Corospondent - April 2020

Corospondent - April 2020

Autumn Edition

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Market review - April 2020

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Coronation Insights

Coronation Insights

A brutal quarter for financial markets

Since January, the Covid-19 outbreak has overtaken our lives and transformed our world, presenting a medical, economic and human challenge that is unprecedented in our lifetime. The outbreak of this pandemic has impacted financial markets with swiftness and ferocity. Most asset classes experienced steep declines, providing very few places for investors to hide. Even gold, often viewed as a safe asset class in a time of crisis, had fallen 12% at trough. Cryptocurrencies also did not exhibit defensive qualities, with bitcoin declining by 50%.

Equity markets declined faster, and volatility spiked higher than ever before. From 19 February to 23 March, the US stock market, as measured by the S&P500 Index, saw a cumulative loss of 34%. The following three trading days saw gains of 18%, marking the best three-day stretch since the 1930s. This experience was repeated in equity markets around the world. The MSCI All Country World Index ended the quarter down 21.3%, and the MSCI Emerging Markets Index was down 23.6%. Global property markets around the world declined by 28% to 33% (all global returns expressed in dollar).

Overall, the JSE experienced a very tough quarter, with the FTSE/JSE Capped All Share Index and the FTSE/JSE Capped Shareholder Weighted All Share Index (SWIX) declining by 22.8% and 26.6%, respectively (both in rand). No part of the market was left unscathed, but the economically sensitive sectors, such as property (--48.1%) and banks (-39.4%), bore the brunt of the pain as they were sold off aggressively. Industrials (-8.5%) and resources (-25.3%) performed relatively better.

The All Bond Index (ALBI) ended the quarter down 8.7% and inflation-linked bonds (ILBs) declined by 6.6%. The rand, declining by 22% against the dollar, has been one of the worst-performing currencies so far this year, as the global demand shock compounded South Africa’s existing structural headwinds. Adding to the negative news, Moody’s Investor Service finally joined Fitch and S&P in downgrading South African debt to subinvestment grade, with all three rating agencies also retaining us on a negative outlook. Cash, yielding 1.6%, was the only domestic asset class to yield a positive return over the quarter.

With investors fleeing risk assets in search of safe havens, developed market bond yields fell to record lows. The FTSE World Government Bond Index (WGBI) appreciated by 2% in dollars as a result. Global credit sold off in line with other riskier assets, with global investment-grade bonds declining by 6% and high-yield bonds by 15%.

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