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Davos a Sign of the Global Economy

Welcome back to 2019. We kickstarted the year with the global economy in turmoil, power struggles and high levels of volatility across board. Let’s take a look…

The world’s second largest economy, China, had one its toughest years in 2018, largely due to the trade war initiated by the US. The economic giant saw the slowest growth rate in 28 years. Over in the US, The S&P 500 also ended 6% down, with stocks experiencing the worst year in a decade. As the world watches with anticipation, trade relations between the two countries grow increasingly tense, but in December last year, slight relief came in the form of a 90 day truce offering new hope that an amicable trade agreement would be initiated. With negotiation, came a call for extended talks and that offered markets some relief.

The bad news is that it’s not just these two countries in crisis. The lack of attendance at the World Economic Forum in Davos is a clear indicator that we are having a global crisis. The IMF also confirming a global growth slow-down, faster than expected.

Press Conference: IMF World Economic Outlook

“Overall, the cyclical forces that propelled growth may be weakening faster than we thought,” warns Gita Gopinath, Chief Economist at the IMF. That’s why the fund has cut its forecasts for global growth. The world economy is now expected to grow 3.5% in 2019 and 3.6% in 2020.

Growth is projected to slow in advanced economies to 2.0% in 2019 and 1.7% in 2020, and tick down to 4.5% in 2019 before improving to 4.9% in emerging markets and developing economies. See the latest projections. http://ow.ly/4J4F30nn3UP

While attention is directed at Davos, Theresa May is dealing with Brexit calamity, narrowly missing a vote of no confidence in Jan 2019. The UK will more than likely ask the EU for an extension while they work on plan B as the March exit-date draws closer. Expectations fall no further than June 2019 as the EU head towards an elections of their own. France has also excused themselves from Davos as they battle violent protests against Macron.

And on the local front, President Ramaphosa plans to join the Davos gathering this year, hoping to drum up investment confidence. With elections around the corner, many foreign investors will hold off untill we have finalized election results before making a move.

We currently have a JSE still in negative territory in comparison to a year ago. Listed property and property funds have had a worse year. Cash and bonds have been the two asset classes that performed the best last year while our JSE ended 11% down at the end of 2018.

It wasn’t as bad as 2008 when we ended 27% in the negative, but still not good news for investors who ride the confidence-train.

The main reasons were, as an Emerging market player, the Global Crisis and Trade Wars had a big effect and as we are one of the most liquid Emerging Market economies, this saw more out-flows, more often, compared to other EM’s.

During the course of 2018, we saw interest rates increase but they now appear to be tapering off as we remain within the target range for inflation. Returns on local Bonds have been good, however if interest rates increase going forward it will negatively affect these. In conclusion, with all factors considered, there is value at these prices as a long-term investor.

Our position at Stringfellow, is to not sell-out and lock in the loss, but remain diversified and actively manage our funds, maintaining our philosophy of long-term investing with current market conditions accounted for.

If you have questions or comments, feel free to send them through.

Commentary provided by:

Troy Laas, Senior Financial Advisor and Key Individual at Stringfellow Advisory Services

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