Markets In Focus: September 2024 market snapshot

Positive September market sentiment followed the decline in global interest rates. While the interest rate cuts by the US Federal Reserve (Fed) and the South African Reserve Bank (SARB) were widely anticipated, the Chinese authorities surprised markets at month-end by announcing a number of stimulus measures designed to revive the flagging economy.

In September, more than 20 central banks worldwide reduced rates, creating relief for consumers. The Fed’s cut of 50 basis points was particularly important and followed data indicating easing inflation and a slowing labour market. The US Consumer Price Index (CPI) for August fell to 2.5% year-on-year from 2.9% in July. The US unemployment rate was 4.2%, unchanged from July but higher than 3.8% a year earlier.

In South Africa, the SARB cut the repo rate by a conservative 25 basis points to 8%. Positively, CPI for August was reported at 4.4% year-on-year, down from 4.6% in July. The South African economy gained 42 000 jobs in Q2 2024, but nearly all of these positions were in the public sector. While optimism about South Africa’s improved economic prospects has grown since the formation of the Government of National Unity after the May election and recent commitment to create jobs from business, it will take years to see the results of political stability and the implementation of effective, market-friendly policies.

In the Eurozone, inflation fell to 2.2% in August from 2.6% in July. However, economic growth, particularly in the largest member state, Germany, is a concern. The Eurozone PMI fell to 48.9 in September from 51 in August, with German business activity declining at its fastest rate in seven months. The European Central Bank cut its deposit rate by 25 bps to 3.5%. In the UK, Q2 GDP growth was below expectations, at 0.5%, and the IoD Directors Economic Confidence Index showed business confidence at its lowest level since December 2022.

After years of sluggish growth due to extended Covid-19 restrictions and a significant downturn in the property market, China’s authorities announced several moves, including a cut in the mortgage rate, designed to achieve the targeted 5% annual economic growth rate. Coupled with a weakening dollar, this has boosted appetite for emerging market assets.

The rand was the second-best emerging market currency in September, appreciating by 2.94% against the dollar. This contributed to a rise in local equities: the JSE All-Share Index rose by 4.04% in the month, bringing its year-to-date gains to 15.91%. The SARB’s interest rate cut, which is expected to be followed by further cuts in the coming months, boosted property shares: the SAPY was one of the JSE’s best-performing sectors in September, adding 5.04%. Although the S&P 500, which dominates the MSCI All-World Index, was up 4.35% for the month, the MSCI World Net in rands delivered a negative 1.165% due to the stronger rand. Over five years, the MSCI World Net’s performance underscores the importance of international diversification for South African investors: it has returned 15.97%, compared with the ALSI’s 13.67%.

Table 1: Total returns to 30 September 2024