The much-discussed global recession forecast for this year has not materialised. On the contrary, the US market performed surprisingly well in the second quarter, considering the first-quarter wobbles in its banking sector. Here in South Africa, local stocks remained relatively flat over the six months to the end of June, showing admirable resilience against the frightful body blows to our economy which you don’t need to be reminded of.
Corion Capital, in its Corion Report for June quoting Morningstar data, states that over the quarter ended June 30, global equities and global bonds (up 13.9% and 4.6% respectively, in rand terms) outperformed South Africa equities and bonds (0.7% and -1.5% respectively). Financials were the best- performing sector on the JSE, gaining 6%, and resources stocks the worst, dropping by 6.4%.
Stretching the horizon to the 12 months ended June 30, Corion reports that global equities were up by a healthy 37.4%, helped by a weakened rand, which lost 16% against the US dollar. Local equities were up 19.6%, though most of that growth came late last year. Industrials outpaced the other JSE sectors, gaining 19.6%. Global and South African bonds were up 12.4% and 8.2% respectively.
For unit trust investors, funds in the SA Equity General category were up 11.7%, on average, for the 12 months to the end of June. SA Multi Asset High Equity funds outperformed the pure equity funds – they were up a healthy 14.2%, on average. Funds in the Global Equity General category were up 28.3%, reflecting the strong growth mostly in the US.
In a report for investors, Peter Little, fund manager at Anchor Capital, says South Africa’s Consumer Price Index inflation data for May fell for the second consecutive month (6.3% year-on-year), coming in below expectations. “Inflation remains above the South African Reserve Bank’s 4.5% target, and investors anticipate that the SARB will need to increase rates by around 0.5% over the next few months as it continues to fight inflation,” Little says.
Global markets
Turning to wider pastures, Little says the recent rally in global equity markets (the MSCI World Index is up 15.4% for the year) can be partly attributed to the threat of a US government debt default being avoided and a pause in interest rate hikes by the US Federal Reserve, after 10 consecutive hikes.
Much of the performance has been driven by the seven “mega” US tech companies, now worthy of a new acronym, Manamat (Meta, Apple, Nvidia, Amazon, Microsoft, Alphabet and Tesla). After taking a beating last year, they have bounced back strongly – some would say too much so – benefiting from the hype around artificial intelligence. Little reports: “The NYSE FANG Index (which tracks these big tech stocks) ended the first half of the year 74% higher, with the share prices of Nvidia, Meta and Tesla more than doubling year-to-date (up 190%, 138% and 113% respectively) and impressive gains from Amazon, Apple, Microsoft and Alphabet (up 55%, 50%, 43% and 36% respectively).”
The Corion Report notes that for the first half of the year, the Nasdaq index (another tech-focused measure) increased by 39.4%, its best first-half performance since 1983, and Apple made history by becoming the first company with a market value of over $3 trillion.
In Nedbank’s “Guide to the Economy, June 2023”, released this week, economists Liandra da Silva, Johannes Khoza, and Nicky Weimar report that the global economy largely held up better than expected in the first half of 2023, “with most economies expected to evade the shallow recessions predicted at the start of the year”. But they warn that a slowdown is still a distinct possibility.
“The reopening of the Chinese economy provided some momentum, but this boost has so far fallen short of expectations. The normalisation of global supply chains, the dissipating effects of the Russia-Ukraine war, robust labour markets, and strong services demand amid the still-slow pass-through of tighter monetary policies also provided a lift. Despite this resilience, global economic activity remains vulnerable and will likely moderate further during the rest of the year. Most of the factors contributing to better-than-expected growth thus far are expected to fade, and the impact of higher interest rates will become more apparent. We expect a more notable slowdown in domestic and external demand as the full effect of monetary policy tightening takes effect,” Da Silva, Khoza and Weimar say.
Inflation remains the bugbear. Consumer Price Inflation has slowed markedly in the US, from 9.1% in June last year down to 3% in June, as reported this week. However, the Federal Reserve wants to push it down further, to its 2% target, so it has not ruled out more hikes in the coming months.
More words of caution come from Johanna Kyrklund, group chief investment officer and co-head of investment at global investment manager Schroders, who expects the tighter credit conditions to continue to put strain on the US financial system. “We are favouring government bonds and higher quality credit as we expect the US economy to slow and move into recession later this year. We remain cautious on equities as, although valuations have improved, the cyclical clouds are darkening,” Kyrklund says.
* Hesse is the former editor of Personal Finance
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