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Market Commentary - May 2024

May was a volatile month in Investment markets. If measure by the JSE All-Share Equity Index for example, you could have banked a gain of 5.4% for the month to date by the 20th, based on a global “risk on” sentiment that saw almost everything equity market in the world soaring. The tide turned at this point and most gains were handed back, as the Index ended the month only 1% higher since end April. It was a similar story in the local Bond market, with the All Bond index showing a gain of 2.3% by the 20th, and ending the month a mere 0.75% higher.

This confirms our current stance that local Bonds and Equities are highly correlated at the moment as they are driven by the same factors, those being inflation and it’s effects on interest rate policy. The traditional approach of holding bonds to diversify, and essentially de-risk a portfolio, does not hold at the moment. The opposite holds true for local equities having a large correlation to offshore Equities. Over the same period, the MSCI World index was only up 1.9% by the 20th, yet ended the month on a gain of 4.2% in Rand terms. This as a result of the Rand Dollar exchange rate mostly, as the Rand is very much seen as a “risk on” trade for offshore speculators, and sells off heavily when uncertainty hits markets.

A lot of attention was drawn to the South- African National elections  on the 29th of May in trying to explain local market behaviour. In the end, the ANC only got 40% of the vote, which is remarkable given their 2/3rd majority for most of the period they have been in power since the first democratic election in 1994. This mostly because of the split-off of the EFF(before prior election already) and recently Jacob Zuma’s MK party. The worry for markets was thus that they would need to form a coalition with a party with radical ideals, and from this perspective, the fact that the EFF did not even get 10%, and thus the combined support of the ANC and EFF does not tip the scale over the majority of 50%, the result is very favourable.

We now await to see what comes next, as we are technically in unknown territory. The latest GDP growth numbers were just released, which showed a slight contraction based on weak demand. Markets are rather waiting with baited breath for some political clarity and most money seems to be sitting on the side-lines currently, with some selling in the mining sector, probably to fund other trades once a direction becomes clearer. Overall, most markets globally show decent value at the moment, except for Large Cap US stocks which had a phenomenal run.

Multivest - Simon Morrison

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