South African Market Overview
The South African equity market dipped 0.3% in December but ended the year up 13.4%. Resource stocks underperformed due to weaker commodity prices, while retail, life insurance, and banking sectors outperformed.
The rand weakened against the US dollar, largely driven by global concerns over a potential Trump presidency. South African bond yields rose, mirroring global trends. Despite a negative 0.4% return in December, the All Bond Index (ALBI) ended the year up 17.2%.
Inflation rose to 2.9% in November, supported by lower transport costs and food inflation. These trends should continue suppressing inflation into early 2025, but the SARB must balance this against higher import costs from a weaker rand.
The economy contracted by 0.3% in Q3 2024, mainly due to a 28.8% drop in agricultural output caused by drought. Despite some expected recovery, growth remains subdued as household spending stagnates and government consumption contracts.
Market sentiment improved after South Africa’s new Government of National Unity reduced concerns over populist policies. This bolstered confidence in banks, insurers, and retailers. Offshore-exposed stocks showed mixed results, with mining stocks lagging and China-linked companies like Richemont and Naspers benefiting from improved earnings and government stimulus.
Overall, 2024 was a strong year for investors, with ASISA SA MA Low, Medium, and High Equity funds returning 12.3%, 12.8%, and 13.5%, respectively.
Global Market Overview
The U.S. economy and tech stocks led global markets, with developed equities returning 19.2%. However, market gains were narrowly concentrated in large-cap tech, raising concerns about sustainability and market breadth.
Bond markets struggled, with global yields rising on inflation concerns. The Russell 2000 (small-cap U.S. stocks) underperformed, up just 15%, and fell 8% in December.
European markets delivered modest 8.1% returns, weighed down by political instability in France and Germany. The ECB cut rates twice to 3%, but weak economic data and contracting industrial activity persisted.
UK equities gained 9.5%, outperforming continental Europe. However, Q4 declines followed tax hikes in the Autumn Budget, raising concerns over growth. Domestically focused stocks struggled, while international stocks were hit by weak global demand.
Emerging markets gained 8.1% for the year but faced headwinds in Q4 due to dollar strength and trade fears. China and Hong Kong stocks weakened amid concerns over Trump’s proposed tariffs, while Taiwan outperformed on strong AI-related exports.
Looking Ahead to 2025
Investors must assess whether 2024’s strong gains will continue. While the U.S. economy remains resilient, high valuations (22x forward earnings) and tight credit spreads raise sustainability concerns. The AI sector may expand beyond mega-cap tech, but geopolitical risks, particularly U.S.-China tensions, could drive volatility.
European markets may benefit from rate cuts, but political instability and weak growth remain concerns. In Japan, corporate reforms could drive further gains, though currency risks persist.
In fixed income, caution is advised, as U.S. 10-year Treasury yields rose from 3.6% to 4.6%. Diversification across asset classes and regions will be crucial to navigating risks and opportunities in 2025.
Read more below in the Market Watch for December.
Missed last month and need to catch up? Read the November market watch here.
