Investment Market Update
MAY 2024
What developments have unfolded in local and global markets throughout the month of May?
KEY NUMBERS
-7.1%
Fall in Oil Price in May
14.0%
Annualized 3-year differential between DM and EM performance
40,000
Level surpassed by the Dow Jones Index
EXCHANGE RATES
EMERGING MARKET CURRENCIES VS THE RAND
EMERGING MARKET CURRENCY INDEX VS RAND/US DOLLAR VS BRICS INDEX
PURCHASING POWER RAND/US DOLLAR
GLOBAL MARKET
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US inflation continues to decline, though at a slower pace than the markets had expected. This has prompted the US Federal Reserve to maintain higher interest rates. In contrast, other central banks, facing different challenges, have begun cutting rates in their respective economies.
Despite the elevated US rates and geopolitical risks, markets have continued to favor the A.I.-driven rally, benefiting mega-cap US tech stocks like NVIDIA and Microsoft. As a result, global equities led returns in this environment.
In China, optimism has slightly increased amid a confidence crisis, while the UK is heating up ahead of the July elections, with the Labour Party leading the Conservatives in the polls. During May, developed market equities outperformed all other asset classes. The EURO STOXX and the FTSE 100 showed solid growth, and the NIKKEI 225 saw a slight rise. US markets were particularly strong, with the Dow Jones Industrial Average surpassing the 40,000 level for the first time, and the S&P 500 and Nasdaq experiencing record-breaking growth driven by the AI rally.
The European Central Bank (ECB) is considering rate cuts at its upcoming June meeting, despite a potential rise in May inflation compared to April. In the US, inflation dropped to 3.6%, but this single data point is not enough for the Federal Reserve to contemplate a rate cut at this stage.
The South African Reserve Bank decided to keep the Repo rate (Repurchase Rate) unchanged at 8.25% at its MPC meeting . The decision was unanimous and in-line with market expectations. The SA Repo rate has been unchanged at 8.25% since May 2023. The MPC highlighting that while the outlook for inflation has improved, inflation expectations remain elevated relative to the mid-point of the inflation target. The Governor highlighted that “the task of achieving our inflation objective is not yet done”.
SMARTIE BOX IN RANDS:
LOCAL MARKETS
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Local South African asset classes remained subdued in May, entering a holding pattern after strong performance leading up to the election. Uncertainty dominated as the ANC lost its 30-year majority.
However, the elections were observed to be free and fair, with a low voter turnout but a peaceful democratic process. Attention now shifts to the coalition phase, with significant interest in which parties will form coalitions at both national and provincial levels. Despite the uncertainty, the cheaper valuations of South African asset classes offer optimism for future returns.
Initially, markets were optimistic, following global trends, but saw a sharp retreat during election week. Bond yields declined by 35 basis points over the month, only to rise again in the two days after the election. South African equities lost over 3.0% in the final week but still ended the month in positive territory. The ANC’s loss of majority vote for the first time in 30 years has left markets cautiously awaiting the outcome and the potential governing coalition.
MOVEMENTS
- The JSE All Share Index gained ground in May (up 1.0%).
- Financials (down 0.1%) inched lower, as Industrials (up 1.7%) and Resources (up 1.0%) jumped higher.
- Small-caps (up 1.9%), Mid-caps (up 1.4%), and Large-caps (up 0.9%) all ended the month in positive territory.
- The S&P SA REIT sector (down 1.2%) fell sharply, while the SA Listed Property sector (up 0.2%) managed to close above the zero line.
- SA Nominal Bonds (up 0.8%) benefited from some positive sentiment, while Inflation Linked Bonds (down 0.8%) ended on the other end of the seesaw as inflation continues to suprise on the downside.
- Developed Market Equities significantly outperformed their Emerging Market peers in US Dollar terms, with the MSCI World Index up 4.5% and the MSCI Emerging Market Index having gained only 0.6%.
- The Rand weakend in May, depreciating against most of the major currencies, apart from the dollar which weakend over the month. Relative to the US Dollar (Rand appreciated 0.0%), the Euro (Rand depreciated 1.5%) and the Pound Sterling (Rand depreciated 1.6%).
- The commodities sector reminded us how volatile it can be, as Gold (up 1.4%) increased, Platinum (up 10.3%) rocketed upwards and Brent Crude (down 7.1%) plummeted.
MONTHLY RETURNS:
