API Quarter 4 Summary 2019


Local equity markets had a positive return in the fourth quarter concluding a recovery in 2019. The JSE All Share Total Return Index gained 4.4% over the quarter.

Chart: Performance of the FTSE/JSE All Share Index over the past ten years (2009/01/01 – 2019/12/31)


Source: Trading Economics

The JSE All Share Total Return Index gained 12.05% in 2019. Although this is a pleasing return when compared to a 2018 return of -8.53%, it should be noted that the market has recovered from a low base in December 2018.

Investors have nevertheless experienced a much-needed reprieve in 2019.

The South African Inflation rate over 2019 was reported as 3.56%. This helped investors to see a pleasing real return (return after inflation) on their investments.

It was expected that 2019 would be a better year for investors after having experienced such a poor 2018 return. Many investment managers expect 2020 to be another turbulent year for South African Investors. The South African market remains undervalued according to South African asset managers.


Source: Money Mate 31/12/2019
* Annualised Performance


Looking back to where we stood this time last year, cash had outperformed all other major asset classes in 2018. The annualised 3-year return of the JSE All Share Total Return Index at the end of 2018 was in line with that of cash over the same period. This disappointing return alongside headlines of load shedding, rising debt levels, ratings downgrade, trade wars and Brexit lead many investors to question if they should in fact switch into cash.

Had an investor switched to cash in January 2019 after a volatile period of low returns over the previous three years, their return in 2019 would have been worse than had they left it invested in an average balanced fund, as shown in the table below which compares the return on cash vs the average balanced fund.

*The Short-Term Fixed Interest Composite index (STeFI) is used to represent a cash return.
**The South African Multi-Asset High Equity Index is used to represent the average balanced fund return.
Source: Profile Data

The benefit of staying invested in growth assets is evident over the long-term. Investors who have remained invested in growth assets in 2019 have outperformed cash.


Equity markets are inherently volatile. That’s the price one pays for the higher returns offered by growth assets. You can’t enjoy the benefits of exercise without some sort of discomfort, because being out of breath, sore, or tired is the sign that you’ve put in enough effort to deserve a reward. It’s the same in investing – the financial rewards for being comfortable as an investor are the same as the physical rewards for sitting on the couch.

The price you pay for higher long-term returns is in the form of uncertainty, confusion, short-term loss, surprise, stretches of boredom, regret, anxiety, fear, etc. You have to pay the bill. Warren Buffet put it simply: “Until you can manage your emotions, don’t expect to manage money.”

Over the past 5-years the volatility that an investor has had to endured in the South African market has been frustrating, as 2017 and 2019 have been years of reasonable returns while 2016 and 2018 have been years of poor returns. This has led to an all-round disappointing return over the past 4-5 years for a South African investor.

The graph below shows the range of local equity returns in a given year on an after-inflation basis, since 1960. Over the 59-year period, 34% of the time the equity returns have been negative, whilst 66% of the time the return has been positive. We can also see that the positive returns are on average greater than the negative returns.

For those investors who are investing for retirement (i.e. most investors) they should think of their retirement phase lasting for at least a 30-year period. Over such a long period of time equity returns are historically attractive. Over any 1 to 3 year period (this is seen as a short term period for equities) the returns can be disappointing. The uncommon occurrence of a prolonged poor return over the past 5 years should be seen in context of the expected returns over the long term.

Historically, the greater long-term returns from equities have invariably been worth the emotional cost in the form of volatility.


Managers remain largely positive on the opportunities in the local stock market as we recover from a low base of poor returns over the past several years. With geopolitical risk at elevated levels the risk of volatility remains high. It is largely expected that the budget speech in February will further outline the numerous difficulties that we face as country with Eskom remaining as one of the biggest threats to an economic recovery.

The budget speech is expected to spark further volatility in the first quarter of 2020. The threat of a downgrade may come to a head shortly after the budget speech.

Despite the economic negativity, the forward outlook for South African equities from current levels is positive because valuations remain attractive, with much of the “noise” around South Africa’s woes already being priced in.

Markets Fluctuate. Stay the Course.

“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.”
Charlie Munger


Global markets had a great return in the fourth quarter of 2019. Overall 2019 was a good year for offshore equity investors. The returns in the offshore market were largely due to the US market. This theme seems to recur despite the concerns of managers around the overvalued US market.

The MSCI World Index gained 8.56% in USD over the fourth quarter of 2019 whilst the MSCI World Index was up by 27.67% in USD over 2019.

The graph below represents the World Equity Index over 5 years in dollar terms.

*Performance as of 31/12/2019

After a turbulent 2018 return which saw the World Equity Index down 8.71%, 2019 more than made up for the losses that were experienced in the previous year. Had an investor disinvested after a poor 2018 return they would have crystalized the loss and missed out on the recovery in 2019.


Offshore markets performed exceptionally well in 2019 despite the repeated issues around trade wars, increased geopolitical tension and a slowing global growth forecast.

There were however several global funds which underperformed the MSCI World Index in 2019. A growing concern for equity managers has been the division between the price of US equities in comparison to non-US equities. This concern has led to some managers holding an underweight position in US equities which appear to have disconnected from that of other global equity markets.

The graph below shows the performance of a number of different markets since 2009. It shows the disconnect between US equities, the world index and emerging markets. This highlights the concerns for many “value-style” managers.

Managers who look for great companies at low prices (value managers) have tended to remain cautious on US equities, preferring cheaper non-US equities which have yet to perform as well as the US market.

Despite the pleasing returns in 2019 some managers such as Orbis (the offshore arm of Allan Gray) are optimistic and increasingly excited about the potential returns going forward.

More time is needed to unlock the valuation gap between US and non-US equities.


Managers have become increasingly positive on non-US equities due to the valuation gap. Value managers remain underweight the US while some growth managers remain positive on the US despite expensive valuations.

There are a number of positive outcomes that can add to both global growth and global market returns should there be a willingness by politicians and policy makers around the world. Outcomes such as a trade war resolution, continued lowering of US interest rates (which is expected) and cohesive economic stimulus in the EU which could result in much needed market stability. It is expected that Trump would need to dial down his signature disruptive tendencies and come to a deal with the likes of China in response to the trade war as these key issues would likely be held against him in the upcoming US election.

Investors should be prepared for volatile returns going forward despite the opportunities that the managers have identified.