OIG Monthly Market Review

Local

• Local market had a strong month, FTSE/JSE Capped SWIX Index up 3.8% month-on-month.

• Domestically focused companies, banks, insurers, and retailers, performed well in June.

• Precious metal miners, faced significant declines.

• South Africa's inflation declined for another consecutive month but is still higher than the target of the SARB

In June, the local market in South Africa experienced a strong rally, with the FTSE/JSE Capped SWIX Index gaining 3.8% on a month-on-month basis. This led to a positive return of 3.7% year-to-date. Companies focused on the local economy performed well, particularly banks up 13%, insurers at 11%, general retailers at 13%, and discretionary retailers up 17% for June. However, despite the month’s rally, retailers, who were significantly affected by electricity supply challenges, ended the first half of the year with their share prices down overall.

The South African rand recovered from its 7.3% decline against the US dollar in May and strengthened by 4.7% in June. This rebound was driven by receding concerns of sanctions related to allegations of supplying arms to Russia.

On the other hand, miners, had a negative impact on the local market's performance, declining by 9%.. Platinum miners, in particular, with a 21% MoM decline and a 36% decline year-to-date.

Inflation in South Africa for May showed a second consecutive monthly decrease, with the year-on-year inflation rate at 6.3%. However, inflation remains above the South African Reserve Bank's target of 3% - 6%, leading investors to anticipate a potential interest rate hike in the coming months as the SARB continues its efforts to combat inflation.

South Africa recorded a trade surplus of R10.2 billion in May 2023, well above market estimations of R6 billion. China remained the largest trading partner, followed by Germany and the United States.

South Africa’s economic growth slowed to 0.2% year-on-year in 1Q2023, the weakest pace of expansion since a contraction was recorded in 1Q2021

There was an improved energy availability factor of 56% due to various factors like warmer-than-usual winter weather, increased diesel deliveries, improved generation capacity, and lower electricity demand due to private sector investments in alternative energy.

Global

• Global equity markets rallied strongly in June, MSCI World index up 6.1%

• US markets experienced a positive trend, driven by the resolution of the US government debt default threat and the pause in rate hikes by the Federal Reserve.

• Emerging markets, experienced slower growth compared to developed markets, with Brazil emerging as the best performer among them.

Global equity markets experienced a significant rally, with the MSCI World index gaining 6.1% on a monthly basis and 15.4% year-to-date.

Despite a decline in global energy prices, the ongoing Ukrainian conflict has heightened geopolitical risk. If substantial territorial changes take place and Russia suffers significant losses, there is a possibility of Russia escalating military pressure and reducing commodity exports. The recent limited advancement by the Wagner group towards Moscow has amplified this risk. Although the push was abruptly stopped, it has exposed vulnerabilities in Putin's regime, casting doubt on his invasion of Ukraine and eroding his control over the Russian state.

US

In June, the global markets experienced a positive trend as the threat of a US government debt default was averted and the US Federal Reserve decided to pause its rate hikes. This news boosted equity markets, with mega-cap US-listed technology stocks leading the way. These stocks, profiting from the excitement surrounding artificial intelligence (AI), made significant gains, the NYSE FANG Index, ended the first half of 2023 with a 74% increase. Notably, the share prices of Nvidia, Meta, and Tesla more than doubled year-to-date, with impressive gains also seen from Amazon with a positive 55%, Apple 50%, Microsoft 43%, and Alphabet 36% year-to-date. Apple has made history, becoming the first company with a market value over $3tn.

The S&P 500 experienced its strongest monthly performance since October last year, with a notable increase of 6.5%. Similarly, the Nasdaq Composite also saw a significant rise of 6.6% over the same period. For the first six months of 2023, the Nasdaq has increased by 39.4% - its best first-half performance since 1983.

While the market had anticipated the Fed's decision to pause rate hikes, after ten consecutive increases. Fed Chair Jerome Powell indicated that rate hikes are likely to resume at the next meeting.

During June, the US dollar weakened against most currencies.

UK

In June, the Bank of England surprised the market by implementing a larger-than-expected 50 basis point interest rate hike, marking the 13th consecutive increase and raising rates to 5%. This decision was influenced by recent data indicating a sustained inflationary trend. While headline inflation remained stable at 8.7% in May, core inflation, excluding food, energy, alcohol, and tobacco, reached its peak level since March 1992.

Eurozone

Germany's DAX index showed a positive performance in June, closing 3.1% higher compared to the previous month. Similarly, France's CAC Index ended the month with a gain of 4.2% for June.

EU annual inflation was 7.1% in May compared to April's 8.1%. Germany's June annual inflation rate exceeded expectations, registering 6.8% compared to a consensus forecast of 6.7%.

At its latest meeting, the European Central Bank (ECB) implemented a 0.25% increase in interest rates and also indicated its intention to continue raising rates and has not yet discussed the possibility of reducing rates.

European Commission President Ursula von der Leyen has highlighted the security and economic risks posed by Russia's actions in Ukraine and has called for the European Union (EU) to reduce its dependence on China. However, member states have differing opinions on how to approach relations with China, leading to increased scrutiny of the partnership. The EU is also planning to decrease its reliance on China in critical areas, as outlined in the new European Economic Security Strategy developed in Brussels.

Japan

In June, the Bank of Japan maintained its policy rate at -0.1% and made no changes to its yield curve control program. While economic activity has shown improvement, inflation has decreased. Japanese equities are trading at a significant discount to global peers.

Reforms for corporate governance and shareholder returns have been announced by the Tokyo Stock Exchange, and many Japanese companies are taking steps to narrow their market discounts. Government-led structural reforms aim to enhance Japan's business environment.

Prime Minister Fumio Kishida has presented a mid-year economic policy plan that focuses on addressing the challenges posed by Japan's aging population, with an average age of 48 years old. To tackle this issue, the government has placed emphasis on implementing new childcare measures. However, considering Japan's significant public debt, which exceeds twice the country's output, innovative financing approaches will be necessary.

China

The first quarter of the year saw positive growth; however, certain challenges have arisen since then. China has increased its export share in the Association of Southeast Asian Nations and the Middle East, reducing its reliance on slower-growing regions like the US and Europe. However, the global economic environment has cooled down, which could potentially affect exports. While the real estate market has shown improvement compared to the previous year, the regional recovery remains uneven due to cautious mortgage rate adjustments and strict eligibility criteria for property purchases. Monetary policy has become more supportive through interest rate cuts and reductions in reserve requirements. Additionally, growth will be supported by fiscal measures such as tax deductions.

Emerging Markets (EMs)

In June, emerging markets (EMs) experienced slower growth compared to developed markets (DMs).

Among EMs, Brazil stood out as the best performer in 2023. The local stock market showed strong growth, rising by 16% month-on-month in US dollar terms for June. This performance was supported by the Brazilian real, which remained robust against the US dollar, appreciating by 5.6% month-on-month.

FUND PERFORMANCE REVIEW | JUNE 2023