The South African markets were characterised by a mix of positive and negative developments.
Local Commentary
The South African equity market saw mixed results in August (+1.4%), with improved sentiment and rate-sensitive sectors offsetting resource sector weakness. Global headwinds also impacted the market.
The bond market (+2.4%) continued its rally, driven by post-election optimism and declining US Treasury yields. Foreign investors remained net buyers for the second consecutive month, indicating renewed confidence in government reforms.
The property sector (+8.3%) continued its strong performance, boosted by lower interest rates and undervaluation. Hyprop, Growthpoint, Resilient, Fortress, and Redefine were top performers.
Headline inflation for July dropped to 4.6%, increasing the likelihood of interest rate cuts by the South African Reserve Bank. This would be positive for the economy, as it would reduce borrowing costs and encourage investment.
While some economic indicators improved, overall economic growth is expected to be weak in the second quarter. However, there is optimism for the second half of the year due to improved energy availability, post-election stability, and lower interest rates.
Offshore Commentary
Global markets experienced volatility in August, driven by disappointing US economic data and a surprise interest rate hike by the Bank of Japan. However, markets rebounded towards the end of the month as investors anticipated more aggressive easing by the Federal Reserve.
The US economy showed signs of weakness, with the ISM manufacturing index falling and the jobs report showing the smallest payroll increase in over three years. The Bank of Japan’s decision to raise its policy rate triggered a sharp selloff in global equities.
Despite these headwinds, global equities recovered in the second half of August, supported by the prospect of lower interest rates and solid Q2 earnings. Commodity markets struggled due to weaker global growth and a manufacturing slowdown.
The S&P 500 continued to perform well, driven by earnings growth beyond the tech sector. Asian and emerging market equities outpaced their western counterparts, supported by expectations of Fed rate cuts and a weaker US dollar.
In Europe, equities underperformed the US, with a weaker economic outlook and falling cyclical company earnings. Fixed income markets had a solid month, benefiting from a flight to quality amid volatility.
Overall, August turned out to be favourable for diversified investors, with both equity and fixed income markets delivering positive returns. Concerns about a US recession appear overstated, but GDP growth is decelerating, and inflation has dropped. We expect the Fed to proceed with multiple rate cuts this year.
Read more below in the Market Watch for August.
Missed last month and need to catch up? Read the July market watchΒ here.
