Markets In Focus: March market snapshot

The month of March was volatile, largely due to a drop in confidence in the banking sector that frightened investors. Concerns around the impact of higher interest rates on balance sheets have been at the forefront of the sell-off in markets during the month, specifically following the failure of Silicon Valley Bank (SVB), America’s 16th largest bank, on 10 March and Signature Bank on 12 March. The downfall of SVB is the largest failure of a financial institution since the global financial crisis in 2008.

Rising interest rates

The Fed hiked rates by 25bps, the ninth-straight interest rate hike of 25bps, making the benchmark rate the highest it’s been since 2007. The bank’s mission in fighting inflation became more challenging over the past few weeks as the collapse of several banks meant the Fed had to balance a potential financial crisis alongside high inflation and a tight labour market. In a statement released at the conclusion of the meeting, Fed officials acknowledged that recent financial market turmoil is weighing heavily on inflation and the economy, though they expressed confidence in the overall system.

South African Reserve Bank (SARB) Governor Lesetja Kganyago announced an unexpected repo rate hike of 50 basis points (bps) to 7.75%.  The prime rate now stands at 11,25% – the highest level since 2009. Three members of the monetary policy committee voted in favour of the 50bps hike, while two wanted a 25bps increase. This has been the 9^th consecutive increase since November 2021.

Kganyago stated that inflation pressures remain a risk and that load shedding is driving up the cost of living. The bank hiked its forecast for headline inflation to 6%, from 5.4%. The International Monetary Fund (IMF) forecasted a bleak outlook for South Africa, projecting economic growth for 2023 to reach only 0,1% from 1,2%. This is largely due to power outages.

Global stocks remain outperformer over five years

Global stocks, as measured by the MSCI Net World Index, delivered the highest returns to SA investors over the five years to 31 March 2023 with a return of 17.09% per annum, on average, in rand terms. In comparison, the FTSE/JSE All Share Index (ALSI) returned 10.42% per annum over the same period. SA Bonds delivered 6.90% 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 4.10% per annum, on average.

Table 1: Total returns to 31 March 2023

Source: Morningstar | Total returns annualised to 31 March 2023