Continuing with our premise that changes in interest rates are the major drivers of stock returns, in Marchwe saw a dovish FED leading to a decline in the USD causing a renewed rally in credit spreads and equities.
World markets in general are showing some signs of strength in the business cycle where a stable macro backdrop and strong underlying technicals support this buoyancy.
In March we saw theMSCI World Index add 1.1% to itsimpressive 3.5%February performance. The DJ lost 2.2%albeit after gaininga huge 4.6% in February, MSCI EM 2.1% vs2.7% in February and the Hang Seng Index 1.4% vs1.8%. The JSE All Africa 40 Index returned 1.8% vs 1%, the JSE All Africa Ex SA 30 Index 0.8% vs1.4% and the South African All Share Index rose 0.53% in March.
From a risk perspective point of view, here are some of the highlights of the month.
- Last month we suggested that if we added in our South African portfolio an equal amount of Pan African equities, because of the two markets being completely uncorrelated (0.3 correlation coefficient), we could have improved our risk/return profile. March confirmed that this is a viable strategy.
- Although the MSCI World Index March performance lagged that of February it is still impressive. If we put it in its proper context, where we look at the risk we had to take in order to achieve that performance, using an expected volatility of the index of 13% this translates to a sharp ratio of 1.02.
- The MSCI EMMarch performancerisk adjusted using a projected volatility for the index of 17% is a more impressive 1.76.
Looking ahead Brazil seems to have stabilized but a stronger USD and higher rates could result in Emerging Market volatility.