Global equity markets continued to struggle in February as market jitters around US inflation continued to drag markets lower in the first two weeks of February. As concerns of Russia invading Ukraine became a reality in the third week of February, markets moved into a sharp risk-off trade. This meant that money flowed out of emerging markets (EM), anything Russian or linked to Russia and into perceived safe-haven assets such as US treasuries and gold. This drove bond yields lower towards the end of the month and led to EM currencies weakening. Despite the recovery in developed market bonds towards the end of the month, global bonds ended the month lower. There was little room to hide in global markets in February however the two areas of the market that weathered the storm were global energy and materials.

An interesting beneficiary of the Russia/Ukraine crisis has been mining companies and thereby also S.A. equities due to our resource counters. These returns are being driven by three main factors:

1. US inflation and rising interest rates are supportive of commodity prices
2. Supply concerns (namely platinum and oil) due to Russian sanctions
3. The risk-off environment is supportive of gold

South African Market Update

• SA equities bucked the trend posting a solid positive return in February. While resources continue to be the driver of these returns, Naspers and Prosus struggled. Naspers fell by a further 21% in February bringing the 12-month share price decline to 45%. This is roughly a 60% differential in performance between Naspers and the JSE All Share Index over the last 12 months. The SWIX Index posted a return of 1.93% for February, bringing the 12-month return to 14.95%.
• SA Government Bonds ended the month in positive territory bringing the 12-month return to 9.1%. While it certainly wasn’t a smooth ride, investors were compensated for holding sovereign debt over cash.
• SA Listed property continued its decline from January with the index falling 2.9% in February and bringing the year-to-date price decline in this sector to 5.7%. It is worth highlighting that the sector has still returned 22.4% to investors over the past 12 months despite the shorter-term price decline. This negative return was the result of inflation fears, an increase in the repo rate of 25bps and possibly the sector retreating after running very hard last year.
• The rand was surprisingly resilient for most of February with local commentators referring to it as the “Swiss Rand”. With this being said, we also witnessed the currency weaken slightly towards the end of the month – depreciating by 0.11% to end the month at R15.45/USD$1.
• The majority of developed equity markets ended the month lower as the Russian invasion caused investors to panic and markets to fall sharply. The MSCI World Index fell by 2.5% for the month bringing the year-to-date decline to 7.7%.  

Emerging markets fell in line with developed markets with Russia being the main detractor – falling over 30% for the month. The MSCI Emerging Markets Index declined by 2.99% during February bringing the year-to-date fall to 4.8%.

Most of the major equity markets ended the month in negative territory – the S&P 500 (-3%), Euro STOXX (-4.3%) and Japan’s Nikkei 225 (-1.7%) all delivered negative performance for the month, while China’s Shanghai SSE Composite (+3,98%) ended the month higher and the UK’s FTSE 100 (+0.2%) being largely flat for the month.

South African Economic Update

The good news from our positive Budget speech was quickly overshadowed by global troubles. However it is worth noting certain key points as highlighted in our Budget 2022 overview – 

• Tax revenue for 2021/22 is estimated to be R1.55 trillion, exceeding the original budget estimate by about R182 billion.
• Higher income levels have been primarily driven by the resources sector due to increases in commodity prices.
• The budget saw higher revenue from other sectors and other tax instruments, such as personal income tax, value-added tax followed by corporate income tax.
• The Corporate Income Tax (CIT) rate will be reduced from 28% to 27%, for companies with years of assessment ending on or after 31 March 2023.
• Personal income tax brackets and rebates will be adjusted by 4.5%, in line with inflation. The adjustments will mean that the annual tax-free threshold for a person under the age of 65, will increase from R87 300 to R91 250.
• Foreign allowance for Regulation 28 portfolios was increased from 30% to 45%.

Given the endless stream of hardships that South Africans have had to face since the outbreak of Covid-19 and its devastating aftermath, the 2022 budget was expected to be consumer-orientated, and it delivered on expectation.

*All data is sourced from Morningstar Direct as at 28/02/2022. The performance of South African asset classes is quoted in rands and the performance of global asset classes is quoted in US dollars.

Chart of the month – $250bn wiped out as Russian stock market collapses

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

• The JSE All Share Index (+2.95%) ended the month higher, outperforming other major global equity indices.    
• Local equity sectors were led by strong performance from Resources (+16.08%) and Financials (+3.77%), while Industrials (-7,43%) ended the month lower.  
• Listed property (-3.26%) ended the month in negative territory as global sentiment weighed on returns.         
• Local bonds (+0.54%) ended the month higher. The asset class was offering yields above the middle of the inflation target, which helped to keep performance positive.
• Cash delivered a stable return of +0.32% for the month.
• Most of the major developed equity markets ended the month in negative territory, amid concerns of persistently elevated inflation and potentially higher interest rates as well as the Russian invasion of Ukraine. The MSCI World Index delivered a return of -2.5% for the month.  
• Emerging market equities underperformed developed market equities. The MSCI Emerging Markets Index delivered a return of -2.98% for the month.
• Germany’s FSE DAX (-6,35%) and Japan’s Nikkei 225 (-1.67%) ended the month in negative territory while China’s Shanghai SSE Composite (+3,89%) and the UK’s FTSE 100 (+0.32%) delivered positive performance.
• US equities also delivered negative performance, with the technology-heavy NASDAQ 100 (-4.54%) ending the month in deeper negative territory than the S&P 500 (-2.99%). The YTD performance from the NASDAQ 100 now at (-12,65%)      
• In terms of the major commodities, Oil (+10,7%) had another strong month, as the combination of geopolitical tensions and rising demand for Brent Crude drove the price higher. Platinum (+4.01%) also ended the Gold (+6,38%) and Copper (+3,70%) also ended the month higher.