www.ppi-advisory.com | Vol. 134 | January 2018

Market Commentary

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A new month and the 134th issue of Viewpoint from PPIAdvisory.
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Table of Contents
Market commentary

1–2Market performance

3–6

In December, markets continued to climb upwards, capping
off a year of strong returns across asset classes. Risk assets
benefitted from accelerating global economic growth andstrong corporate earnings. Commodities, followed by equities
posted the largest returns during the month.
Global equities advanced 1.4% during the month, withemerging markets outperforming developed markets,posting a 3.6% return versus a 1.4% return for developedmarkets. 2017 was the best year for emerging markets relative
to developed markets since 2009, returning 37.3% versus
22.4% for developed markets. US equities rose 1.1%, taking
returns in 2017 to 21.1%. 2017 was the first year in history
US equity markets posted positive returns for every month
during the year. Within developed markets, the UK was oneof the strongest performers posting a 5.0% return, while
continental Europe underperformed returning 0.2% anddeclining 0.6% in Euro terms. In emerging markets, emerging
Europe outperformed returning 5.3%.
Figure 1: Major equity market local currency returns

Asset allocation dashboard

76.00%

Regional Cumulative Equity Returns

5.00%

Important notes

84.00%
3.00%
2.00%
1.00%
0.00%
-1.00%

Momentum Global Investment Management (Company Registration No. 3733094)
has its registered office at The Rex Building, 62 Queen Street, London, EC4R 1EB.
Momentum Global Investment Management Limited is authorised and regulatedby the Financial Conduct Authority in the United Kingdom, and is an authorised
Financial Services Provider pursuant to the Financial Advisory and Intermediary
Services Act 37 of 2002 in South Africa.

-2.00%-3.00%
11/30/2017

12/7/2017

United StatesJapan

12/14/2017
United Kingdom
Global Emerging Markets

12/21/2017

12/28/2017

Continental Europe
Developed Markets

Source: Bloomberg, Momentum GIM

VP.PPI.V.2.0

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www.ppi-advisory.com | Vol. 134 | January 2018

Figure 2: Two-year Treasury yields rise in December
1.95%

68

Brent crude oil6766
65646362
61

Two Year US Treasury Yield

1.93%6011/30/2017

1.91%

12/7/201712/14/2017

12/21/2017

12/28/2017

Source: Bloomberg, Momentum GIM

1.89%
1.87%
1.85%
1.83%
1.81%
1.79%
1.77%
1.75%
11/30/2017

Figure 3: Brent crude rallies during the month, pushing towards
USD 70/bbl

USD/bblIn fixed income, global government bonds advanced 0.2%,
taking returns to 1.0% for the quarter. Pressure continued on
US government bonds, with investors anticipating increased
borrowing following the implementation of tax reforms. The
Treasury yield curve flattened further with two year Treasury
yields rising 10.1 basis points in the month to 1.89%. UKbonds posted strong returns following a breakthrough Brexit
withdrawal agreement, with UK investment grade corporate
bonds rising 1.4% in US Dollar terms, while Gilts rose 1.6%.

12/7/201712/14/2017

12/21/2017

12/28/2017

Source: Bloomberg, Momentum GIM
On a trade weighted basis the US Dollar fell 1.0% while
Sterling fell 0.8%. The Euro rose 0.8% versus the US Dollar,
taking returns for the fourth quarter to 1.6%. The mostnotable mover was the South African rand which rose 10.7%
following a boost in sentiment after South African deputy
president Cyril Ramaphosa was elected president of theAfrican National Conference.
Commodities posted strong returns during the month, rising
3.1%. Brent crude oil was a major mover, rising 5.2% to
USD 66.9/bbl, taking fourth quarter returns to 16.2%. Brent
crude climbed following the closure of the North Sea Forties
pipeline after the discovery of a crack.
US equities hit all-time highs during the month, boosted
by the passing of Republican tax reforms in the Houseand the Senate. Economic data remained strong, with theunemployment rate holding at a seventeen year low rate of
4.1% and Q3 GDP growth at 3.2%, a near three-year high. In
Europe equities underperformed, advancing 0.2% partly due
to the Euro rising 0.7% versus the US Dollar. The economy
remains strong in Europe, with the Eurozone composite PMI
reaching an 82 month high of 58.1 in December.

UK equities outperformed during the month, rising 5.0%. This
follows a more positive sentiment after a Brexit withdrawal
agreement was reached, enabling negotiations to continue
to the next phase. Equities were additionally boosted by therise in commodity prices and the passing of US tax reforms.
Headline consumer price inflation rose to 3.1% in November,up from 3.0%.
The Federal Reserve was the only major central bank tochange its monetary policy, increasing the Fed funds target
range by 25 basis points to 1.25-1.50%, a move that waswidely anticipated.
Political events continued to have a mixed impact on asset
class returns; of particular focus were US tax reforms, which
eventually passed the House and the Senate at the end of
the month, providing a boost to equities. In the UK, Brexit
negotiations achieved a major breakthrough after the firstphase of negotiations, discussing withdrawal terms, led toan agreement. The second phase of negotiations discusses
transitional arrangements for the UK’s withdrawal.
While politics and international relations pose challenges
to markets, the broad global environment remains highly
favourable for risk assets. Although we do not expect a
repeat of the strong returns in 2017, we believe that equity
markets will make further progress this year. While valuations
in many cases are stretched, the underlying fundamentals
are strong and the monetary policy tightening ahead is likely
to be extremely gradual, and will remain loose by historicalstandards for the short to medium term. However, there
are risks ahead, and from these levels longer term returns
are likely to be relatively modest. However, this cycle isparticularly long and we do not see evidence of overheating
and a premature downturn. Opportunities for returns
outweigh the risks and it will be important to stay invested,while the inevitable return of periodic bouts of weakness inequity markets will present buying opportunities.

Source: Bloomberg. Returns in US dollars unless otherwise stated. December 2017. | Past performance is not indicative of future returns.
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www.ppi-advisory.com | Vol. 134 | January 2018

Market Performance - Global (Local returns)
Asset Class/Region

Index

To 29 December 2017
Currency

1 MonthYear to date

Developed markets equities
United States

S&P 500 NR

USD

1.1%

21.1%

United Kingdom

MSCI UK NR

GBP

5.0%

11.7%

Continental Europe

MSCI Europe ex UK NR

EUR

-0.5%

11.4%

Japan

Topix TR

JPY

1.6%

22.2%

Asia Pacific (ex Japan)

MSCI AC Asia Pacific ex Japan NR

USD

3.1%

37.0%

GlobalMSCI World NR

USD

1.4%

22.4%

Emerging Europe

MSCI EM Europe NR

USD

5.3%

20.5%

Emerging Asia

MSCI EM Asia NR

USD

2.8%

42.8%

Emerging Latin America

MSCI EM Latin America NR

USD

4.4%

23.7%

BRICs

MSCI BRIC NR

USD

2.9%

41.7%

Global emerging markets

MSCI EM (Emerging Markets) NR

USD

3.6%

37.3%

US Treasuries

JP Morgan United States Government Bond Index TR

USD

0.4%

2.5%

US Treasuries (inflation protected)

Barclays Capital U.S. Government Inflation Linked TR

USD

1.0%

3.3%

US Corporate (investment grade)

Barclays Capital U.S. Corporate Investment Grade TR

USD

0.9%

6.4%

US High Yield

Barclays Capital U.S. High Yield 2% Issuer Cap TR

USD

0.3%

7.5%

UK Gilts

JP Morgan United Kingdom Government Bond Index TR

GBP

1.5%

1.9%

UK Corporate (investment grade)

BofA Merrill Lynch Sterling Non Gilts TR

GBP

1.4%

4.3%

Euro Government Bonds

Citigroup EMU GBI TR

EUR

-0.8%

0.2%

Euro Corporate (investment grade) Barclays Capital Euro Aggregate Corporate TR

EUR-0.3%

2.4%

Euro High Yield

BofA Merrill Lynch Euro High Yield Constrained TR

EUR

0.0%

6.9%

Japanese Government

JP Morgan Japan Government Bond Index TR

JPY

0.1%

0.2%

Australian Government

JP Morgan Australia GBI TR

AUD

-0.8%

3.6%

Global Government Bonds

JP Morgan Global GBI

USD

0.2%

6.8%

Global Bonds

Citigroup World Broad Investment Grade (WBIG) TR

USD

0.3%

7.4%

Global Convertible Bonds

UBS Global Focus Convertible Bond

USD

-0.8%

9.7%

Emerging Market Bonds

JP Morgan EMBI+ (Hard currency)

USD

0.6%

8.3%

Emerging Market Equities

Bonds

Source: Bloomberg | Past performance is not indicative of future returns. | *) denotes estimate
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www.ppi-advisory.com | Vol. 134 | January 2018

Market Performance - Global (Local returns)
Asset Class/Region

Index

To 29 December 2017
Currency

1 MonthYear to date

Property
US Property Securities

MSCI US REIT NR

USD

-0.4%

3.7%

Australian Property Securities

S&P/ASX 200 A-REIT Index TR

AUD

-1.3%

0.7%

Asia Property Securities

S&P Asia Property 40 Index NR

USD

2.2%

27.6%

Global Property Securities

S&P Global Property USD TR

USD

1.8%

16.1%

Euro

USD

0.8%

14.1%

UK Pound Sterling

USD

0.0%

9.4%

Japanese Yen

USD

-0.1%

3.8%

Australian Dollar

USD

3.2%

8.5%

South African Rand

USD

10.7%

10.6%

Currencies

Commodities & Alternatives
Commodities

RICI TR

USD

3.1%

4.9%

Agricultural Commodities

RICI Agriculture TR

USD

-0.6%

-4.2%

Oil

Brent Crude Oil

USD

5.2%

17.7%

GoldGold Spot

USD

2.2%

13.1%

Hedge funds

HFRX Global Hedge FundUSD

0.7%*

6%*

Interest rates
United States

1.50%

United Kingdom

0.50%Eurozone

0.00%

Japan

0.10%

Australia

1.50%South Africa

6.75%

Source: Bloomberg | Past performance is not indicative of future returns. | e denotes estimate
VP.PPI.V.2.0

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www.ppi-advisory.com | Vol. 134 | January 2018

Market Performance - UK (All returns in GBP)
Asset Class/Region

Index

To 29 December 2017
Currency

1 MonthYear to date

Developed markets equities
UK - All Cap

MSCI UK NR

GBP

5.0%

11.7%

UK - Large Cap

MSCI UK Large Cap NR

GBP

5.3%11.4%

UK - Mid Cap

MSCI UK Mid Cap NR

GBP

3.8%

9.1%

UK - Small Cap

MSCI Small Cap NR

GBP

4.4%

21.0%

United States

S&P 500 NR

USD

1.0%

10.5%

Continental Europe

MSCI Europe ex UK NR

EUR

0.5%

15.9%

Japan

Topix TR

JPY

1.4%

15.6%

Asia Pacific (ex Japan)

MSCI AC Asia Pacific ex Japan NR

USD

3.0%

25.0%

Global developed markets

MSCI World NR

GBP

1.2%

11.7%

Global emerging markets

MSCI EM (Emerging Markets) NR

GBP

3.5%

25.3%

Gilts - All

BofA Merrill Lynch Gilts TR

GBP

1.5%

1.9%

Gilts - Under 5 years

BofA Merrill Lynch Gilts TR under 5 years

GBP

0.2%

-0.2%

Gilts - 5 to 15 years

BofA Merrill Lynch Gilts TR 5 to 15 years

GBP

1.1%

1.8%

Gilts - Over 15 years

BofA Merrill Lynch Gilts TR over 15 years

GBP

2.5%

3.5%

Index Linked Gilts - All

BofA Merrill Lynch Inflation-Linked Gilts TR

GBP

2.0%

2.3%

Index Linked Gilts - 5 to 15 years

BofA Merrill Lynch Inflation-Linked Gilts TR 5 to 15 years

GBP

1.1%

1.4%

Index Linked Gilts - Over 15 years

BofA Merrill Lynch Inflation-Linked Gilts TR over 15 years

GBP

2.6%

2.9%

UK Corporate (investment grade)

BofA Merrill Lynch Sterling Non Gilts TR

GBP

1.4%

4.3%

US Treasuries

JP Morgan United States Government Bond Index TR

USD

0.2%

-6.4%

US Corporate (investment grade)

Barclays Capital U.S. Corporate Investment Grade TR

USD

0.8%

-2.9%

US High Yield

Barclays Capital U.S. High Yield 2% Issuer Cap TR

USD

0.2%

-1.9%

Euro Government Bonds

Citigroup EMU GBI TR

EUR

0.1%

4.2%

Euro Corporate (investment grade) Barclays Capital Euro Aggregate Corporate TR

EUR

0.7%

6.6%

Euro High Yield

BofA Merrill Lynch Euro High Yield Constrained TR

EUR

1.0%

11.2%

Global Government Bonds

JP Morgan Global GBI

GBP

0.0%

-2.5%

Global Bonds

Citigroup World Broad Investment Grade (WBIG) TR

GBP

0.2%

-1.9%

Global Convertible Bonds

UBS Global Focus Convertible Bond

GBP

-0.9%

0.1%

Emerging Market Bonds

JP Morgan EMBI+ (Hard currency)

GBP

0.5%

-1.2%

Bonds

Source: Bloomberg | Past performance is not indicative of future returns. | e denotes estimateVP.PPI.V.2.0

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www.ppi-advisory.com | Vol. 134 | January 2018

Market Performance - UK (All returns in GBP)
Asset Class/RegionIndex

To 29 December 2017
Currency

1 MonthYear to date

Property
UK Direct Property

UK IPD All Property TR

GBP

0.0%

9.7%*

Global Property Securities

S&P Global Property USD TR

GBP

1.7%

6.0%

Euro

GBP

0.9%

4.0%

US Dollar

GBP

0.1%

-8.6%

Japanese Yen

GBP

0.0%

-5.1%

Currencies

Commodities & Alternatives
Commodities

RICI TR

GBP

3.0%

-4.3%

Agricultural Commodities

RICI Agriculture TRGBP-0.7%-12.5%

Oil

Brent Crude Oil

GBP

5.1%

7.4%

GoldGold Spot

GBP

2.1%

3.2%

Interest rates
United Kingdom

0.50%

United States

1.50%

Eurozone

0.00%

Japan

0.10%

Source: Bloomberg | Past performance is not indicative of future returns. | e denotes estimate
VP.PPI.V.2.0

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VIEWPOINT

www.ppi-advisory.com | Vol. 134 | January 2018-ve

Asset Allocation Dashboard
Asset class+ve

View
Equities

Developed equities
UK equities (relative to developed)
European equities (relative to developed)
US equities (relative to developed)
Japan equities (relative to developed)
Emerging market equities

Fixed IncomeGovernment
Index-linked (relative to government)
Investment grade (relative to government)
High yield
Emerging market debt
Convertible bonds

Alternatives
Commodities
Property (UK)
Infrastructure
Liquid Alternatives

Currencies
GBPEuroYen

VP.PPI.V.2.0

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www.ppi-advisory.com | Vol. 134 | January 2018

Important Notes
This document is only intended for use by the original recipient, eithera Momentum GIM client or prospective client, and does not constitutean offer or solicitation to any person in any jurisdiction in which it is
not authorised or permitted, or to anyone who would be an unlawfulrecipient. The original recipient is solely responsible for any actions infurther distributing this document, and in doing so should be satisfied that
there is no breach of local legislation or regulation. This document should
not be reproduced or distributed except via original recipients acting as
professional intermediaries. This document is not for distribution in theUnited States.
Prospective investors should take appropriate advice regarding
applicable legal, taxation and exchange control regulations in countriesof their citizenship, residence or domicile which may be relevant to theacquisition, holding, transfer, redemption or disposal of any investments
herein solicited.
Any opinions expressed herein are those at the date this document
is issued. Data, models and other statistics are sourced from our own
records, unless otherwise stated. We believe that the information
contained is from reliable sources, but we do not guarantee the relevance,
accuracy or completeness thereof. Unless otherwise provided under UK
law, Momentum GIM does not accept liability for irrelevant, inaccurate
or incomplete information contained, or for the correctness of opinions
expressed.

VP.PPI.V.2.0

The value of investments in discretionary accounts, and the income
derived, may fluctuate and it is possible that an investor may incur
losses, including a loss of the principal invested. Past performance is not
generally indicative of future performance. Investors whose reference
currency differs from that in which the underlying assets are invested
may be subject to exchange rate movements that alter the value of theirinvestments.
Under our multi-management arrangements, we selectively appoint
underlying sub-investment managers and funds to actively manage
underlying asset holdings in the pursuit of achieving mandated
performance objectives. Annual investment management fees are payable
both to the multimanager and the manager of the underlying assets at
rates contained in the offering documents of the relevant portfolios (andmay involve performance fees where expressly indicated therein).
Momentum Global Investment Management (Company Registration No.
3733094) has its registered office at The Rex Building, 62 Queen Street,London EC4R 1EB.
Momentum Global Investment Management Limited is authorised andregulated by the Financial Conduct Authority in the United Kingdom, andis an authorised Financial Services Provider pursuant to the Financial
Advisory and Intermediary Services Act 37 of 2002 in South Africa.
© Momentum Global Investment Management Limited 2017Page 8