Investment Market Update
JULY 2024
What developments have unfolded in local and global markets throughout the month of July?
KEY NUMBERS
127 Days
Consecutively without loadshedding
Paris is the 30th
Summer Olympics Event (1916, 1940, 1944 were cancelled)
0.25%
Rate hike from the Bank of Japan
EXCHANGE RATES
EMERGING MARKET CURRENCIES VS THE RAND
US DOLLAR VS THE RAND
EMERGING MARKET EXCHANGE RATE VS USD
GLOBAL MARKET
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Developed market equities generally performed well in July, with most major indices closing in positive territory, except for the Nasdaq, which was weighed down by underwhelming earnings in the US tech sector.
Central banks began to ease their stance on interest rates, which provided support for markets. UK stocks rallied, driven by the positive market reaction to the Labour party’s general election victory. In contrast, US stocks experienced a slight dip due to disappointing results from large tech companies, although smaller US firms showed strength, supported by the prospect of future rate cuts.
Real assets, including property and infrastructure, delivered strong returns as they are seen as stable investments that benefit from lower interest rates, which reduce borrowing costs and enhance asset values.
The possibility of rate cuts by central banks also had a positive impact on global bonds, which outperformed equities in US dollar terms. However, emerging markets lagged behind, particularly as China’s GDP figures came in below expectations due to weak domestic demand and increased offshore tariffs. In response, the People’s Bank of China announced a rate cut to help stimulate the struggling economy.
US President Joe Biden’s decision to withdraw from the presidential race highlighted the fluidity of US politics ahead of the upcoming elections and points to possible volatility for the US dollar. The market is currently assuming the first rate cut in September. Euro Area interest rates are currently 3.75% and the ECB remain cautious, although the start of the rate cutting cycle in the US would likely encourage the ECB to continue ease monetary policy. The GBP remains the more expensive developed market currency to buy, albeit slightly less expensive than last week.
SMARTIE BOX IN RANDS:
LOCAL MARKETS
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South Africa enjoyed another strong month of gains, outperforming both emerging and developed markets across all asset classes. Bonds continued to rally as political risks that had been priced in failed to materialize, leading to foreign investors purchasing R19.7 billion worth of South African debt instruments in July.
The stability of the Government of National Unity has bolstered investor confidence, further supporting local equities, with all three major sectors posting gains. Financials benefited from the increased likelihood of rate cuts, while resources were boosted by a rise in gold prices.
At its July meeting, the Monetary Policy Committee (MPC) opted to keep the repo rate steady at 8.25%. The decision was not unanimous, however, as two of the six members voted for a 25bps cut, signaling that the start of a rate-cutting cycle could be on the horizon sooner than anticipated. Market expectations now point to a potential 25bps cut in September, as inflation gradually moves closer to the central bank’s midpoint target.
MOVEMENTS
- The JSE All Share Index closed higher (up 3.9%) for its fifth consecutive month, starting the second half of the year on the right foot.
- Financials (up 5.4%) , Industrials (up 2.0%) and Resources (up 5.5%) all contributed positively to the broader bourse.
- Small-caps (up 5.4%) and Mid-caps (up 5.1%) rocketed higher, and Large-caps (up 3.7%) followed close behind.
- The S&P SA REIT sector (up 3.9%) and the SA Listed Property sector (up 4.4%) each gained, as local growth-on continued.
- SA Nominal Bonds (up 4.0%) strengthened, and Inflation Linked Bonds (up 1.6%) inched higher.
- Developed Market Equities trounced their Emerging Market peers in US Dollar terms, with the MSCI World Index up 1.8% and the MSCI Emerging Market Index closing slightly over the zero line,up 0.4%.
- The Rand had a mixed month, as sentiment towards South Africa remained positive, the dollar weakened and the pound gained ground. Relative to the US Dollar (Rand appreciated 0.4%), the Euro (Rand depreciated 0.6%) and the Pound Sterling (Rand depreciated 1.2%).
- Commodities were another mixed basket in July. Gold (up 4.2%) rose higher, awhile Platinum (down 2.0%) dropped, and Brent Crude (down 6.6%) sold off.
MONTHLY RETURNS:
