The quarter ended with an unexpected surprise, as the British referendum to leave the European Union (Brexit) sent markets tumbling. Just one week later, markets have actually recovered quite strongly and are close to the pre-referendum levels at the time of writing this review. The JSE stocks that had been hardest hit in the sell-offs included the property and financial stocks that have significant operations in the UK. In spite of the negative growth (-1.2%) that was reported in the first quarter of 2016, South Africa has managed to avoid a credit downgrade for now. The landscape for the consumer in S.A. is also challenging, due to high debt levels and higher interest rates impacting local vehicle sales. SA retail sales numbers surprised most economists, as they recovered and showed growth of 4.5% over the past year.
Brexit created uncertainty for investors and it is very difficult to foresee just how things are going to unfold over the coming months and years. This potentially ensures a lower global interest rate environment for longer than anticipated. That is good news for South Africans, as it probably means we are closer to the end of the interest rate hike cycle. The other factor that of course is going to play itself out over the Q3 – 2016 is the local elections. We don’t know how these are going to pan out or what the impact is going to be on stock markets.
Within the wake of Brexit and at the time of writing, all risks assets have rallied during the first two weeks of July, in expectation of further stimulus (monetary stimulus in the form of Quantitative Easing (QE) or fiscal stimulus?) from central banks. We are slightly concerned that this rally overlooks the realities of the situation somewhat… Download the file below to read the entire report >>SA Domestic Asset Allocation Overview for Q2 - 2016