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Market Reviews 

Market Review – Sihle Ndhlala

October 2018

Once the S&P500 and Nasdaq capitulated, it was only a matter of time before the rest of the world followed suit. Losses for the month ranged from 5% to over 10% in the developed world, spreading their contagion across the globe. The VIX (better known as the “fear index”) had a nasty spike in the past two months, reflecting the general sense of anxiety among stock market participants in the US particularly. Even so, American, European and Asian stock exchanges performed a lot better than emerging markets,

It wasn’t as if we didn’t see that one coming, at least as far as the US market is concerned. It had been obvious for a while that stocks were battling headwinds on every front, yet still managing to eke out gains. The bull looked wobbly on its feet in September, and duly collapsed in a heap in October. Particularly. Even so, American, European and Asian stock exchanges performed a lot better than emerging markets, which fell 11% in October and more than 18% in the 10 months to the end of October.


The JSE All Share index was down 6% in October, bringing its losses this year to 12%. Property fared slightly better with a 2% fall but that index has dropped heavily (28.5%) in 2018. Bonds and the currency were pretty stable, all things considered, but most investors by now know that the global economic environment is extremely unsettled and are prepared for the worst.


On the JSE in October, only six shares in the Top 40 index ended the month in the green. The blue-chip index itself fell close to 7%. AngloGold Ashanti and Clicks led the charge on the upside, and it was nice to see some resilience in Old Mutual and Netcare. But although Woolworths eked out a gain, the share has fallen dramatically in the year to date. Mr Price, for a long time the darling of retail investors, appears to be on the bounce but nobody’s counting any chickens quite yet. And for good reason: in 2018 so far, fewer than a quarter of the shares on the All share Index have delivered positive returns.


As you would expect, the downside looked very ugly. Market heavyweights Naspers, Sasol and Mondi took the brunt of the offshore selling, with Mediclinic and Investec not much better. In terms of sectors, companies exposed to consumer spending were hit hardest, with healthcare following suit. Basic materials were subject to some profit taking, driving the sector down 4%, but mining and related commodities remain the standout performer in 2018 with a positive return of nearly 12%. For the rest, we should perhaps take some consolation that losses in financials, industrials, technology and telecommunication were pretty subdued given the carnage elsewhere. Mid-cap stocks held up well in October while small-caps were hammered.



Few market commentators are brave enough to deliver a prognosis on future prospects, but even with further falls a prudently constructed portfolio should be able to withstand the worst of the losses and take advantage of any upswing. It goes without saying that fund managers have to be on their best game, using every quantitative, technical and growth-value metric and analysis tool and strategy available in order to protect clients in these volatile times.

Although investors have taken money off the table, in many cases they have taken supreme profits - notably in the likes of semiconductors (such as Nvidia, Micron and AMD). So there is money on the sidelines potentially waiting for the right dip into which it can be reinvested. We can expect, therefore, some rotation out of certain sectors and into others. However the fear of a total collapse, as we know from previous extreme bear events, will always be there. On the brighter side, value-seekers with their eyes on the longer term will also be there.


International holdings were the major culprit in the fund falling 5.71% in October, not helped by positions in local healthcare and financials. Fortunately our short holdings limited the downside.

LONG- SHORT 140/40 (SJR)

Short positions in selected stocks (particularly property) and in the Satrix 40 ETF offset the negative impact, limiting the overall loss to 4.42% for the month. Unavoidably, offshore holdings and certain JSE sectors pulled down the fund’s performance.


As you can see from the table, October was a bit of a nightmare. Our bundles fell between 1% and 6%, depending on equity (and hence risk) exposure. As per the commentary above, any position in healthcare, resources and foreign equity was bound to take a knock.



The chart of the JSE Top 40 is not pretty. At the end of September the index was still hovering around the 50,000 mark, giving no clear indication of its future direction. But as we know the global storm clouds finally broke in October, driving the bellwether local index down to an extremely disappointing 46,141 by the end of the month. The support level at 46,000, which dates back to 2014, is critical. Anything below that will reflect a failure of confidence in SA stocks, and perhaps more importantly in the overall economic and political environment. One ought to note, however, that a few market analysts have of late been poking their heads above the parapet, saying there are pockets of value to be found locally. Whether the buying momentum will follow this cautious confidence remains to be seen.


Source: Bloomberg


Happy investing.

Sihle Ndhlala

Junior Fund Manager



This document is for information purposes only and does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe for or purchase any particular investment. Opinions expressed in this document may be changed without notice at any time after publication. We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable, directly or indirectly, to the use of or reliance upon the information. The value of participatory interests may go down as well as up and therefore is not guaranteed. The past performance is not necessarily a guide to the future performance. Emperor Asset Management is an authorised Financial Services Provider FSP 44978.



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