Markets In Focus: February 2023 market snapshot

Economic data released during the month indicated that any anticipated slowdown in interest rate increases might still be some time away. The US Federal Reserve (the Fed), Bank of England (BoE) and the European Central Bank (ECB) all raised rates in February. Closer to home, South Africa’s annual inflation rate slightly decreased to 6.9% in January 2023, from 7.2% in December, but still above the upper limit of the South African Reserve Bank’s target range of 3-6%. Consumer inflation hit 7.8% in July 2022, its highest level in 13 years, largely due to the war in Ukraine, before subsiding to 7.2% in December. February also saw South Africa being grey listed by the Financial Action Task Force.

Emerging markets

Compared to their developed counterparts, emerging markets underperformed, with the MSCI Emerging Markets Index losing 6.5% compared to the MSCI World Index’s -2.5% decline. The geopolitical tensions between the US and China are, in part, the reason behind China’s underperformance. While the banking industry rebounded from its sell-off in January, the UAE delivered positive returns. Currency weakness helped Turkey’s market performance, despite the fatal earthquake the country experienced earlier in the month.

Interest rate hikes

Markets are anticipating a slowdown in interest rate hikes as recessionary risks mount, yet it is anticipated that several central banks in developed markets will continue raising interest rates until the first half of 2023.

The Fed hiked rates by 25bps at the beginning of the month. The BoE hiked rates by 50bps — the Monetary Policy Committee voted 7-2 in favour of a rate hike, bringing the main bank rate to 4%. It indicated in its decision statement that smaller hikes and an eventual end to the hiking cycle may be in the cards in the coming meetings. The ECB hiked rates by 50bps, taking its key rate to 2.5%, and signalled an additional 50bps at their March meeting.

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 28 February 2023, with a return of 16.75% per annum, on average, in rand terms. In comparison, the FTSE/JSE All Share Index (ALSI) returned 9.76% per annum over the same period. SA Bonds delivered 4.93% per year and Cash 5.70%. SA Listed Property, as measured by the FTSE/JSE SA Listed Property Index (SAPY), is underperforming other asset classes over the long term, contracting 3.62% per annum, on average.

Table 1: Total returns to 28 February 2023

Source: Morningstar | Total returns annualised to 28 February 2023