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Market review / Q1 2020
Market review
“Never ask anyone for their opinion, forecast, or recommendation. Just ask them
what they have—or don’t have—in their portfolio.”
Nassim Taleb in his book Antifragile: Things that Gain from Disorder
Global market performance
The market moves witnessed in the final month of the first quarter were some of the
sharpest in living memory. Global markets had initially downplayed the potential
impact and the spread of the coronavirus (COVID-19) outside of China. New cases in
other regions, however, quickly dispelled that narrative, as the reality of a potential
health crisis began to permeate the discourse. Risk assets plunged as the virus forced
an unprecedented sudden stop to large swathes of the global economy. Global
equities (MSCI ACWI, -21.4%) recorded their worst quarter since the global financial
crisis (GFC). Developed market equities (MSCI Developed Market Index) closed 21.1%
lower, while emerging market equities (MSCI Emerging Market Index) came worst off,
down 23.6%.
In the US, the Dow Jones Industrial Average index (-22.7%), tracking 30 large blue-
chip stocks, booked its worst quarter since the ‘Black Monday’ crash of 1987. The US
benchmark S&P 500 index fared little better at -19.7%. For these US indices, it was
the fastest move into a bear market ever recorded.
In Europe, stock volatility tracked all-time highs as the Euro Stoxx 600 plunged
26.7%. In Asia, Chinese financial markets were less fragile over the quarter, with
mainland China’s CSI300 index down only 11.5% as capital controls, domestic
investor resilience and confidence that the government was on top of the outbreak
helped limit losses.
Traditional safe havens (US Treasuries, German bunds, gold, US dollar, Japanese yen
and Swiss franc) proved their worth. This was despite weeks of liquidity concerns in
the treasury market, bullion experiencing the most severe volatility since the GFC, the
greenback recording its worst week since 1985 and bunds coming under pressure
from the EU’s failure to rally around a collective economic rescue strategy. The Fed’s
unlimited quantitative easing (QE) and pledge to snap up as many government bonds
and investment grade credit necessary helped ease some of the pressure on
yield-oriented assets. The Bloomberg Barclays Aggregate Global Bond Index ended
flat at -0.3%.
All returns are quoted in US dollars.
This is the copyright of Ninety One and its contents may not be re-used without Ninety One’s prior permission.
1Market review / Q1 2020
United States The European Central Bank (ECB) launched a bigger-
than-expected Pandemic Emergency Purchase
On Monday 30 March 2020, the US recorded the Programme, which comprises an expansion of
biggest daily increase in COVID-19 cases of any quantitative easing by €750 billion over the next nine
country in the world since the outbreak of the virus in months, in addition to the €120 billion announced
December. The “downside risks” risks cited by the US earlier in March. ECB President Christine Lagarde
Federal Reserve (Fed) following the first emergency tweeted “there are no limits to our [ECB] commitment
rate cut on 03 March have fully materialised into a to the euro” following the plan’s unveiling. Policymakers
humanitarian and economic crisis in a matter of weeks. are, however, mindful that monetary policy alone will
Indeed, Fed chair Jerome Powell remarked late in need to be supported by a coordinated fiscal response
March that the US economy may well already be in a by member states. Thus far, the lack of any conclusive
recession. The manufacturing purchasing managers’ outcomes from EU meetings highlights the existing
inded (PMI) slid into contractionary territory in March, deep divisions within the EU regarding the degree to
coming in at 49.2 from 50.7 in February (the 50-mark which common resources ought to be deployed to
separates contraction from expansion). The reading alleviate the economic devastation brought on by the
reflected the quickest deterioration in operations since pandemic. Countries such as Germany and other
the global financial crisis, although above consensus northern states have rejected calls for the issuance of
expectations of 42.9. In labour markets, US job claims joint debt, which has been dubbed ‘coronabonds’.
shot up to a record 3.3 million on the back of the
COVID-19 shutdown – the first real glimpse of damage UK
to the US economy at the time.
Economic sentiment dropped sharply in the first half of
The Fed was quickest out the gates among the leading March before a nationwide lockdown came into effect
central banks, and by quarter-end had slashed rates by in an attempt to contain the coronavirus outbreak –
a cumulative 150 basis points (bps), committed to measures which threatened thousands of jobs.
unlimited quantitative easing (QE) and an The sentiment indicator dropped to 92 in March from an
unprecedented venture into corporate bond purchases already low 95.5 in February, paring some of the gains
following congressional approval. On the fiscal side, since Prime Minister Boris Johnson’s victory in the
the White House agreed a $US2 trillion stimulus general election. While the government and the Bank
package in order to shore up the defence against of England (BoE) have thus far worked closely to
COVID-19. In politics, the Trump administration has coordinate counter measures, the UK economy
come under scrutiny for how it has handled the nonetheless appears to be heading towards a
coronavirus outbreak, given the apparent lack of recession in the first half of 2020. From a fiscal
coherent strategy and messaging since the outbreak, a perspective, the chancellor announced a package of
lack of coordination with local and state leaders as well £12 billion aimed at COVID-19 spending. On the
as Trump repeatedly contradicting his own health monetary front, the BoE pledged to do whatever
experts during press briefings, especially in the context necessary to prevent financial market disarray, which
of the US becoming the epicentre of the outbreak. could exacerbate the downturn. The Monetary Policy
Committee (MPC) left the benchmark policy rate
Euro area unchanged after exhausting conventional policy
Europe’s economic conditions have severely responses to boost the economy following two
degenerated since the outbreak, with many member emergency meetings in March and the reduction of the
states bringing their economies to a halt in order to policy rate to the minimum 0.1%. QE has also been
tackle the health crisis. The infection rate on the rebooted, with an additional £200 billion of sovereign
continent surpassed 100,000 with around 75% of the and corporate bonds pledged to be bought. According
cases coming from the four major economies of the to the meeting minutes, the central bank’s actions will
region. The manufacturing PMI fell to 44.8 in March, now turn to minimising disruption and ensuring liquidity
from 49.2 in the previous month, although ahead of and lower costs of borrowing for firms and households
consensus expectations of 39.0. This was the sharpest in the coming months.
pace of contraction in operations since July 2012.
2Market review / Q1 2020
China The South African Reserve Bank (SARB) cut the
benchmark interest rate by 1% to 5.25% at its 19 March
While China was initially the hardest hit economy from MPC meeting. Following extensive engagement with
the deadly spread of COVID-19, the country now seems market participants, the SARB increased and extended
to be slowly returning to normalcy, following strict and the tenor of their repo operations and took the historic
intensive lockdown measures implemented by step to support South African government bonds in the
authorities. As such, the rebound in the official PMI secondary market. The SARB, however, emphasised
(52 in March) from record lows in February (35.7) was that this as a monetary policy reaction designed to
not surprising, although the magnitude of the recovery facilitate the transmission of monetary policy – not QE
surprised ahead of consensus expectations. This is or monetization of the deficit. In what felt more like a
another example of how effective containment sideshow in the midst of the coronavirus outbreak,
measures can lead to a quicker resumption in ratings agency Moody’s unsurprisingly downgraded
economic activity. South Africa’s sovereign credit rating to one notch
China’s recovery has also been supplemented by a below investment grade at Ba1. The negative outlook
ramp up in stimulus measures. That said, the People’s was kept in place, foreshadowing the risk of a further
Bank of China (PBoC) has refrained from announcing downgrade within the next 18 months. The move meant
unlimited QE, a route taken by other central banks in that South Africa will no longer form part of the FTSE
developed markets. During the quarter, authorities have World Investment Grade Bond Index (WGBI), effective
rolled out a series of interventions to limit the damage 1 May 2020.
on the economy. The PBoC reinforced counter-cyclical
adjustments to monetary policy via open market
Commodity markets
operations. The bank also pledged US$173 billion in Returns from commodities over the quarter reflect the
additional liquidity to money markets, the largest realisation of initial fears that COVID-19 could severely
single-day open market operation since 2004. curtail demand for raw materials, fuel and food supplies
Bank lending rates are being lowered to support worldwide. The Bloomberg Commodities Index ended
companies that have been heavily affected by the the month down 23.3%. The big story running parallel to
pandemic, especially small and micro firms and the the coronavirus outbreak over the quarter was the oil
manufacturing sector. Additional special central bank price shock. Saudi Arabia ignited an oil price war with
lending to the tune of ¥300 billion has been directed Russia, following disagreement over production cuts as
toward large banks, select local banks in Hubei and a response to tackle the decline in oil demand due to
other heavily impacted provinces. On Monday 30 March the virus. The move by Saudi sent oil prices tumbling
2020, the PBOC reduced interest for banks further just c.30% - recording the biggest one-day fall since the
days following Politburo approval for more borrowing. 1990s Gulf War. The collapse in the oil price has also
dragged soft commodities such as sugar and coffee
South Africa lower as the global growth outlook quickly deteriorated.
In South Africa, the exogenous shock of the novel
Commodity Q1 2020 % change (US$)
coronavirus outbreak has only compounded the
idiosyncratic challenges the country is battling through. Brent Crude Oil -65.5
Before the outbreak, the South African economy had WTI Oil -66.5
already slipped into its second recession in as many
years, shrinking by an annualised 1.4% quarter on Gold 3.9
quarter in the final three months of 2019 - much worse Copper -19.8
than consensus expectations of a 0.1% drop. This was
Platinum pot -25.2
mainly due the worst spate of rolling power outages
which severely constrained several industries. The Palladium 21.5
weakness in the local economy will no doubt be further Silver -21.7
intensified by the strict lockdown measures
Iron Ore -7.5
implemented by government on 27 March 2020, which
has sent the entire economy into hibernation, barring Nickel -17.7
essential services.
Aluminium 5.1
Zinc -4.5
Source: Bloomberg as at 31.03.20.
3Market review / Q1 2020
Domestic market performance Sectors that are highly sensitive to the domestic
consumer and economy continued to endure weak
South Africa’s equity markets continued to endure domestic growth conditions with diversified financials
severe weakness in line with the worldwide selloff in (PSG Group and Old Mutual) and lenders (Nedbank and
risk assets. The benchmark FTSE/JSE All Share Index Absa Group) ending deep in negative territory on the
erased 21.4% of its value over the quarter, while the back of a pummelled local unit and negative rating
Capped SWIX was worse off, down 26.6% over the action. The bleeding continued for the food and
same period. At a super sector level; financials general retailers, with Massmart recording its first
(-39.5%) were the hardest hit, resources extended full-year loss since listing on the bourse back in 2000
weakness, falling 25.3% as lockdown measures sapped and The Foschini Group among the biggest laggards
demand, while industrials outperformed, down only over the quarter. In consumer services, British
8.4%. The South African Government bond market, American Tobacco was a ray of hope with tobacco one
much like most markets globally, unravelled during the of a handful of industries with resilient sales during the
month of March, with most of the repricing stemming lockdown.
largely as a reaction to flows and a preference for
liquidity from foreign bond holders. Local bonds Selection of FTSE/JSE All Share Index stock
nonetheless fared better than their equity performance
counterparts, down 8.7% for the quarter. The first three
months of the year were brutal for the local listed Index Q1 2020 %
property sector, with the FTSE/JSE All Property Index Name weight return (ZAR)
down almost 50% in the first three months of the year Naspers 1.1 11.5
against a backdrop of deteriorating domestic growth
conditions and external headwinds. Cash was king over British American Tobacco 3.1 2.3
the period, the only positive return across all asset Clicks Groups 2.4 1.4
classes as the STeFI Index closed +1.7% higher. In
currencies, the rand delivered its worst quarterly AngloGold Ashanti 2.4 1.4
performance since the GFC, falling 21.7% against the Growthpoint Properties 0.7 -41.8
US dollar,19.6% against the euro and 16.1% against
sterling. The Foschini Group 0.3 -54.7
At the sector level, it was red across the board, with the Nedbank Group 0.6 -61.4
deterioration in demand dynamics and the growth Sasol 0.4 -87.8
outlook continuing to exert immense pressure on base
and bulk commodities, while gold and palladium were Source: Bloomberg as at 31.03.20.
the only green shoots. The diversified miners, including
but not limited to BHP Group, Anglo American, and
Glencore, posted double-digit returns. The turmoil
continued for Sasol over the quarter, owing to a myriad
of headwinds such as weaker-than-anticipated rand oil
prices, a collapse in demand for its chemicals and oil
products, as well as idiosyncratic factors such as cost
overruns and operational delays at its Lake Charles
Chemicals Project in the US.
4Important information
All information and opinions provided are of a general nature and are not intended to address the circumstances
of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a
fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice
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but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or
completeness of the information and opinions. We do not undertake to update, modify or amend the information
on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any
representation or opinion is provided for information purposes only.
In the event that specific funds are mentioned please refer to the relevant fact sheet in order to obtain all the
necessary information in regard to that fund.
Collective Investment scheme funds are generally medium to long term investments. The value of participatory
interests may go down as well as up and past performance is not necessarily a guide to the future. Funds are
traded at ruling prices and can engage in borrowing and scrip lending. The fund may borrow up to 10% of its
market value to bridge insufficient liquidity. A schedule of charges, fees and adviser fees is available on request
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Investment Team: There is no assurance that the persons referenced herein will continue to be involved with
investing for this Fund, or that other persons not identified herein will become involved with investing assets for
the Manager or assets of the Fund at any time without notice.
Investment Process: Any description or information regarding investment process or strategies is provided for
illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at
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vehicles are for illustrative purposes only and should not be relied upon as a recommendation to purchase or sell
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assurance that the actual portfolio will remain as described herein. There is no assurance that the investments
presented will be available in the future at the levels presented, with the same characteristics or be available at
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construct the illustrative portfolio and implement its investment strategy or investment objective.
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One SA (Pty) Ltd’s prior permission.
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