Sequoia Capital Newsletter 1

ISSUE

01

JANUARY
2019

this issue

Economic Report P.1
Selected financial market indicators P.2

Disclaimer P.3

Get in contact with us Economic Report

Visit our website Global economic indicators released since the beginning of the year, as well as the more
www.sequoiacapital.co.za dovish approach of the US Federal Reserve on US interest rates, have indicated that the
world economy is likely to stay strong during 2019. Domestically a successful campaign
Email Us by President Ramaphosa in Davos at the world economic forum, contributed to a more
[email protected] bullish sentiment towards economic prospects for South Africa. In reaction the Rand
exchange rate appreciated strongly over the month and bond yields soared to one of the
Sequoia Capital best performance assets domestically as well as globally.
Management is an
authorized financial services Emerging markets took a beating in 2018 after the four interest rate increases by the US
provider in terms of the Fed, as well as the contagious effects of the US-China trade war. However, a potential
Financial Advisory and slowdown in Fed policy-tightening, a possible resolution to the U.S.-China trade war are
Intermediary Services Act, expected to boost economic activity as valuations at multi-year lows could bolster
2002 (Act No. 37 of 2002), shares prices in the new year.
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1

EUROPE

The Euro area started the year uncertain as the Brexit deal seems to have reached
a dead end with the UK that have voted against the deal on the table and the rest
of the EU refusing to accept a “new” plan. Predictions by the EU are that Britain is
expected to record the slowest economic growth in Europe in 2019. It is expected
that consumer spending growth will remain weak overall the whole of Europe.
Inflation in the 19 countries sharing the euro slowed to 1.4 percent in January, from
1.6 percent a month earlier. It provides another reason for the European Central
Bank to ease off removing stimulus, as inflation falls further away from its target.

ASIA

The Asian region also started the year on the back foot. Issues like the China-US
trade war, China’s stuttering economy, the US government shutdown and Brexit
contributed towards the negative economic outlook for 2019. In China exports had
contracted by 4.0% during December, whilst its factory conditions (PMI) had
slumped. These conditions contributed to the lower than expected growth rate of
China of mere 6.4% during the fourth quarter last year. As a result, Asia’s stock
markets had posted the worst start since 2016, leading by Hong Kong. Singapore’s
economic growth slowed to an annualised 1.6% in the fourth quarter and home
prices fell for the first time in six quarters.

USA

The year started with the government shutdown as President Trump refuses to
withdraw his request of $5 billion being added in the budget to build the Mexican
wall. Despite this, the USA once again seems to have found a sweet spot with job
creation continues to rise, while inflation stays at bay. These developments not only
push recession fears into the background but had led to the Federal Reserve to
announce that further increases in its bank rate for now is abstained. The US added
another 304 000 new jobs to the economy during January. Inflation has tapered
down since the middle of 2018 and seems to be contained near 2.0% so that real
consumer inflation pressures appear a long way off.

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SOUTH-AFRICA

Prospects for an economic upturn of the South African economy have emerged since
the beginning of the year. The World Bank and IMF expect the economy to grow by
between 1.3% and 1.6% during 2019. This is four to five times higher than the expected
0.3% real GDP growth during 2018. The stronger Rand exchange, as well as the sharp
decrease in the inflation rate to 4.5% and a strong growth in retail sales supported a
more positive sentiment for the economy and domestic financial markets. The Monetary
Policy Committee (MPC) also became more dovish during their first meeting of the year,
suggesting that changes for further interest rate increase this year are slim. Risks for the
economy remain the uncertainty around Brexit, the US-China trade war as well as the
reaction of foreign investors and the rating agencies on the main budget that will be
delivered at the end of February.

Selected financial market 1m 3m 6m 1yr Ann. 3yr Ann. 5yr
indicators 2,9 7,56 4,06 8,79 10,48 9,05
2,81 3,77 -4,09 -6,06 6,36 6,86
SA Bonds 9,18 6,63 4,3 -9,43 2,78 9,18
JSE All Share -6,54 -6,24 3,48 11,02 -3,53 4,59
JSE SA Listed Property -1,49 -5,41 -3,8 -3,11 5,01 9,67
JPM Global Bond 0,34 0,93 -1,33 -4,15 8,17 8,44
MSCI Asia -1,67 -9,49 -8,06 -3,78 0,45 5,03
MSCI Emerging Markets -0,2 -9,92 -2,06 8,61 6,77 14,02
MSCI Europe -0,57 -9,49 -3,76 4,45 4,75 10,69
MSCI USA 0,6 1,79 3,59 7,25 7,43 6,95
MSCI World
SA Cash

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material only. The information is confidential and intended solely for the use of Sequoia Capital Management client’s and prospective clients, and other specific addressees. It is
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All data, models and tests are sourced from external data vendors or service providers unless otherwise stated thereon. While information obtained is from sources, we believe to
be reliable, Sequoia Capital Management does not guarantee the accuracy or completeness thereof. Save as may be provided under law, Sequoia Capital Management, does not
accept any liability for inaccurate or incomplete information contained, or for the correctness of any opinions expressed. Prospective investors should inform themselves and take
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