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Update: Local and emerging markets

By beled | May 21, 2015

Extract from the March 2015 quarterly report:

In terms of emerging markets, Asian equities led the way in the first quarter of 2015, with soaring stock market gains in China and Russia of 15% and 16.6% respectively. Following a dismal 2014, Russia’s stock market rebound from very low levels was not, however, enough to keep Moody’s from following Standard & Poor’s example and downgrading the country’s rating to below investment grade.

In China, the strong performance of equities was underpinned by more easing measures from the central bank and China’s sustained market strength, together with a loss of confidence in Chinese property and the decrease in the down-payment requirement on housing, led to the biggest ever influx of an estimated 4 million new investors in March alone into China’s A-share market.

Indian equities rose 6% as the central bank cut interest rates twice in an attempt to increase growth and after a woeful January for Brazilian stocks, February and March picked up enough steam to end the first quarter on a positive note. President Dilma Rousseff finds herself under threat after an estimated 2.2 million people took to the streets in protest of corruption allegations against her and her Worker’s Party.

After suffering a similarly difficult fate to most commodity-driven emerging market economies recently, Nigerian stocks rebounded late in the first quarter due to the peaceful transfer of power after a credible democratic election.

In South Africa, the JSE All Share index rose by 4.6% in the first quarter, fuelled by the continued strength of the financial and industrial sectors (up 10% and 4.7% respectively. The resource index ended flat, continuing its underperformance.

Inflation fell rapidly to 3.9% year on year in the first quarter, largely as a result of the sharply lower oil price. This is a welcome return, for the first time in four years, to a level below the targeted Reserve Bank midpoint of 4.5%.

In the first quarter of the year GDP growth improved a substantial 4.1% on the previous quarter. The improvement is largely related to a significant increase in retail sales, as disposable incomes rose on the back of the lower oil price. However, there is a long way to go to reach the required growth rates for a healthy economy and the IMF’s 2015 growth forecast for South Africa of 2.1% is further evidence of this. This makes it more likely that the SARB will keep interest rates at current low levels in the near-term.

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