Monthly Market Commentary – June 2022

The risk-off environment did not bode well for local risky assets. SA equity and property as well as the rand had a tough month, falling in line with the risk-off sentiment. SA bonds lost 3% in June, mostly in the last week of the month. The only two asset classes providing protection came from the local cash and global bonds in rands. The strong selloff in SA financials and resources stocks dragged down the broader local equity market. The industrials super sector was held up by strong performance in the Naspers / Prosus stable as Chinese equities in general held up relatively well over the month.

LOCAL DRIVERS

SA Economy

South Africa’s economy grew faster than expected in the first quarter and is back to the size it was before the pandemic GDP expanded 1 9 in Q 1 2022

SA Inflation

SA’s inflation hit a five-year high of 6 5 breaching the SARB’s upper target band Inflation is now widely expected to breach 7 and potentially higher over the next few months Markets currently expect the MPC to raise rates by another 50 bps in July

Eskom Strike

Power supply to South African businesses and households was severely constrained as illegal labour strikes crippled the utility and its ability to keep the lights on After a tense stand offs the wage negotiations finally came to an end but not after severe disruption to the functioning of the economy

Foreign Direct Investment

The SARB Quarterly Bulletin showed that foreign direct investment (FDI) in Q1 2022 was R27.2bn up from R22.7bn in Q4 2021. These are positive numbers and provide scope for cautious optimism as foreigners still view the country as a credible investment destination.

Medium

Comair Liquidation

Comair’s business rescue practitioners lodged a court application on 9 June to convert the business rescue proceedings into liquidation proceedings. This leaves a gaping hole for competitors to fill in the flight carrier’s absence.

ASSET CLASS TOTAL RETURNS – ZAR

GLOBAL DRIVERS

World Bank Growth

The World Bank slashed global growth expectations for 2022 to 2.9% from 4.1% predicted in January. The Bank warned of a recession and that many countries would find it difficult to avoid this in 2022. Stagflation risk (high inflation, low growth) had also meaningfully increased according to the Bank owing to continued supply disruptions, the Russia / Ukraine war, and China lockdowns.

Fed Rates

The Fed moved aggressively in June, raising rates by 75bps, the largest increase since 1994. The Fed has materially changed its tone since the end of last year and has been warning that it will do whatever it takes to tame inflation, even if this risks recession.

Metals Prices

Base metals recorded their worst quarterly fall since 2008 as fears of a global downturn sent prices falling. The London Metal Exchange Index fell 25% since the end of March with tin falling 38% and aluminum falling 20%. This was the first quarterly decline for the index since the start of the pandemic.

Medium

Boris Johnson Resignation

After significant pressure, the Prime Minister of the United Kingdom finally resigned as Conservative leader. The resignation will kick off a leadership contest over the coming months with several party members vying for the position Johnson would like to stay in the position until the party picks his successor, but this is being met with resistance

Medium

Shinzo Abe Assassinated

In a shock event, Shinzo Abe (ex Prime Minister of Japan and longest-serving leader in Japanese history), was assassinated on the campaign trail last week. Elections were held over the weekend, after his death, in which his party swept to victory.

ASSET CLASS TOTAL RETURNS – USD

All information provided courtesy of Portfolio Metrix – adapted and published with permission. No copyright infringement intended.

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