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Over the last 15 years amidst market volatility, the average local balanced fund has achieved the commonly used CPI+5% benchmark only 42% of the time over a three-year investment horizon. Consequently, investors have increasingly turned their attention to alternative investments and return sources, especially in the wake of recent bond market volatility and the uncertain outlook for equities.
Negative market momentum continued into September, which, in turn, resulted in negative quarterly returns across most asset classes. The threat of a government shutdown in the United States (US) and the higher-for-longer interest rate narrative resulted in little appetite for growth assets, as bond yields moved higher and equity markets sold off further. The US 10-Year Treasury Yields reached levels last seen in 2007 during September, while the S&P 500 Index experienced its worst return for 2023 thus far. Despite the ongoing concerns regarding the property sector, the economic slowdown in China at least showed some signs of stabilising during the month, as the government continues to implement various stimulus measures. Subsequently, Chinese markets experienced relatively lower drawdowns during September, helping emerging markets outperform developed markets.
Markets took a considerable breather in August, with most assets ending the month lower. The only slight silver lining was the depreciation in the local currency that offset negative returns from offshore markets, turning losses into gains when priced back to rand. Weak Chinese economic activity and disappointing government response, the resilience of the United States (US) economy in the face of rising interest rates, and sticky core inflation data all contributed to a risk-off trend.
July saw a continuation of and acceleration in positive momentum for growth assets, as most equity and property markets delivered strong returns during the month. Markets were supported by a continued moderation in inflation globally, while company results and economic data remained resilient, boosting sentiment and hope for a softer landing in especially the United States (US). As the earnings season in the US winds down, approximately 79% of the 84% of companies that have reported results thus far have reported actual earnings above estimates.
While it feels like it was another rollercoaster month of news and events to end off the second quarter and first half of 2023, local assets experienced a significant bounce back after the May sell-offs. Local bonds recovered especially well, while financial stocks were the best performers on the local equity exchange. Offshore markets also had a strong run, however, the recovery in the local currency led to most offshore investments ending the month lower when priced back into rand.
After the markets provided some relief in April, it was a negative month for most areas of the global markets in May. A looming debt ceiling in the United States (US), combined with slowing global activity that continues to fuel recession fears, all contributed to lower global risk appetite.
The month of April provided much better returns for investors, with some signs of moderating inflation, possible relief in labour-market tightness, and a few upside surprises for corporate results that provided support for more risk-on sentiment. This is despite continued speculation around the timing and the depth of a potential economic recession across major developed economies. Continued pressure on the banking sector has exacerbated these concerns, as banks continue to tighten credit conditions and lending activity continues to slow.
And just like that the first three months of 2023 have come and gone, with March bringing a very volatile end to the first quarter of the year. The full quarter’s returns were relatively strong for local equities (5.2%), local bonds (3.4%), and offshore investments made by rand-based investors (8.8% from the average ASISA Global Multi Asset Flexible Fund). The bulk of these returns were achieved in January, as the financial stress from higher interest rates and higher inflation started to show through the cracks in February and March.
November was another strong month, continuing the rally that started in October, as growth assets outperformed globally. In base currency, South African equities outperformed most global equity indices, albeit predominantly driven by rand-hedge counters, with both Naspers and Prosus adding more than 38% for November. Markets were buoyed by less aggressive talks by United States (US) Federal Reserve (Fed) Chair Jerome Powell, as well as by signals from Chinese authorities that COVID restrictions could be eased.
October delivered much better investment performance and provided some much-needed relief from recent drawdowns, which come in stark contrast to the historic market crashes experienced in the month of October. The Dow Jones Industrial Average even posted its best month since 1976, with a return of close to 14% during October. Risk-on sentiment helped to push growth assets, such as equity and property markets, significantly higher during the month.
It was another sea of red for markets in September, with equities, bonds, and currencies (relative to the dollar) all suffering losses during the month. Markets, once again, faced the realisation that inflation is not under control yet, and we have yet to reach the peak in the interest-rate cycle. Hopes of easing rate pressure were diminished around mid-month, after a higher-than-expected inflation print was reported in the United States (US), driven by an acceleration in core services inflation.
Inflation and growth concerns continued to be the key drivers in August, as investors try to gauge just how far central banks are willing to go to rein in inflation. With markets initially continuing the strong July trend, sentiment soured relatively quickly around mid-month, as investors realised that their expectations of a less aggressive policy stance were misplaced, and that we are likely heading for tougher financial conditions and a much lower earnings environment. There was a lot of
focus especially on the Jack son Hole Economic Symposium in August, where central bankers from around the world gathered to discuss policy.
The month of July brought some much-needed relief after the end of the second quarter, which consisted of significant drawdowns and volatility across asset classes. Most asset classes ended the month substantially higher, driven primarily by interest rate expectations and earnings results, and despite various other negative influences. Global markets bounced on indications of weaker economic growth, with the United States (US) posting the second quarter of negative gross domestic product growth (-0.9%), which market participants believe could imply less aggressive interest rate action by central banks going forward.
It was another tough month for the financial markets, as selling pressures seemed to accelerate towards the end of the second quarter of 2022. These drawdowns came amid ongoing growth concerns linked to rising interest rates in the face of spiking inflation. While central banks seem confident that they will be able to limit the impact on growth, the more hawkish tones and the rate increases from the United States (US), Europe, the United Kingdom, and South Africa (SA), amongst others, have investors worried.
After experiencing a downward trend for most of the month of May, and reaching intra-month drawdowns of between 4.5% and 6%, both local and global markets posted a relatively strong rally in the last few days of the month to offset the majority of losses. This rally was driven by some upbeat corporate results and earnings, expectations around peaking inflation figures, and Chinese stimulus being rolled out to offset recent lockdowns.
It was a tough month for investors, with little place to hide, as most asset classes delivered either negative or very muted returns amid continued uncertainty driven by the conflict in Ukraine, rising inflation, and the potential for more aggressive monetary responses. Despite headlines focussing primarily on the w ar in Ukraine, we continue to see a normalisation of monetary policy around the world, with 23 central banks raising interest rates during March, including South Africa (SA) and the United States (US)
Flexible income funds can invest in various income-generating instruments, such as bonds, property, and global, to enhance the yield above money market rates. The ongoing Russia-Ukraine crisis resulted in negative market sentiment and higher inflation expectations, which have had a negative impact on these asset classes.
Investors typically either reduce their equity exposure too soon when the markets are going up, or sell their exposure when the markets are going down because they fear that the equity market will continue its downtrend. Research suggests that the best approach to investing is to remain invested unless a recession is imminent. Missing even only a few good trading days in the market can have a significant impact on a portfolio over the long term. It is impossible to know when the good trading days will take place. Therefore, it is more prudent to remain invested throughout the market cycle.
It was a tough start to the year in January, for offshore markets in particular. Rising geopolitical tensions between the United States (US) and Russia, a more hawkish Federal Reserve (Fed), continued inflationary pressures, and a price drop of more than 20% in a single day for Netflix and Meta (the parent company of Facebook) all contributed to a rollercoaster ride in the markets that, for the most part, ended in significant losses. The main culprits were developed market equities, specifically growth shares, that sold off through the month and underperformed emerging markets. While gold prices fell amidst rising interest rate fears, some positive indicators out of China boosted most commodity prices. Furthermore, tensions around Russia, one of the primary global oil producers, drove oil prices significantly higher, benefitting energy stocks around the world.
Markets were driven by similar themes as in September, namely the expectation of tapering and interest rate hikes on the back of rising inflation, Chinese growth and debt concerns, and a prevailing energy crisis. Locally, load shedding returned, significantly dampening local sentiment as South Africans headed to the polls for the municipal elections. Despite these uncertainties, and the accompanying volatility, it was a relatively strong start to the last quarter of 2021, with various global equity indices, once again, hovering close to all-time highs, thanks to another strong earnings season and a strong rebound in the local equity market during October on the back of resource counters.
September was a relatively volatile month across many markets, as investors continue to digest and to react to the spread of the Delta variant, the timeline for the reduction in stimulus, continued inflation concerns, an energy crunch, and Chinese debt problems. The uncertainty and risk-off sentiment was well reflected in performance, with large losses across global equities,bonds, and property (in United States dollar (USD) terms), as well as a strengthening dollar. Local assets did not escape the sell-off. The All-Share Index was pulled down by large losses in resources, as well as concerns around Chinese regulatory changes and contagion effects that flowed into the performance of local listings with Chinese exposure.
Global markets provided strong returns for August amidst many market-moving events and news, including significant geopolitical tension from the situation in Afghanistan and continued regulatory intervention in China. While most primary equity indices globally
ended the month higher, the local index was pulled down by resource counters and consumer discretionary stocks, as well as a steep fall in Naspers and Prosus (as concerns around Chinese regulations impacted their tech exposure).
July provided a strong set of returns to local investors in growth assets, except for property, which took a breather amidst companies assessing damages related to the recent unrests in areas of Gauteng and KwaZulu-Natal. Offshore markets, both bonds and equities, also mostly reported strong performance, with returns slightly enhanced by the weaker Rand. Global economic headlines are still primarily focussed on inflation and potential tapering, as the global recovery moves ahead. United States (US) growth accelerated to 6.5% quarter-on-quarter and consumer confidence jumped back to pre-pandemic levels, while Europe saw stronger than expected 2% quarterly growth for the second quarter.
Market performance was relatively mixed for June, especially among equity markets, while bond yields ended mostly higher. Apart from a few areas of performance, it seems that the positive economic indicators and factors that have been driving markets were partly overshadowed by higher inflation expectations, general talks and discussions around the tapering of stimulus across various major markets and rising COVID-19 infections across many countries. Locally, equities struggled amidst a sharp div e in gold and platinum pric es that filtered through to the large mining companies as well as to the general resources sectors. The heavy weighted Naspers and Prosus also sold off on the back of concerns regarding value unlock (despite a general run-in global tech shares during the month).
We have firmly entered the end of the first half of 2021
with another busy month that has passed: from inflation
scares, a crypto-crash, conflict in the Middle East and
rising COVID-19 infections driving uncertainty abroad to
local headaches caused by weaker employment statistics,
increased lockdown measures, conflict in the ruling political party and the resurgence of load shedding. Despite this,continued improvement in most countries’ economicdata indicators pushed markets higher, allowing for a relatively generous month of performance. Although most markets added relatively strong returns, emerging markets outperformed with cyclical value counters being thewinners, while the large tech companies suffered losses.
April provided another strong batch of returns as
general positive sentiment, driven by increasing levels of
global stimulus, stronger global growth combined with a weakening United States (US) dollar and strong corporate results supported capital flows into growth assets. Market optimism seemed to rely on the return of normal consumer spending/behaviour as vaccine rollouts and the easing of restrictions gain momentum across most countries, with highly accommodative policies acting as a backstop. This came as the US Federal Reserve, once again, assured the market that they will maintain interest rates at current levels and continue to support the economy.
Global inflation fears resurfaced in February, playing off against optimism around the US stimulus package and continued vaccine rollouts. Locally, we had the State of the Nation address, the annual National Budget speech, our own vaccine roll-out rollercoaster, and lockdown level adjustments, making it an eventful month.
It was a positive start to the year as local assets delivered strong returns, with local equities posting the best start to a year since 2012. The only exception was local property, taking a breather from the relatively strong recovery over the past few months. Global markets were slightly more mixed, with returns being relatively muted compared to those achieved locally. As the rand depreciated slightly throughout the month, local investors received a currency pickup from their offshore investments, with the average global flexible portfolio returning 3.5%.