US President Donald Trump raised the ante on trade talks with China, turning the global markets into their gloomiest state for months. For most major global markets, the week ending May 10 was their worst so far this year.
The month of April produced some of the best equity performances in recent memory both at home and offshore, in keeping with the momentum since the beginning of the year. Some US equity indices even hit their historical highs. Two weeks into May, this seems like a distant memory as the two superpowers go at it on tariffs and global markets have given up a chunk of their gains since the beginning of the year. The US raised tariffs on $200bn worth of Chinese goods in the middle of two-day trade talks, while China reciprocated on $60bn worth of US goods, effective 1 June.
What’s confounding is that both parties say the talks ended on a “constructive” note and promised to meet again but no date was set for the next meeting. Meanwhile the US has threatened a further round of tariffs on the remaining $300bn worth of Chinese imports if an agreement is not reached in the coming month. At best the markets will remain subdued; at worst, we will be faced with a massive rout.
The global market view
Most global equity indices performed well in April. Notably, Germany’s Composite Dax index climbed 7.26% followed by Japan’s Nikkei 225 (up 4.97%) and the Nasdaq composite (+4.74%).
The best-performing international equity fund listed on JSE, the Stanlib S&P 500 Info Tech Index Feeder, increased 5.46%, helped by better-than-expected reported average earnings in the tech sector.
However, the trade tensions between the US and China have acted as a reset button and since the beginning of May, most indices are in the red. This has seen the most anticipated IPO of the year, Uber on 10 May, recording the worst performance of any IPO on its first day of trading in recent memory.
The markets will remain skittish until the trade impasse between China and the US is resolved. This makes the case for ETFs more compelling as they are more likely to perform better during periods of high market volatility.
The Intellidex team have split international equities into developed and developing markets:
In this category we like the Satrix MSCI World Equity Feeder ETF (up 3.12% in April), and the Ashburton Global 1200 Equity ETF (up 2.74%). They diversify their exposure across the US, Europe, Japan, Canada and Australia. With more than half of the funds invested in US stocks, investors will still have substantial exposure to the US.
Satrix MSCI World beats Ashburton Global 1200 Equity ETF on costs. Other more focused international equity themes include property and technology funds. These are worth considering for tactical or other investor-specific reasons.
The choice in this segment is limited to two funds: Satrix MSCI Emerging Markets (up 0.96%) and the Cloud Atlas AMI Big50 (up 5.16%). Unlike the Cloud Atlas fund which invests in African stocks only, the Satrix fund invests in a wider range of emerging economies, including some of the fastest-growing markets such as China and India. In addition, the fund is the cheapest within its category, boasting a TER of 0.4%.
There's plenty more from where that came from. The team at Intellidex have more insights for the month of May. To see more in-depth analysis and market insights (global and local), check out the full note here.
Background: Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) are passively managed investment funds that track the performance of a basket of pre-determined assets. They are traded the same way as shares and the main difference is that whereas one share gives exposure to one company, an ETF gives exposure to numerous companies in a single transaction. ETFs can be traded through your broker in the same way as shares, say, on the EasyEquities platform. In addition, they qualify for the tax-free savings account, where both capital and income gains accumulate tax free.
Benefits of ETFs
- Gain instant exposure to various underlying shares or bonds in one transaction
- They diversify risk because a single ETF holds various shares
- They are cost-effective
- They are liquid – it is usually easy to find a buyer or seller and they trade just like shares
- High transparency through daily published index constituents
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