In December the average prudential balanced portfolio returned 0.94% (Nov: 1.46%). Top performer is EMH Prescient (1.36%); while Momentum (0.41%) takes the bottom spot. For the 3 month period Investec takes top spot, outperforming the 'average' by roughly 1.5%. On the other end of the scale Allan Gray underperformed the 'average' by 3.4%.
Oil and its impact on the local economy and the local investor
In our December 2014 Newsletter we deliberated on the possible reasons and the implications of the oil price on global financial markets. We noted a close correlation between longer term trends in the oil price and the FTSE/JSE Allshare index, given that the SA Allshare Index is heavily resources weighted. Of course, oil being a major import component of SA's trade balance, its price changes will also impact on the Rand everything else being equal.
Oil will have a major impact on local equities and the Rand
The graph below shows a surprisingly high correlation between the Allshare index and the spot oil price in Rand barring the times when there was a rapid change in the oil price, such as over the last few months, where the Allshare index responds more cautiously.
One may thus rationally conclude that what is happening to the oil price will have a major impact on local equities and the Rand if it becomes a longer term trend. The question is - will it become a longer term trend? An indicator for this becoming a longer term trend is the demand/ supply situation. It would not become a longer term trend if the previous price levels were driven by the demand/ supply situation rather than speculative trading.
What can one expect the oil price to be?
The graph below reflecting oil prices shows a long term increasing trend in the oil price and a few steep and rather rapid changes where we believe these were the result of speculative trading rather than any fundamentals. Without speculative trading the peaks would be reflective realistic price levels, else one would expect a more slowly increasing line that will be somewhere between the peaks and the troughs.
Source: vox.com
The graph below provides an interesting picture of the demand/supply balance of oil. At first sight one might conclude the gap between demand and supply is rapidly opening up. However looking more closely at the demand line one notices that an annual peak demand occurs in the 4th quarter where after the demand drops off significantly for 2 quarters only to move up again in a pretty consistent fashion. If one were to extend a straight line from the latest 3 demand peaks, one will conclude that demand should be pretty close to supply again by the end of 2015 assuming no drastic increase in supply, which cannot be foreseen, certainly not at today's price. In other words it appears unlikely that supply will significantly outpace demand even in the short term and that the current price level is unsustainable over a longer period.
Source: vox.com
The question then is, what is a realistic price of oil? Read our full commentary in part 6 of the latest Benchtest newsletter (above).