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Multivest Market Watch - August 2023



After a strong July, global equity and bond markets retreated in August. Concerns about global inflation lingers. In the US, upbeat economic data and hawkish comments from US Fed have put expectations of early Fed rate cuts in question. Emerging market shares fell the most, with poor Chinese economic data weighing heavily on Asian bourses. Chinese authorities have intensified efforts to stimulate the economy but there seems to be a crisis of confidence affecting Chinese consumers and private sector companies alike.


Global Bonds (5%) and Equity (4.0%) were the best performing asset classes over the month in rand terms, assisted by the weakness in the local currency. Property and Cash were the only other assets to produce positive returns of 0.9% and 0.7% respectively. Within SA Equity (-4.8%) the Resources (-8.4%) and Industrial (-5.1%) sectors fared worst. SA bonds were marginally negative (-0.2%).


The majority of the shares in the JSE Top 40 ended the month in the red, with gold and platinum counters delivering significant double digit negative returns. Impala Platinum and Anglo American Platinum both returned -24%, Anglo Gold Ashanti returned -18% and Northam Platinum -17.6%. The winners were a mixed bag of property, rand hedge and financial counters including NEPI Rockcastle (5.8%), AB-Inbev (5.5%) and BAT (4.9%). Investec Plc and Sanlam rounded off the top 5.


The rand weakened over the month against all the major currencies, by between 2% and 5.6%, erasing the gains from the previous month. Most significant was the 5.6% depreciation against the US Dollar. Gold fell 0.5% while oil ended the month 1.6% higher at US$ 86.6% as Russia and gulf state producers signaled limiting production.


The average South African balanced fund returned 12.1% over the past 12 months. Significantly assisted by rand weakness. The performance dispersion between funds widened somewhat, with the best 12-month performer returning 29.2% while the worst performer delivered 3.9%. The average balanced fund delivered 10.5% p.a. over the past 3 years, near the typical CPI+5% performance target of balanced funds, measured over 3 to 5 year rolling cycles.


Courtesy: THE BOUTIQUE BULLETIN - 31 August 2023

 

Multivest Chart Book - August 2023

Source: Multivest Research

 

Multivest Portfolio Returns

Disclaimer: The investor is liable for CGT on any transactions in the units of the underlying unit trusts within the wrap funds. Compulsory investments are not subject to CGT. Performance is calculated using net returns(after fees) of the underlying unit trusts, and quoted excluding wrap fund fees. Performance quoted is pre-tax. Fund performance numbers shown are for a notional portfolio and do not reflect the actual performance of the client invested in the wrap fund due to timing differences of investments or disinvestments of the client. Benchmark returns for CPI are based on actual published returns and an estimated one month return for the month of the report date. ASISA Benchmark returns are the ASISA returns available as at the time of reporting.

 

Wisdom needed as we close in on the peak of interest rates

Interest rate policy has shifted to a phase where good risk-management has become the focal point. Central banks must reduce the risk of high consumer price inflation (CPI) via higher interest rates – input cost pressures are rising again – but at the same time ensure they don’t act too soon and too much and increase the risk of a hard landing. If they act too soon, it increases the risk of unnecessary rate increases, hurting the economy. If they act too late, CPI will be harder to contain, increasing the risk of several more rate increases, also hurting the economy.


The above situation is especially relevant to the United States of America (US). Cpi is down to 3.2% in July, way lower than its peaks last year, but still above the target of 2%. Yet, interest rates work with a lag through the economy which poses the question whether the Federal Reserve will pause again at its September meeting. This is complicated more by the strong economic growth of 2.1% in Q2 2023, which makes the Federal Reserve uneasy. In addition, the recent Purchaser Management Index (PMI), although slowing and pointing to lower economic growth, also revealed rising wage pressures, which if spilled over into higher CPI, may prompt another rate increase. At this stage, it however seems as if the Federal Reserve will pause again in September, given the declining composite PMI and CPI. Should the situation not improve further, rate increases may resume in October/November.


Europe – and the United Kingdom - have a more severe problem compared to the US as their economies are under pressure, while price pressures are increasing. In the Eurozone the composite PMI decreased from 48.6 in July to 47 in August, a 33-month low, pointing to a high likelihood of the economy (especially Germany) shrinking in Q3 2023. However, the PMI also registered higher input- and output prices, mainly due to rising wage pressures. The UK is experiencing a similar but even worse pattern. The composite PMI declined from 50.8 in July to 47.9 in August, while input prices increased, and unemployment rising. The European Central Bank and Bank of England are therefore in a difficult situation as they must deal with high CPI, pressure on CPI to increase and an economic contraction.


China’s economy continues to under-perform, following quarter on quarter growth of only 0.8% in Q2 2023. Import and export growth rates are tumbling, which will negatively affect China and the rest of the world’s economic growth rates. Should China’s growth falter further, together with that of the US and Europe, a world economic recession is not out of the question. However, a silver lining is deflation and a weaker currency in China, which makes imports from China cheaper. This should assist other central banks in their challenge to bring down CPI and marginally reduce the pressure to increase interest rates.


The most notable outcome of the BRICS-summit held in South Africa was an invitation extended to Argentina, Egypt, Ethiopia, Saudi-Arabia, United Arab Emirates, and Iran to join. Should these countries join, it will increase the group’s share of World Gross Domestic Product from 26.2% to 29.2%, closer to the 43.5% of the G7-countries. In addition, it was decided to increase trade between the countries and to extend local currency loans – both aimed at reducing the grip of the US$ on the countries.


South Africa’s CPI receded strongly from 5.4% in June to 4.7% in July, mostly due to lower-than-expected property tax increases instituted by local governments and lower fuel and food price increases. However, a sharp increase in fuel prices (due to a weaker rand and higher oil prices) may push the CPI back towards 5%, but no interest rate hike is expected in September – meaning interest rates will remain high for longer. In the meantime, the Reserve Bank found no contravention of exchange control (and money laundering) laws regarding the theft of foreign currency at president Ramaphosa’s Phala Phala farm.


Multivest Economic Division


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