Home Articles MARKET COMMENTARY December 2015



This market commentary is intended to provide readers with insight into what happened

over the period of review, even though the data may be somewhat dated owing to the

timeframe of the publishing process. By Garth Saunders

The South African economy was riled by the unexpected decision by President Jacob Zuma to change the Finance Minister twice. As a result, the rand weakened dramatically, losing as much as 10% to the US dollar and 14% to the euro, as investor confidence fell through the floor. At its December meeting, the European Central Bank (ECB) underwhelmed the global market by announcing easing measures that were considerably below expectations. As a result, the euro rallied strongly. The US hiked rates at its December meeting, as was widely anticipated. The glut in the commodity markets and weak Chinese trade data continued to pressure commodity currencies (AUD, CAD, ZAR).


The lack of a significant change in the ECB’s easing measures resulted in a sharp euro rally against the majors. The USD remained mixed after the widely anticipated rate hike. Locally, the fallout from the unexpected changes in the Finance Minister led to a collapse in the ZAR which touched 16.08 against the USD on the day.

Closing rates for December were: EURZAR R17.06 (+12.1%); USDZAR R15.62 (+8.5%); GBPZAR R23.16 (+7.1%); EURUSD $1.09 (+3,3%); GBPUSD $1.48 (–1.3%).


Global equity markets sold off strongly on negative investor sentiment and weak growth indicators. Both the ECB and Japan failed to deliver any significant changes in easing measures as the Fed raised rates. In South Africa, equities recovered towards the end of the month after falling as much as 7% intra-month; however, this was prior to a late 1% drop in US markets.

Closing prices for December were: JSE ALSI 50,693 (–1.8%); EUROSTOXX 3,279 (–6.5%); S&P500 2,063 (–1.2%); FTSE 6,263 (–1,7%).


The uncertainty created by the change of Finance Minister effectively raised RSA debt-servicing costs by between R1.5 billion and R2 billion a year, as bond prices tumbled the most on record before staging a mild recovery into the end of the year.

The Swap curve widened 100 bps on average across all tenors; basis narrowed 7 bps on average across all tenors; government bond yields widened strongly, 116 bps on average across all issuances.


The continued prospect of a slowdown in China and increased US rates continue to make commodities wholly unattractive to investors.

Oil plummeted to record lows on the back of Opec failing to reach agreement on a production cap.

Closing prices for December were: Gold $1,062 (+0.4%), retaining its value despite being at multi-year lows. Brent crude 36.72 (–13.0%).


To put 2015 in context, the various currencies/indices had the following full-year percentage movements: USDZAR +35%; EURUSD –10.1%; GBPUSD –4.9%; ALSI +1.85; S&P –0.8%; FTSE –4.6%; Gold –10.4%; Crude oil –30%.

The Swap curve widened an average of 150 bps; ZAR-basis narrowed an average of 11 bps. Bond yields widened an average of 170 bps.

Inflation bonds widened an average of 30 bps.


January has been a bloodbath in the markets, both locally and internationally, as crude oil trades at a 13-year low. By 20 January when we went to print, the equity markets were breaking below August 2015 lows (MTD: S&P –10%, JSE ALSI –8%) and EM and commodity currencies were under severe pressure (MTD vs USD: ZAR –9%, CAD –5.75%, AUD –5.8%).

AUTHOR | Garth Saunders, CA(SA), CFA