove to be a very interesting year.

R – Retirement
With the economy still under pressure and interest rates very low, a comfortable retirement was still a massive concern for many South Africans in 2016. 

S – South African rand
As with inflation, 2016 turned out to be a bittersweet year for the rand. Currently (on 7 December) priced at R13.54/$, we’re still well below the levels seen at the end of 2013 (±R10/$). At the same time, we have also had some relief from the R15.46/$ levels seen at the end of 2015. With a tad more political stability in 2017, we still feel that the rand would be better priced at levels around R12/$. 

T – Trump
Donald Trump – the man who gave Hillary Clinton and countless other Americans sleepless nights. No one really thought that he had any chance of victory, so it came as a massive shock when he was elected as the new president of the US. Let’s just hope that most of his promises don’t turn into policies. 

U – United States 
US markets followed in the footsteps of world markets with the S&P 500 losing 1.48% of its value in 2016. 

V – Volatility
After falling to its lowest levels since 2006 in June 2014 (12%), the SA Volatility Index is currently trading higher at an average of 21.6% (the average for 2015 was 19.7%), which clearly shows that investors are not too comfortable with current investment conditions.

W – World markets

We already mentioned that the JSE had a very tough year with a meagre 1.5% growth. The rest of the world, however, didn’t perform much better, with the FTSE 100 (-13.79%), MSCI World Index (-1.48%) and Nikkei 225 (-7.87%) performing even worse in rand terms in 2016.  

X – X-factor (Wars, bombings, terror, etc.)

Anxiety levels are still very high in the Middle East with Isis showing no intention of putting an end to its terror attacks.

Y – Yuan
After China ended 2015 with year-on-year GDP growth of 6.9%, everyone hoped that that would be its lowest level and that it would return to levels around 10%, as last seen in 2010. Unfortunately, this wasn’t the case, with a further decline to 6.7% in 2016. The Shanghai Comp Index was down by more than 7% by 29 November, which clearly reflects the current difficult market conditions. The yuan also performed poorer relative to the US dollar in 2016.

Z – Zuma
Of course, the year won’t be complete without mentioning President Jacob Zuma yet again. His leadership remains unstable at best, especially when we look at the increasing amount of pressure being put on him from within the ANC itself. The question on everyone’s lips is whether he will be able to complete his term as president under all this pressure. Only 2017 will bring us the answer. 

This article originally appeared in the 15 December edition of finweek. Buy and download the magazine here.