OIG Monthly Market Review

Local

• Except for nominal bonds, which generated positive returns, all major South African asset classes experienced losses in October.

• Annual headline inflation rose to 5.4% in September, up from the previous month's 4.8%. Despite this increase, there is no strong indication for us or the market to anticipate a further rise in policy rates.

• The South African rand strengthened by 1.5% against the US dollar in October, but it remains down by 8.6% year-to-date.

South African markets faced challenges as the FTSE JSE All Share Index declined by 3.4% for the month. Except for gold counters, the JSE experienced declines across the board, primarily due to industrial metals and resource sectors. The Industrial Index, that consist of industrial stocks, fell by 4.6%, the SA Listed Property Index lost 4.4%, and the Resource Index10, that tracks the 10 largest resources companies ended the month 4.3% lower. The Financial Index, that is the largest listed financial companies, declined by 2.2%.

*Source: Factset

Amid global challenges, the rand strengthened by 1.5% against the US dollar in October but remained down 8.6% year-to-date.

In economic data, September's headline CPI (consumer price index) rose to 5.4% year-on-year due to rising fuel prices and increased costs of meat, fish, fruit, and non-alcoholic beverages. Core inflation stood at 4.5% in September, coming in below the expected 4.7%.

South Africa's 2023 Medium Term Budget Policy Statement (MTBPS) unveiled the nation's challenging fiscal condition. While Finance Minister Enoch Godongwana acknowledged fiscal deterioration, precise correction measures were left for the main budget presentation in February 2024. The focus is on fiscal consolidation through spending cuts and efficiency improvements. South Africa’s public debt/GDP ratio remains relatively low, compared to most of the country’s key trading partners and several emerging market peers.

Encouragingly, bond markets reacted positively to expenditure adjustments, but long-term fiscal sustainability hinges on economic growth reforms.

*Source: Trading Economics

Global

• Geopolitical factors, including Israel-Hamas conflict and US-Sino tensions, created headwinds.

• US 10-year Treasury yield exceeded 5% for the first time since 2007.

• All major global markets and sectors were negative

In October, global markets faced challenges as worries about the economic outlook and rising interest rates dampened investor sentiment. The US 10-year Treasury yield breached 5% for the first time since 2007, while concerns about a potential US government shutdown loomed with a November 17 deadline for a budget agreement. Geopolitically, the Israel-Hamas conflict and US-Sino tensions created additional headwinds, while a gathering of international leaders in Beijing emphasized solidarity between Russia and China.

Market performance saw a third consecutive monthly decline, with the MSCI World down 2.9% for October but still 8.4% positive year-to-date. All major markets and sectors, including bonds registered losses with the Bloomberg Global Bond index down 1.2% for the month. US economic data, contrary to expectations, remained robust, with strong retail sales and GDP growth.

United States

US markets faced challenges as they recorded losses for the third consecutive month. The technology-heavy Nasdaq Composite and the S&P 500 indices entered correction territory, marking a tough month for investors. The Nasdaq fell by 2.8% for October but remained up by a substantial 22.8% year-to-date. The S&P 500 declined by 1.4% for the month and has posted a 9.2% gain year-to-date.

Almost 60% of S&P 500 companies reported their third quarter earnings during October, revealing an aggregate earnings growth of 3% year-on-year, surpassing expectations. However, this positive earnings surprise could not overcome the negative investor sentiment prevailing in the market. Some individual companies managed to shine amid broader concerns, such as Microsoft, which recorded a monthly performance with a gain of 7%, that was driven by the acceleration of its cloud division revenue.

Additionally, Amazon also demonstrated resilience with a 5% increase, due to effective cost control and better-than-expected online retail sales.

Headline inflation, measured by the Consumer Price Index (CPI), remained stable at 3.7% year-on-year, but was slightly higher than expected. Core CPI, excluding food and energy components, decreased to 4.1% from 4.3% in August. September retail sales grew by 0.7%, outpacing August's 0.6% increase and beating market expectations. Core Personal Consumption Expenditure (PCE), the Fed's preferred inflation gauge, eased to 3.7%, its lowest reading since May 2021. The US GDP for the third quarter expanded at a robust 4.9% annualized pace, surpassing the consensus estimate of 4.7% and outperforming the previous quarter's 2.1% growth. US economic expansion continues and is now 41 months in duration.

*Source: Commerce Department (actual); WSJ Survey of economists (October forecasts)

Eurozone

Following a European Union (EU) foreign ministers meeting in Luxembourg, the EU's foreign policy chief, Josep Borrell, acknowledged a 'fundamental consensus' on supporting a humanitarian ceasefire in the Israel-Palestine conflict. Yet, EU member states have not yet achieved unanimous agreement on humanitarian aid. The ongoing Israel-Palestine conflict highlights the inherent constraints on the EU's international diplomacy influence.

The EU's capacity to independently act on foreign relations is limited without unified actions from member states. The present conflict adds to the challenges facing European cohesion, already strained by the Ukraine crisis, populism support, and rising living costs. It is worth noting that social tensions are particularly pronounced in Germany and France, home to the EU's largest Jewish and Muslim communities.

In October, European Union (EU) inflation reached its lowest point in two years, dropping to 2.9%, a significant decrease from the previous month's 4.3%. GDP growth is anticipated to decline in Europe and continue to be weak in the UK.

Emerging Markets

Concerns about China's economic recovery and its property sector continued to affect equity markets. Chinese equity markets experienced monthly losses, with Hong Kong's Hang Seng Index declining by 3.9% and the Shanghai Composite Index falling by 2.9%. China raised its budget deficit for 2023 by at least 1 trillion yuan, approximately 0.8% of GDP, and passing legislation to exceed the 3% GDP budget deficit ceiling, setting it at 3.8%. MSCI Emerging Markets, was negative 3.9% and underperformed developed markets, resulting in a negative 2023 performance of -1.8% year-to-date.

Fund Performance Review | October 2023

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While every care and effort has been taken to ensure the accuracy of the information provided, any information shared in this document does not constitute advice as defined in the Financial Advisory and Intermediary Services Act, 2002. It is your responsibility to get professional advice to accompany you with the information read, that will suit your personal circumstances.