Global Market and Economic Update

Global markets experienced a volatile August and ended the month lower. Investors turned their focus to the hawkish comments received from the US Federal Reserve’s Jerome Powell at the Jackson Hole Economic Symposium. Concerns surrounding higher interest rates for longer to tame inflation exacerbated worries about possible recessions and a slower growth environment. This led to a period of risk-off sentiment, leading global markets lower, particularly towards the second half of August. Many global equity markets erased the strong gains recorded at the beginning of the month.

Global inflation prints continue to remain elevated. The annual inflation rate in the US slowed to 8.5% (year-on-year to the end of July), which was below market consensus of 8.7%. Whilst in the UK, inflation increased to 10.1% (year-on-year to the end of July), ahead of market expectations and the highest reading since 1982. The annual inflation rate in the EU increased to 9.1% in July of 2022, which is a new record high and continues to be driven primarily by energy costs, which have risen by 38.3% over the past year.

During its August meeting, the Bank of England raised interest rates by 0.5% to combat persistently high inflation. This is the sixth consecutive, and most significant rate hike since 1995. In an opposite pattern, the People’s Bank of China lowered its key loan prime rates to revive borrowing demand and combat the continued economic pressures posed by the prevailing COVID-19 lockdowns in China. The 1-year loan prime rate (LPR) was lowered by 0.05% to 3.65% (to a record low), whereas the 5-year LPR was lowered by 0.15% to 4.3%.

South African Market Update

Most South African asset classes followed their global peers lower in August, as markets reversed the early month gains to post a negative return.

South African equities ended August in the red, with all sectors posting negative returns. Resources were the biggest laggard, on the back of weaker commodity prices as a result of slowing global growth. Financials also trended lower, as insurers came under pressure due to the Competition Commission raid on their offices for suspected collusion. Industrials were more resilient and produced a respectable (albeit negative) return given the more significant decline in equity markets.

Local bonds ended the month higher and fared better than developed markets peers. The yield curve shifted higher by the end of August, driven largely by the selloff in 10yr US treasuries, a strong US dollar, and the global risk off environment.

Property had a tough month as inflation and bond yields moved higher. Listed property was the worst performing asset class for the month of August. Large index constituents including Redefine and Fortress fell significantly over the month.

South African Economic Update

South Africa’s SACCI business confidence index rose to 110.3 last month (year-over-year to the end of July). It was the highest reading since March, helped by increased trade volumes and new vehicle sales. Despite the improvement in business confidence, price pressures and a volatile rand exchange rate, together with higher interest rates continued to weigh on the local business environment.

The local inflation rate increased to an over 13-year high of 7.8% (year-on-year to the end of July), above market expectations of 7.7% and the upper limit of the South African Reserve Bank’s target range of 3%-6%. Transport prices, mainly comprised of fuels, continued to be the main driver of local inflation.

South Africa’s unemployment rate fell to 33.9% in Q2 of 2022, below the record high of 35.3% set in Q4 of 2021. The expanded definition of unemployment (which includes members of the public who are no longer seeking employment) was at 44.1%, down from 45.5% in the first quarter. The youth unemployment rate, measuring jobseekers between 15 and 24 years old, fell to 61.4% in the second quarter of 2022, the lowest in almost two years.

Chart of the month: Given the movements in fixed income markets globally, more than 50% of fixed income indices are now yielding more than 4% – the last time this occurred was more than a decade ago.

Source: BlackRock

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

• The JSE All Share Index (-1.8%) ended the month lower, after rising sharply in July.
• The SA Equity sell off was relatively broad based with Resources (-3.8%) and Financials (-1.9%) coming under pressure over the month. Industrials (-0.4%) also ended the month in negative territory. Kumba Iron Ore (-18.7%), Harmony Gold (-18.4%) and Sappi (-16.8%) led the declines in the ALSI Top 60.
• Listed property (-5.4%) ended the month considerably lower. The decline was broad based, but index heavy weights Redefine (-6.9%) and Growthpoint (-6.0%) led the decline in the listed property space over the month.
• Local bonds (+0.3%) ended the month higher, despite the yield curve shifting up, as bond prices sold off during the second half of the month.
• Cash delivered a positive return of +0.5% in August, ending the month as the best performing local asset class. 
• Most of the major developed equity markets ended the month in negative territory after a rebound in July. The MSCI World Index delivered a return of -4.1% in August, lagging its emerging market peers.
• Emerging market equities outperformed developed market equities.  The MSCI Emerging Markets Index ended the month up +0.5%.
• Most of the major global equity markets fell strongly after the July rebound and ended the month of August in negative territory. The UK’s FTSE 100 (-5.4%), Germany’s FSE DAX (-6.1%) and Japan’s Nikkei 225 (-2.5%) all delivered negative performance for the month. China’s Shanghai SE Composite (-3.8%) continued to come under pressure in August.
• US equities had a volatile month. After rising strongly in the first half of August, the US equity market ended significantly down as of the end of August. The S&P 500 (-4.1%) fell sharply along with the technology-heavy NASDAQ 100 (-5.1%).
• In terms of the major commodities, Oil (-12.3%), Platinum (-5.0%) and Gold (-2.1%) all ended the month lower.
• The rand performance was mixed for the month against most of the major crosses. The currency lost ground against the US dollar (-2.3%) and the euro (-0.9%) but gained against the pound sterling (+2.2%).