OIG Monthly Market Review

Local

• The FTSE JSE All Share Index in South Africa experienced a 3.4% drop in September, contributing to a year-to-date decrease of 0.9%.

• Inflation, though slowly decreasing, had a minor bump in August, with both core and headline inflation up by 0.1%, reaching a 4.8% year-on-year rate. However, the South African Reserve Bank kept the repo rate steady at 8.25%.

• South Africa faces a major fiscal challenge, highlighted by a record monthly budget deficit of R143.8 billion in July.

Across the Johannesburg Stock Exchange (JSE), it was a challenging month, with losses in key sectors. The Industrial Sector declined by 5.0% for the month, while still holding a year-to-date gain of 8.9%. Similarly, the Financial Sector dropped by 5.0%, with a year-to-date increase of 3.9%. On the other hand, the Resources Sector experienced a minor dip of 0.1% for the month but faced a substantial year-to-date decline of 18.7%

Taking a closer look at the largest companies by market capitalization on the JSE, BHP Group, the largest company, saw a 1.0% decline in September. The second-largest share, Anheuser-Busch InBev, experienced a 3.2% drop. Prosus, the third-largest listed company, faced a significant 7.3% decrease, while Naspers lost 6.0%, and Richemont fell by 13.2% month-over-month. However, Glencore bucked the trend with a 7.6% gain, and Anglo-American Plc showed a 3.6% increase.

The South African rand retreated by 0.2% against the US dollar in September, bringing the year-to-date depreciation to 11.1%.

Inflation has been gradually decreasing over recent months, moving closer to the midpoint within the South African Reserve Bank's target range. However, in the latest data for August, both core and headline inflation increased by 0.1%, reaching a year-on-year rate of 4.8%. Despite this uptick, the South African Reserve Bank decided to keep the repo rate unchanged at 8.25% during its September meeting.

South Africa is facing significant fiscal challenges, with the budget deficit reaching a record monthly high of R143.8 billion in July. In response, the government has announced stringent cost-cutting measures to address this issue. These measures include a freeze on new public service jobs, a halt on procurement contracts for infrastructure projects, and keeping public servant salary increases in check. While these steps are intended to stabilize the budget, they may have adverse effects on the economy.

South African private sector credit growth continued to slow down, with both corporate and consumer credit showing moderation. Notably, mortgage lending growth remained sluggish, primarily due to the persistence of high interest rates.

Global

• Markets encountered a second successive month of downturns, with the MSCI World Index declining by 4.3%

• The S&P and Nasdaq indices faced declines during September, marking their most challenging month since December 2022, resulting in losses for both the month and the third quarter.

• The European Central Bank (ECB) increased interest rates by 0.25%, meanwhile, the Bank of England's (BoE) & the US Fed kept its policy rate steady.

In September, major global markets experienced a second consecutive month of declines. The MSCI World Index, for instance, dropped by 4.3% month-over-month but remained up by 11.6% year-to-date. The financial markets faced increased pressure with oil prices reaching a 10-month high. This rise in oil prices raised concerns about the potential impact on economic growth. The Organisation for Economic Co-operation and Development (OECD) raised its global growth forecast for the year from 2.7% to 3.0%, as highlighted in its Economic Outlook report. However, the report also predicted a slowdown in the global economy in 2024 due to rising interest rates and disappointing growth in China.

Developed market central banks appeared poised for a prolonged period of higher interest rates, which the Bank of England's chief economist Huw Pill, referred to as the "Table Mountain" scenario, signifying a prolonged period of elevated rates. This shift in outlook led to an increase in bond yields and further pressure on financial markets.

Source: Sygnia| Bloomberg, October 2023

The Group of 20 (G20), formerly consisting of 19 countries and the European Union, made a historic decision during its 2023 summit in India. They granted permanent membership to the African Union (AU), which represents 55 member states on the African continent. This move means that the African Union (AU), now holds an equal status with the European Union within the G20. Prior to this development, South Africa was the sole African country with a seat in the G20.

The G20 Summit 2023 saw little agreement on key agenda items beyond climate change. Participants did commit to tripling global renewable energy capacity by 2030 and allocating $4 trillion annually to support the shift to green energy. However, there was a lack of consensus on other issues, largely due to growing geopolitical risks.

September saw significant developments in the technology industry. Apple, the largest company in the MSCI World index, introduced the iPhone 15. However, China made headlines with the launch of the Huawei Mate 60 Pro, boasting faster download speeds than the iPhone. Additionally, there were reports that Chinese government employees might be restricted from using iPhones due to security concerns, causing a substantial drop in Apple's market capitalization. Google faced an anti-trust trial in Washington DC, accused of maintaining an illegal monopoly in the online search business. Amazon also encountered legal challenges from the US Federal Trade Commission, accused of monopolizing the online marketplace. Throughout the month, tech stocks faced pressure primarily due to the rising yields of US bonds.

US

Concerns about a potential US government shutdown weighed on the markets, but a last-minute spending bill passed by the Senate averted this crisis, ensuring the government remains open for another 45 days.

During its September meeting, the US Federal Reserve (Fed) chose to keep interest rates unchanged at 5.5%, marking only the second meeting since March 2022 without a rate hike. In terms of economic data, August's Consumer Price Index (CPI) showed a year-over-year increase of 3.7%, rebounding from July's 3.2%. The core CPI, which excludes food and energy, stood at 4.3% year-over-year compared to 4.7% in July.

US markets experienced losses for the month and for the third quarter, both the S&P and Nasdaq had their most challenging month since December 2022. The Nasdaq Composite Index, primarily composed of tech stocks, saw a 5.8% monthly decline while remaining up by 26.3% year-to-date, with a 4.1% loss for the quarter. The S&P 500, fell by 4.9% month-over-month but maintained an 11.7% year-to-date gain, with a 3.6% loss for the quarter. The Equal Weight S&P 500, which gives equal importance to each stock, is now at a standstill for the year. These losses gained momentum following the Federal Open Market Committee (FOMC) meeting, which led to the tightening of financial conditions, marking the most significant tightening this year. Several factors contributed to this market turbulence. Firstly, rising oil prices, coupled with increasing yields, added to investors' concerns.

The US Conference Board's consumer confidence estimate dropped to 103, falling below the market's anticipated level of 105.5 and significantly lower than August's revised figure of 108.7. This decline was primarily driven by a sharp drop in the survey's expectations component, which decreased by 9.6 points to 73.7. Notably, there was an increase in the percentage of respondents who believed that a recession was "somewhat" or "very likely" soon.

United Kingdom

In contrast to other global markets, the UK's leading index, the FTSE-100, recorded a 2.3% month-over-month increase, up by 2.1% year-to-date and posting a 1.0% gain for the third quarter of 2023.

At the Bank of England's (BoE) September meeting, the policy rate remained steady at 5.2%. This decision marked the first time since November 2021 that they chose not to raise borrowing costs. It came as August's UK inflation rate eased to 6.7% year-over-year, down from July's 6.8%.

Eurozone

The German DAX index saw a decline of 3.5% month-over-month, while it remained up by 10.5% year-to-date, with a 4.7% loss for the third quarter of 2023. France's CAC Index closed the month with a 2.5% decline but maintained a 10.2% year-to-date gain, with a 3.6% loss for the quarter.

In terms of economic data, eurozone inflation eased slightly to 5.2% in August, down from July's 5.3%, with core inflation (excluding food and fuel) at 5.3% compared to 5.5% in July.

The European Central Bank (ECB) raised interest rates for the tenth consecutive time last month, increasing rates by 0.25% to 4.5%.

Emerging Markets

In September, overseas investors continued to offload Chinese equities, especially those in financial and personal consumption-related sectors. This trend persisted due to ongoing concerns about China's macroeconomic outlook and real estate challenges, which dampened market sentiment.

Emerging market (EM) stocks had a stronger performance compared to developed market (DM) stocks in September, with the MSCI EM index declining by 2.5%. Hong Kong's Hang Seng Index declined by 3.1% in September, bringing its year-to-date (YTD) performance to a 10.0% decrease and its third quarter (3Q23) performance to a 5.9% drop. Meanwhile, the Shanghai Composite Index retreated by 0.3%, resulting in a YTD gain of 0.7% but a 2.9% decline in 3Q23.

Conclusion In September, markets worldwide faced a challenging landscape, with most experiencing declines. South Africa's markets mirrored this trend, contributing to a challenging economic scenario.

The world economy stands at a critical juncture. On one hand, there are some positive signs in global manufacturing, indicating that businesses are starting to invest again, and demand is on the rise. On the other hand, there are significant challenges. The US might slow down due to higher interest rates and reduced consumer savings. China is grappling with deflation, and the Ukraine conflict is disrupting supply chains and causing energy prices to rise. Given this complex situation, these factors call for a cautious approach to investments in the current global economic climate.

A more optimistic outlook would depend on global interest rate cuts, de-escalation of the Ukraine conflict, or strong stimulus from China. However, supply disruptions could lead to higher oil prices and worsen the situation.

Despite all these challenges, OIG is still finding significant opportunities for investors. Active management combined with diversification between asset classes and regions can generate solid returns outperforming inflation and meeting clients expectations.

FUND PERFORMANCE REVIEW | SEPTEMBER 2023