Global Market and Economic Update

Most major global equity markets ended the month with either modest gains or in negative territory, as concerns around the rapid spread of the Covid-19 Delta variant spooked investors. That said, the vaccination drive in developed markets across Europe (particularly in the UK) and the US continued, with between 50-60% of the population in these regions at least partially vaccinated.

The US Federal Reserve (Fed) met during the month and kept interest rates unchanged, however, its 2021 calendar year inflation forecast moved slightly higher. What surprised some market participants was the slightly more hawkish tone from the Fed, as they signalled that there could be two interest rate hikes in 2023, with the first hike expected in Q3 2023 (slightly earlier than the original early 2024 estimate).

The Fed’s preferred measure of inflation, core personal consumption expenditure (PCE) moved higher to a year-on-year figure of 3.4% in May (the highest increase in prices since 1992) from 3.1% in April. The Fed has continued with its rhetoric that these price pressures are driven by supply bottlenecks and the reopening of the economy and are, therefore, transitory.

South African Market Update

South African equities ended the month lower for the first time in eight months (since October 2020), as disappointing performance from resource counters (gold counters in particular) weighed on the performance of the local equity index.

Local bonds ended the month higher, despite foreign selling (foreigners sold R14.2 billion of SA bonds in June) and a weaker rand acting as a headwind to the performance of the asset class.

Local listed property delivered strong performance for the month, despite giving up some gains towards the end of June on the back of concerns around further Covid related restrictions.

The rand reversed some of its recent impressive run, ending the month weaker against most major currencies as hawkish comments from the Fed proved supportive of the performance of the US dollar.

South African Economic Update

South African President Cyril Ramaphosa announced that the country will move to an amended level 4 lockdown (effective from the 28^th of June) which includes restrictions on alcohol sales, prohibiting indoor and outdoor gatherings and an extension of the overnight curfew. The harder lockdown measures come on the back of a surge in Covid-19 infections across the country as a result of the highly contagious Delta variant.

SA headline CPI moved significantly higher to a year-on-year figure of 5.2% for May (from 4.4% in April), as the base effects of higher fuel and food prices filtered through to the inflation print.

SA’s trade balance came in at a surplus for May (R55 billion), following a revised surplus for April of R51 billion, as exports increased 1.5% month on month and imports retreated slightly.

Chart of the month: There continues to be a significant disparity between the speed of the vaccine rollout in advanced economies versus those in emerging economies (particularly those in sub Saharan Africa).   

See below for a summary of the key market movements for the month of June:

• The JSE All Share Index (-2.4%) ended lower for the month, as a stronger US dollar acted as a headwind to the performance of major commodity counters.
• Local equity sectors had mixed performance for the month, with Industrials (+0.4%) outperforming both Financials (-3.0%) and Resources (-6.4%).
• Listed property (+3.4%) had a strong month, as positive performance from large index constituents including Growthpoint (+3.1%) and Redefine (+3.4%) acted as a tailwind for the performance of the local property index.
• Local bonds (+1.1%) ended the month higher, as the nominal yield curve continued to flatten during the month in reaction to the market pricing in expectations of future interest rate hikes.
• Cash delivered a stable return of +0.3% for the month.
• Most major developed equity markets struggled to generate positive returns for the month, as concerns around the spread of the Delta Covid-19 variant weighed on sentiment. The MSCI World Index still managed to eke out a positive return, delivering performance of +1.5% for the month.
• Emerging market equities underperformed developed market equities slightly over the month, despite managing to deliver positive performance. The MSCI Emerging Markets Index delivered a return of +0.2% for the month.
• Most major equity markets ended the month lower, with Japan’s Nikkei 225 (-1.5%), China’s Shanghai SE Composite (-2.2%), Germany’s FSE DAX (-2.3%) and the UK’s FTSE 100 (-2.4%) all ending the month in the red.
• US equities bucked the global trend, ending the month higher, largely on the back of strong performance from technology counters. The technology heavy NASDAQ 100 (+6.4%) was the standout, however, the S&P 500 (+2.3%) also delivered decent performance.
• From a commodity perspective, most major commodities ended the month lower, as the stronger US dollar acted as headwind to the performance of commodity prices. Gold (-7.2%) and Platinum (-9.5%) both ended the month lower, the former weighed down by concerns around global inflation. Oil (+8.4%) bucked the weaker commodity price trend, ending the month higher, as demand for brent crude continued to pick up following the easing of lockdown measures in most countries.
• The rand was weaker against most major developed market currencies for the month. The rand depreciated against the US dollar (-3.9%), the euro (-0.9%) and the pound sterling (-1.1%) over the month.

*All data is sourced from Morningstar Direct as at 30/06/2021. The performance of South African asset classes is quoted in rands and the performance of global asset classes is quoted in US dollars.