Markets In Focus: October market snapshot

October saw a continuation of challenging conditions for equities, both domestically and internationally, as investors shied away from risk in an environment of persistently high inflation and interest rates, as well as geopolitical conflict.

Markets expect the strength of the US economy – reflected in the above-expectations 4.9% annual growth rate in third quarter GDP – will persuade the US Federal Reserve to keep interest rates “higher for longer” to restrain inflation. The euro zone economy is clearly slowing, with GDP for Q3 down 0.1% quarter-on-quarter and up 0.1% year-on-year, which was worse than economists had predicted. Still, the European Central Bank chose to maintain, rather than cut interest rates. SA’s inflation rate lifted to 5.4% for September from 4.8% in August, reflecting higher fuel and food prices.

While attention has been fixed on China’s over-indebted property sector, there are positive underlying trends that could indicate that government measures to stimulate the economy are gaining traction. Country Garden, formerly the country’s biggest property developer, announced it was unable to meet its offshore debt payments, despite a 30-day grace period. However, China’s GDP rose by a respectable 4.9% in Q3 year-on-year and consumption and industrial activity data reported for September were stronger than expected.

The outbreak of conflict in the Middle East in early October created fears of broader instability in the region and increased oil prices, which would maintain global inflationary pressures. To date, that has not happened. Brent crude oil rose at the outset of the war, but weakened during the month, ending at around $85/barrel from about $92/bbl in early October.

The MSCI World Index fell 3.378% in rands for the month but is still 18.86% positive for South African investors in the year to date. The FTSE-JSE All-Share Index dropped 3.44% in October and is 1.33% negative for the year to date. Some of the local exchange’s biggest blue-chips were negative for the month, with BHP Group down 2%, Prosus down 5.9% and Naspers down by 3.8%.

One of the worst-performing sectors on the JSE was resources. Although the gold price was stimulated by the outbreak of conflict in the Middle East, rising 7.3% to $1 983.88/oz, the palladium price dropped 10%. The All-Bond Index rose 1.71% and is 3.20% positive for the year to date. The rand strengthened by 0.49% against the dollar and by 0.66% against the euro in this period.

Table 1: Total returns to 31 October 2023

Source: Morningstar | Total returns annualised to 31 October 2023