While macroeconomic factors exogenous to company performance was the primary driver of returns during December, the JSE ended the year in pretty much the same fashion it spent the majority of the year, and particularly the last quarter trading- exceptionally volatile. Another pervasive market theme persisting into December from 2015 was the severe pressure SA incorporated stocks remained under. While global volatility and concerns over the fate of China continued to hamper global sentiment, foreign investors punished a local market plagued by the surprise sacking of former finance Minister Nhlanhle Nene coupled with elevated forward looking multiples. As 2015 begun the year in very promising fashion with the All Share Index soaring through 55 000 points by mid-April, much of this resolve wilted into the back end of the year and remained under pressure as the year drew to a close.

Despite moving into the holiday season, the JSE witnessed unprecedented activity into December as market participants digested the unexpected news of Jacob Zuma’s decision to reshuffle cabinet and most importantly the strategic Minister of Finance as well as the most anticipated Federal Reserve meeting in a long time as markets expected the first interest rate increase in the world’s largest economy in almost a decade. This was evidenced by trading volumes remaining exceptionally robust into December at a daily average volume of 286 million shares traded. Composite trading activity for the entire month far exceeded not only previous December volumes but also all other months in 2015. This provides an indication of the elevated volatility witnessed and eradicates the possibility of higher base effects over time. Total volume for December reached just shy of 6 billion shares traded for the month with a total value traded of almost R457 billion. This compares to a monthly average volume of 4.6 billion shares traded for the first 11 months of the year with a monthly average value traded of R398 billion. As expected, more than one third of total volume traded was witnessed in the two days post President Zuma’s surprise decision and two days subsequent to the Federal Reserve interest rate increase. The All Share gyrated violently over these trading days between substantial losses and a recovery of these losses subsequent to the actions of the Federal Reserve which provided some sense of global risk on sentiment as the Federal Reserve moved to provide increased certainty to global financial market participants. The reappointment of former Minister of Finance Pravin Gordhan to his previous post also witnessed the All Share paring some of its devastating losses, particularly within the banking sector. These gains, however, proved to be marginal as the overall banking sector lost 10.79% for the month. When translated into Rand terms, the true magnitude of the losses are made apparent with the banking sector shedding almost R178 billion of value at its lowest point intra-month from its November close.

Despite the debacle surrounding the appointment of a new Finance Minister and the medium to long term impact of this on the soundness of the South African financial system, the worst performing sector in composite once again emerged from the Resources subsector with the Platinum index ending the month in excess of 30% lower. This despite platinum prices moving definitively higher in anticipation of reduced above ground stockpiles through recycling. Impaired balance sheets, expectations of an unsupportive backdrop with regards to economic growth and ultimately demand for platinum as an industrial metal as well as battered investor sentiment and confidence in existing shareholders continuously supporting precarious rights offers in order to sustain highly capital intensive, unprofitable businesses swimming against the tide of structurally lower commodity prices with increasing costs placed ongoing pressure on such counters. While diversified miners enjoyed mixed fortunes during December, the conditions very apparent remained ubiquitous intra-sector as well as between sectors was a strong drive to higher quality assets. Within the diversified miners, Anglo American remained the strongest decliner despite Iron Ore prices stabilising in December ending the month marginally higher at $43.57/ton. Negative news regarding the company’s ongoing need to restructure the business globally in an attempt to cut costs as well as streamline operations to core performing assets with the most recent declines in spot commodity prices not reflected in earnings as yet proved to outweigh the benefits of a considerably weaker Rand. The share ultimately closed the month a staggering 21.44% lower whilst Kumba Iron Ore ended the month down in excess of 8% on the back of similar concerns. Given the significantly better cost management structure through both higher quality assets, thus having lower fixed costs of extraction, as well as superior management with a greater discipline over Capex spending and strategic direction, BHP Billiton continued to outperform its counterparts during December as well as 2015 within an environment of a bid for quality.

With December being relatively quiet in regards to company specific news or earnings announcements, all major gains on the JSE were broadly thematic inflows as opposed to specific company idiosyncrasies. In a reversal of 2015 fate, gold miners across the board witnessed strong support within the context of heightened fear within global financial markets resulting in expectations of increased demand for gold as long as increased volatility remains prevalent. Although Dollar Gold prices remained relatively flat over December, markets remain forward looking and a substantially weaker Rand provided some tailwinds to the battered sector as most South African operators remain exceptionally leveraged to the Rand price of Gold given a Rand denominated cost base. The overall Gold sector ended the month 18.62% higher, lead from the front by the two largest gold miners on the local bourse, Anglogold (up 16.36%) and Goldfields (up 14.74%). Other strong gainers on the JSE remained Rand hedged Industrial stocks providing strong earnings certainty and significant benefits from the marked depreciation of the Rand. Richemont (up 3.76%), SAB Miller (up 7.13%) and Mediclinic (up 3.48%) were amongst the largest gainers reaping the rewards of predictability in earnings and translation gains within a challenging market environment.

As with 2015 in its entirety, the prevailing themes which continued to dominate global activity into December was interest rate divergences within the developed markets and the strong decline in commodity prices maintaining pressure on emerging markets. China continues to remain a spanner in the works of the ongoing recovery in the US and budding recovery in the Eurozone and consequently continued to maintain a damper on global sentiment into December. Despite the sluggishly improving economy within the Eurozone ongoing subdued inflation (0.2% for both November and December) and a disappointment from the market as to the European Central Bank’s measures taken to stem the harmful effects of such deflation continued to weigh on sentiment. Falling oil prices remain a significant drag on inflation and with such declines continuing into 2016 there seems to be no respite in site for such downward inflationary pressures. While concerns over the oil price have been predominantly regarding the supply side of the equation, ongoing volatility in China once again has reared concerns regarding total demand. The eventual interest rate increase in the US was fairly well received globally as risk assets rallied leading up to and subsequent to the Federal Reserve’s decision.


Click here to read the full overview.