Markets In Focus: August market snapshot

August began with the surprise decision by Fitch Ratings to downgrade the US government’s credit rating to AA+ from AAA, triggering a market sell-off. But as blue chip earnings in the US came in above expectations, big tech counters in particular showed resilience, defying doomsayers that have predicted that these shares are overvalued and due for a correction. Global energy shares benefited from a firming of the oil price. The MSCI World Index dropped 2.3% for the month in dollars but was still up 16.6% for the year to date.

Weakness in the Chinese economy hung over resource-heavy emerging markets like SA, and was reflected in the 6.2% fall in the MSCI Emerging Market Index in August (in dollars). Declines in the share prices of platinum group miners due to operational difficulties were the biggest contributor to the 4.55% drop (in rands) in the JSE’s all-share index, but there were also falls in Naspers and Prosus, as their Chinese investment, Tencent, weakened in Hong Kong. As the dollar maintained its strength, all major currencies weakened, but the rand was one of the worst hit with a 5.4% decline, bringing its depreciation in the year to date to 9.6%.

Bond yields rose on fears of further global interest rate hikes. SA 10-year government bonds were 11.7% at month end. The US 10-year bond was at 4.1% by month end, reflecting the reiteration by the US Federal Reserve that there was still a possibility of further rate hikes.

SA’s inflation rate surprised on the downside, coming in at 4.7% for July, its lowest level in two years. The Quarterly Labour Force Survey showed SA’s official unemployment rate declined by 0.3% to 32.6% in Q2 2023. In China, retail sales disappointed and imports and exports declined. CPI contracted for the first time in two years, raising concerns of deflation. The People’s Bank of China provided support by lowering the short-term interest rate, but investors had hoped for stronger stimulus for the economy.

The highest returns for South African investors have continued to come from global stocks. In rand terms, an investor would have earned 14.03% from a five-year investment in the MSCI World Index, vs an 8.93% return from the ALSI. South African property, as reflected by the SAPY index, is trailing with a -3.25% decline over five years.

Table 1: Total returns to 31 August 2023

Source: Morningstar | Total returns annualised to 31 August 2023