SA Investment Strategy | Quarterly Wrap 1Q 2019: EM underperformance

Emerging Markets (+9.6%) underperformed the developed world (+11.9%) in 1Q19, as investors shied away from EM, classified as the most crowded trade. MSCI SA (+5.4%) continued to underperform MSCI EM (+9.6%) in USD in 1Q19, despite a flat Zar (-1.1%), as economic activity in SA continued to disappoint. From a SA asset-allocation perspective, SA equities (Capped SWIX TR +3.9%) outperformed bonds (+3.8%) and cash (+1.7%) in 1Q19. In Zar, the capped SWIX index rose by 3.9% in 1Q19 led by rand-hedges including Basic Materials (+18.0%), Consumer Goods (+12.4%) and Consumer Services (+2.1%) led by Naspers. Healthcare (-12.7%) was the key laggard, followed by SA domestic sectors including Industrials (-3.9%) and Financials (-0.4%) given increasing concerns around weaker SA GDP growth. SA equities continued to see outflows of $2.3bn ytd (-$0.8bn in March) offset marginally by smaller inflows into SA bonds of $0.5bn ytd (although March SA bond outflows of $0.1bn).