Corospondent October 2014Subscribe to Newsletter
We have been cautioning investors to expect lower long-term returns from markets for some time. Market performance over the past quarter has contributed to making this outcome more likely, with declines in both the local equity market (ALSI down 2.1% in rands) and global equity markets (MSCI World Index down 2.1% in dollars).
This quarter marks the sixth anniversary of the failure of Lehman Brothers, which filed for bankruptcy on 15 September 2008 in the USA. This was the tipping point in the brewing financial crisis that took the world perilously close to a great recession, the likes of which had not been seen since 1929.
Although the collapse of African Bank has been a disappointing experience for us, its collapse did not have the significant impact on our fund range that one might have expected. Of the 50 South African unit trusts that created side pockets and the 10 money market unit trusts that (in some form or other) broke the buck, Coronation had none.
In a previous Corospondent article, we highlighted the inherent optionality in the Naspers investment case through its portfolio of e-commerce investments. Fuelled by Naspers’ aggressive investment into this area in recent years, some of these businesses are now poised to become category leaders in regions with extensive addressable populations (e.g. Brazil, India, Russia and Eastern Europe).
It hasn’t been an easy year for the South African economy. The first half of the year was often dominated by news of the months long strike in the platinum industry. Almost no sooner had that ended, than it was quickly followed by a NUMSA strike in the steel and engineering sector – a strike that was thankfully far more short-lived, albeit still damaging.
The All Share Index declined 2.1% for the quarter. Financials returned 0.4%, while industrials and resources fell 0.7% and 7.1% respectively.
The past quarter was a torrid time for the South African bond market, buffeted by crosswinds from global markets, local interest rate, currency and inflation moves, and the failure of African Bank.
The month of September punished global equity markets as the impact of a strong dollar, weak commodity prices, and tighter financial conditions took hold. The MSCI World Index lost 2.7% (in US dollar terms) in September, which resulted in a 2.1% decline for the quarter. At the same time, the MSCI Emerging Markets Index fell by 7.4% (in US dollar terms) in September, erasing gains from earlier in the quarter to end 3.4% down.
Banco de Credito in Peru and Itaú in Brazil are two highly attractive Latin American banks which we own through the holding companies Credicorp and Itaúsa. The banks represent a little over 3% of the Coronation Global Emerging Markets Fund.
Set against the muted growth offered by more traditional investment destinations, Africa has, in recent years, become a well-promoted theme for investors and companies alike.