January 2023 market snapshot

The year started with a number of uncertainties, some old and some new, which could result in different macroeconomic scenarios playing out in South Africa during 2023. Stock markets started the year on a strong footing with gains across global equities. Investor sentiment has been boosted by positive developments including China’s reopening after dropping the zero-Covid policy in late December, a mild winter in Europe and signs of a slowdown in inflation in the US.

Emerging markets

Emerging markets outperformed their developed counterparts. In fixed income markets, bond yields fell. Commodities saw a negative return for the month. Optimism that interest rates may soon peak, with potential benefits for development, was stoked by signs of decreasing inflation in the developed world. Investor sentiment was also lifted by developments in China. These included the economy’s continuous recovery, a reduction in regulatory burdens on the internet industry, increased policy backing for the real estate industry, and better-than-anticipated Q4 GDP growth of 2.9% year-on-year. Over the course of the month, the MSCI Emerging Markets Index outperformed the MSCI World Index.

Global bonds

Global government bond yields fell in January on encouraging news on inflation – particularly out of the US. The month was light on central bank meetings, but the market began anticipating a slower pace of rate hikes by the Federal Open Market Committee (FOMC). The Bank of Canada hiked rates by 25 basis points but signalled a pause in its hiking cycle, while the Bank of Japan made no further adjustments to its yield curve control policy, despite a sharp rise in core inflation.

Headline inflation rates in both the US and the Eurozone continued to ease, driven by retreating energy prices. While there was a modest uptick in month-on-month US core inflation, the general disinflationary trend here is clear. In contrast, core inflation across the Eurozone has remained sticky and is likely to prompt a further hawkish response from the European Central Bank.

SARB rate hike

The South African Reserve Bank hiked interest rates by 25 basis points in January, raising the repo and prime lending rates to 7.25% and 10.75%, respectively. Three members of the Monetary Policy Committee voted for the 25 basis point hike, while two members were in favour of a 50 basis points hike. Reserve Bank Governor Lesetja Kganyago highlighted that load shedding is adding downside risk to the economy in 2023 and consequently reduced growth expectations to 0.3% for 2023, down from 1.0%.

Global stocks remain outperformer over five years

Global stocks, as measured by the MSCI World Index, delivered the highest returns to SA investors over the five years to 31 January 2023 with a return of 14.99% per annum, on average, in rand terms. In comparison, the FTSE/JSE All Share Index (ALSI) returned 9.81% per annum over the same period. SA Bonds delivered 8.07% per year and Cash 5.78%. SA listed property, as measured by the FTSE/JSE SA Listed Property Index (SAPY), is underperforming other asset classes over the long term, contracting 5.48% per annum, on average.

Table 1: Total returns to 31 January 2023

Source: Morningstar | Total returns annualised to 31 January 2023