In partnership with Morningstar: 2022 has started with no shortage of talking points in financial markets. January proved to be a rather volatile month for global markets, as concerns over persistently elevated inflation prints, potentially higher interest rates and geopolitical tensions (the escalating military conflict between Russia, Ukraine and NATO being the most apparent) weighed on sentiment.
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In partnership with Morningstar: The Russian invasion of Ukraine is increasingly fluid and potentially harrowing. As investors—not as politicians or news reporters—we thought some perspective on the investing implications from a multi- asset perspective is warranted. In partnership with Morningstar: At the 2021 Morningstar Investment Conference, Victoria Reuvers had the privilege to sit down with Tamryn Lamb, Head of Retail Distribution at Allan Gray and Joanne Baynham, Wealth Manager and AssetTV Presenter to discuss, The evolution of the local and global investment landscape. In partnership with Morningstar: Dan Kemp answers these questions, Will we see slower GDP growth than what we anticipated six months ago? Do we see a slow rise in interest rates on the horizon or a fast one? Will interest rates stay the same or go down? ![]() South African Market Commentary Global equity markets performed strongly in August, with many major global equity indices reaching new highs during the month, despite continued concerns around the spread of the highly contagious Covid-19 Delta variant across the globe. The US Federal Reserve (Fed) continued to allay fears of interest rate increases, with Fed Chair Jerome Powell reiterating his cautious stance at the Jackson Hole Economic Symposium held towards the end of August. Powell did concede, however, that the tapering of bond purchases is likely to start at the end of 2021. Powell’s dovish comments, as well as strong earnings updates from corporates, drove US equities to new highs, with the S&P 500 recording a seventh consecutive month of positive returns, its longest winning stretch since 2018. South African equities ended the month lower, as weak performance from Resource counters, as well as large index constituents Naspers and Prosus, weighed on the performance of the local equity index. Local bonds ended the month higher, as long dated nominal bonds delivered strong performance during the month and the nominal curve continued to flatten during August. Local listed property rebounded sharply in August, as sentiment towards the sector improved on the back of the move to an adjusted level 3 lockdown on 26 July and many REITs reporting better than expected recoveries from the riot damage caused by the civil unrest in July. The rand was stronger against most of the major developed market currencies, despite trading in quite a wide range during the month, in line with changes in global sentiment towards emerging market currencies. In terms of the Covid-19 response, the country remained on an adjusted level 3 lockdown, despite a decrease in the number of daily recorded infections during the month. Registration and vaccination for 18-34-year-olds opened on 20 August, with 12.6 million vaccines having been administered by the end of August. SA headline CPI moved lower to 4.6% year-on-year for July (from 4.9% in June), as fuel inflation continued to moderate, and SA inflation remained relatively muted due to weak pricing power in the local economy. SA’s trade balance came in at a surplus for August (R37 billion), following a revised surplus for July of R54 billion, as exports declined 11% month-on-month to R145 billion, higher than the 1% month-on-month decline in imports. StatSA’s periodic rebasing and reweighting of the national accounts data showed that the nominal size of the economy has increased by 11% from previous estimates, resulting in a lower-than-expected fiscal deficit and debt to GDP (71% at the end of 2020 compared with the previous estimate of 79%). Click here to read more Global Market Summary
Developed market (DM) equities had another good month, led by the major US Indices. The S&P500 and the Nasdaq reached record highs over the month with the former managing to close in the green for a seventh consecutive month. Economic data was supportive for the Financials sector at the beginning of the month as the 10-year US Treasuries rose on the back of a better than expected payrolls print. Despite a weaker than expected retail sales print and a resurgence in Covid-19 cases as a result of the Delta variant, markets still managed to power ahead on the back of bullish remarks from Fed chair Jerome Powell at the Jackson Hole symposium. Although Powell raised the possibility of tapering this year, he also highlighted that this should not be viewed as the start of the hiking cycle. He also reinforced the fact that the Fed would continue to tolerate higher inflation in pursuit of further labour market gains which served as support for the markets over the month. Click here to read more ![]() South African Market Update Global equity markets ended the month in positive territory, despite rather modest gains in certain major markets, as global economies continued to show signs of recovery despite new Covid-19 restrictions in certain countries. There continues to be optimism around the US economic recovery, as strong economic data and the high likelihood of further stimulus measures continues to bode well for risk appetite. This, despite Republicans in the Senate unveiling a $928 billion infrastructure proposal, well below US President Joe Biden’s original $1.7 trillion plan. Inflation continues to be a talking point for investors, as the US Federal Reserve’s (Fed) preferred inflation measure, core personal consumption expenditure (PCE), advanced 0.7% month on month in April, bringing the year-on-year figure to the end of April to 3.1%. The Fed continues to reiterate its belief that inflation pressures are transitory and that they intend to keep monetary policy conditions accommodative for the foreseeable future. South African equities ended higher for a seventh consecutive month, largely driven by strong performance from Financials, gold and retail counters. Local bonds had a strong month, as foreigners returned to the SA market (foreigners bought R9.3 billion of local bonds in May) and the yield curve flattened following strong performance from long dated SA government bonds. Local listed property gave back some gains during the month, as the asset class took a breather after strong performance in April. Uncertainty caused by the implications of a third wave of Covid-19 infections acted as a headwind for the asset class. The rand continued its impressive run,finishing the month stronger against most major developed market currencies, supported by strong commodity prices and a weaker US dollar. The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) left interest rates unchanged for a fifth consecutive meeting in a unanimous decision, with the MPC revising its growth forecast higher for 2021 from 3.8% to 4.2% following the strong rebound in Q1 2021. SA headline CPI moved significantly higher to a year-on-year figure of 4.4% for April (from 3.2% in March), the largest monthly change in annual inflation since 2009. The increase was largely driven by the base effects of higher fuel and food prices. SA’s trade surplus continues to provide support to the rand, with the surplus for April (R51 billion) following a revised surplus for March of R52.5 billion. Following higher daily Covid-19 cases across the country, President Cyril Ramaphosa announced that South Africa would move to a level two lockdown (effective 31 May), largely in response to a third wave of infections in certain provinces across the country. The JSE All Share Index (+1.6%) ended higher for a seventh consecutive month, largely driven by positive moves in banks, gold counters and retailers. Local equity sectors had mixed performance for the month, with Financials (+9.3%) outperforming both Industrials (+1.6%) and Resources (-1.2%). The top performing shares amongst the largest 60 companies on the JSE in May were Mr Price Group (+28.3%), Gold Fields (+26.5%) and Pepkor (+24.0%). The worst performing shares in May were Sappi (-11.6%), Prosus (-9.7%) and Quilter (-9.5%). Listed property (-2.9%) ended the month lower, with weak performance from some large index constituents and profit taking (after strong performance in April) acting as a headwind for the asset class. Local bonds (+3.7%) had a strong month, supported by foreign buying of SA bonds and a flattening of the yield curve. Cash delivered a stable return of +0.3% for the month. The rand was stronger against most major developed market currencies for the month. The rand appreciated against the US dollar (+5.7%), the euro (+4.1%) and the pound sterling (+3.0%) over the month. Click here to read more. Global Market Summary
Global equity markets had another good month, largely on the back of continued optimism over a recovery in the US economy. Vaccination efforts remained apace, with estimates suggesting that over 50% of the US population has now been vaccinated. The picture was similar in other developed markets (DM’s), where the vaccination rates continue to improve. Emerging markets on the other hand, continue to lag DM’s in the inoculation drive and there has been a resurgence in new cases in countries such as India and South Africa. From an economic data point of view, May releases were a bit mixed. The Chicago PMI came in higher than expected at 75.2, reaching its highest reading since 1973, whilst consumer confidence on the other hand, as measured by the University of Michigan marginally declined to 82.9 in May from the previous reading of 88.3. Personal income declined by 13.1%, lower than the 14% estimate, as the effect of the stimulus measures started to diminish. The savings rate, however, remained elevated at 14.9%, highlighting the robustness of the US consumer. Turning to inflation, the Core PCE (the Fed’s preferred measure of inflation) surprised to the upside, with May’s reading surpassing the market estimate of 2.9%, as it reached 3.1%, its highest annual reading since 1996. Despite continued evidence of a sustained economic recovery and the ensuing inflationary surprises, the Fed remained steadfast in its monetary policy stance, maintaining the mainstream central banking view that the current inflationary pressures were transitory and attributable to supply bottlenecks. Moves in the bond market were also largely muted following the inflation data releases. Turning to equity markets, the US continued to trail its European counterparts, despite the end of an impressive earnings season. In the US, the S&P 500 (+0.7%) outperformed the technology heavy NASDAQ 100 (-1.2%). The UK’s FTSE 100 (+3.8%) had a very good month, whilst Germany’s FSE DAX (+3.5%) was a standout within the major European markets. In Asia, China’s Shanghai SE Composite (+6.7%) was amongst the best performing markets for the month and Japan’s Nikkei 225 (+0.1%) fared better than the previous month. Emerging markets had another good month, with the MSCI Emerging Markets Index (+2.3%) ending on a strong footing. Overall, global equities ended marginally higher, with the MSCI World Index delivering a return of +1.5% for the month, reflective of the broad positive performances across its constituents. On the commodities front, performance was mixed for the month. Gold (+7.5%) and Oil (+3.1%) built on the performances from the previous month, whilst Platinum (-3.9%) gave up some of its gains from the previous month. The performance of the US dollar was mixed against most of the major currencies for the month. The greenback depreciated against the pound sterling (-2.6%) and the euro (-1.5%), but was largely flat against the Japanese Yen (+0.1%). Click here to read more Source: Morningstar ![]() South African Market Update South African equities ended higher for a sixth consecutive month, despite poor performance from large industrial counters including Naspers, Prosus and British American Tobacco acting as a headwind to the performance of the local equity index. Local bonds ended the month higher, supported by a stronger rand over the month and outperforming both aggregate developed and emerging market bond indices. Local listed property had a strong month, as the asset class continues its recovery amid the local economy returning to more normal levels of activity post the Covid-19 induced lockdown at the beginning of the year. The rand was largely stronger against most major developed market currencies over the month, receiving continued support from the positive trade balance caused by higher commodity prices and subdued imports. South African Economic Update Following weak economic data in January due to the Covid-19 induced restrictions, trade data for February (which was released in April) rebounded strongly. Wholesale and retail trade recorded month on month increases of 1.3% and 6.9%, after falling -0.9% and -2.4% respectively in January. SA’s trade surplus widened to R52.8 billion in March (from R31.2 billion in February), which is the widest surplus on record and continues to provide significant support to the rand, one of the best performing emerging market currencies year to date. SA headline CPI moved higher to a year-on-year figure of 3.2% for March (from 2.9% in February). Local inflation continues to surprise on the downside, however, inflation is expected to rise further over the next few months, largely due to base effects and higher international prices. Global Market and Economic Update Global equity markets continued to climb higher in April, supported by surprises in terms of positive economic data and company earnings releases. As at the end of April, 87% of S&P 500 companies have posted Q1 2021 earnings which beat estimates, with earnings growing by an average of over 46% year on year. US President Joe Biden addressed a joint session of Congress during the month, motivating for a $2 trillion infrastructure plan and a newly unveiled $1.8 trillion plan for families, children, and students. President Biden is proposing that the American Families Plan is largely funded by additional tax of $1.5 trillion on the top 1% of earners as well as increased levies on capital gains and ordinary income for those earning more than $400,000 a year. The US is expected to reach its pre pandemic level of output midway through 2021, with record stimulus packages and low interest rates providing significant support to aid economic recovery. The positive moves in global equity markets came despite uneven Covid-19 vaccine distribution across developed and emerging markets, with many key emerging markets struggling to source and distribute vaccines, leading to spiking infection rates in certain countries (particularly India and Brazil). Source: Morningstar
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