February 2022 market review

Locally, the biggest event in February was Minister Godongwana’s Main Budget speech on the 23^rd, which contained some good news in the form of larger revenue collection than projected. The windfall will, among other things, be used  to extend the social safety net for the poor and to address the country’s rising debt. The income tax brackets were adjusted by 4.5%, leaving investors with more after-tax money from 1 March. Other good news was the increase in the allowable foreign exposure that retirement funds may hold to 45%, with immediate effect.

Internationally, the most important news was the invasion of Ukraine by Russia. Other than the devastating effects of war on both countries, global inflation risk has just escalated. During February, even before the invasion, US consumer inflation printed at 7.5% and German PPI for January soared 25% as energy costs spiralled. Ukraine and Russia are key suppliers of commodities, including titanium, palladium, wheat, and corn. Disruptions to the supply chain of these commodities would increase food prices globally, as well as the prices of cars and smartphones. Secondly, we can expect the cost of energy to rise due to Russia being one of the world’s largest oil producers and energy exporters.

Resources the biggest winner in February

SA resources companies benefited from the increase in metal prices and the Basic Materials sector delivered 15.97% in February. The local equity market stood its ground – mainly because of the strong performance of our Resources companies – and the FTSE/JSE All Share Index (ALSI) added 2.95% in total returns for the month. The local listed property index (SAPY) gave a return of -3.26%. SA bonds (ALBI) gained 0.54% during the month and cash (STeFI) returned 0.32%. The MSCI World index (developed market global equity) lost 2.64% in rand terms for the month.

Over the past 12 months Value has made a strong comeback

Over the past 12 months, all major market indices delivered good returns. Property was the best performing main asset class at 22.43%, followed by the ALSI at 20.47%. Among the stocks listed on the ALSI, Value-style stocks have made a strong comeback at 44.27% over the past year compared to the 4.43% of Growth stocks. The ALBI returned 9.02% for the year, and cash gave 3.89%. The rand weakened 2.02% against the US dollar and strengthened 5.59% against the euro. Looking towards international markets, the MSCI World Index gave South African investors 12.98% in rand terms over the past 12 months.

Despite a poor 2022, world stocks best performers over 5 years

Despite more than a 10% decline over the first two months of 2022, over the past five years to February 2022, world stocks as measured by the MSCI World Index returned 15.84% p.a. on average.   In comparison, the ALSI returned 11.98% per year. SA bonds gave 8.91% per year and cash 6.13%. Listed SA property (the SAPY) is underperforming other asset classes significantly at -5.77% per year, on average.

Table 1: Total returns to 28 February 2022

Source: Morningstar | Total returns annualised to 28 February 2022