September 2024: A Positive Global Wave
South Africa surfed a wave of positive global sentiment, delivering strong returns for investors. The Federal Reserve, following other major central banks, cut rates, signalling a global easing. This, coupled with China’s stimulus package, injected optimism into global markets, especially for emerging markets like South Africa.
China’s stimulus dramatically boosted the Shanghai Shenzhen CSI 300 Index, driving up commodity prices, particularly iron ore. This bodes well for South Africa’s export-oriented economy.
Domestic Gains
The South African Reserve Bank (SARB) joined the global easing trend, cutting the repo rate by 25 basis points to 8%. This marked the first rate cut since the hiking cycle began in July 2020. The SARB’s move, driven by easing inflation and a desire to stimulate economic growth, offered a reprieve for borrowers and businesses.
The rand strengthened against the US dollar, buoyed by the SARB’s rate cut, attractive interest rate differentials, and positive sentiment surrounding China’s stimulus. This pushed the rand below R17.20 for the first time since January 2023.
The confluence of the SARB’s rate cut, improved domestic sentiment, and attractive valuations fuelled strong performance in South African equities. The JSE All Share Index gained 4.0% for the month. The Retail and Industrial sectors were particularly buoyant, led by heavyweights BHP and PROSUS.
The stronger rand and continued foreign investment in South African bonds contributed to a sixth consecutive month of positive returns for this asset class, reaching 4.0% for the month and an impressive 10.5% for the quarter. The local bond market, however, is noteworthy, gaining 24% in US$ terms year-to-date, outperforming the S&P 500. In ZAR terms, SA bonds have returned 16.7% over the same period.
Economic Outlook
Headline inflation for August slowed to 4.4%, dipping below the SARB’s target range for the first time in over three years. This positive trend is likely to continue, with petrol price declines expected to further push inflation lower by year-end.
Economic growth improved to 0.4% in the second quarter, slightly below expectations. While some sectors experienced setbacks, others showed positive signs. Encouragingly, business and consumer sentiment surveys have shown a marked improvement, suggesting a more optimistic outlook for the second half of the year.
Key Takeaways for Investors
The combination of global rate cuts, Chinese stimulus, and the SARB’s easing stance has created a favourable environment for South African investors. Local asset classes, particularly equities and bonds, delivered strong returns in September, driven by positive market sentiment and favourable economic developments.
While the economy faces some challenges, including policy uncertainty, high debt levels, and a growth backdrop, the easing of inflation, improved sentiment, and rate cuts suggest a brighter economic outlook for the remainder of the year.
Offshore Commentary
The third quarter of 2024 concluded with strong returns across most major asset classes, despite multiple episodes of volatility. A cooler inflationary environment and the start of a global interest rate cutting cycle provided support for investors seeking diversification.
The Federal Reserve’s long-awaited rate cuts, along with less aggressive stances from other major central banks and fresh stimulus measures from China, helped to soothe investor concerns and sparked a late-quarter rally in equities.
Equities
Equity markets saw healthy returns in Q3, particularly in developed markets. Sectors that had been heavily impacted by high interest rates earlier in the year staged a recovery.
Fixed Income
Fixed income markets were buoyed by the shift in central bank policies towards easing. The US Treasury market delivered a 4.7% return for the quarter, driven by the Federal Reserve’s 50 basis point rate cut in September.
Commodities and Digital Assets
The commodity market had a more mixed performance in Q3. The overall return for commodities was just 0.7%, with significant divergence between different sectors.
Looking Ahead
The landscape for investors appears increasingly favourable. With inflation now under control in many parts of the world, central banks are adopting more accommodative monetary policies, which could provide further support for both equities and bonds.
Investors should remain cautious but opportunistic as the market continues to digest new economic data and policy shifts. Central banks have proven they are ready to act swiftly in the face of slowing growth, and the potential for more rate cuts in the near future presents a constructive backdrop for risk assets.
However, lingering geopolitical risks may continue to create pockets of volatility, requiring a careful and adaptive investment approach.
Read more below in the Market Watch for September.
Missed last month and need to catch up? Read the July market watchΒ here.
