2019 was a tough year, with growth slowing to its weakest level since the Global Financial Crisis. Global activity was hamstrung by major policy uncertainty. Key was the ongoing Trade War between the US and China, with BREXIT and geopolitical events in the Middle East and Asia adding to the uncertainty. These caused a collapse in global trade, manufacturing, and investment. Against these, household consumption in more advanced economies remained supportive, preventing a sharper global slowdown, as job markets continued to benefit from an expansion in services activity. The Middle East saw attacks on oil infrastructure and shipping. In Asia, protests in Hong Kong plunged its economy in recession.

The year ended with resolutions to two major sources of uncertainty. The US and China agreed to a so-called Phase 1 trade deal before another round of tariff escalations took effect, with the deal expected to be signed by mid-January. The UK held a General Election which resulted in a decisive majority for the incumbent Tory party. Central banks responded aggressively to last-year’s slowdown, easing policy both with respect to interest rates and re-extending quantitative easing, with fiscal support in some countries like China also helping. Although major central banks like the US Fed have signalled a pause, subdued inflation means that they will not be in a hurry to reverse course. The combination of last year’s policy easing and the resolution of major uncertainties set the stage for a rebound in activity in 2020. Two immediate risks weigh on the outlook. US President Donald Trump faces an impeachment trial in the US Senate after having been impeached by the House of Representatives. And a major geopolitical event in the Middle East risks plunging the region into war.

In South Africa, 2019 proved a dismal year, as an expected rebound instead translated into an even weaker performance than the previous year. The outcome was driven by ongoing supply disruptions stemming mainly from load shedding, with labour disputes in sectors like mining and adverse weather in agriculture adding to the weak performance. The supply disruptions also weighed heavily on confidence, which further undermined underlying activity. Though a recovery is expected in 2020, it is likely to be mediocre. Supply constraints in key network sectors like electricity will remain, as the process of restructuring flailing SOE’s will take time. The upcoming February Budget will be keenly-watched for signs that the deterioration in the fiscal position is at least being arrested, and that the necessary reforms are being implemented to sort out failing SOE’s, restructure the supply-side of the economy to increase its competitiveness and boost the efficiency of service delivery. Fiscal space is severely limited and the country is still expected to lose its last-remaining investment grade. And confidence will remain depressed in the absence of tangible evidence that the downward spiral caused by a decade of mismanagement is being arrested.

Risks to the listed SA property sector include the stagnant economic environment, negative rental reversions and the timing and quality of offshore investment. This increases the importance of stock selection and our funds are well positioned due to our focus on quality, value and diversification. The modernisation of supply chains and positive secular demand drivers for logistics space continue to support the industrial property sector in South Africa while the demand for office space is linked to confidence and the employment outlook, which is going to take time to recover. Retail centres that are appealing destinations or offer convenience are better positioned to grow their trading densities and rentals in a more competitive environment.