Monthly Market Commentary – May 2022

The local equity market ended the month slightly ahead of global equities, but this came at a deeper drawdown during the month. The rand also originally weakened to over R16 to the US dollar but recovered from these levels eventually finishing the month stronger than where it started. South African bonds was the strongest asset class rising 1% in rand terms. Global property fell strongly over the month affected by weakness in hard currency terms as well as a stronger rand. This contrasted with the local property sector that remained flat over the month. The financials sector on the local equity market strongly outperformed the other super sectors with the industrials sector falling most (driven by poor results from Tencent dragging down Naspers/Prosus) followed by resources.


Moody’s SA Upgrade

Moody’s reaffirmed South Africa’s Ba2 rating but moved its credit outlook from negative to stable as the commodity cycle supports Treasury’s ability to reduce its debt burden. Although the rating remains deeply in “junk” status the changing dynamic regarding SA’s debt trajectory is a positive sign.

KZN Floods

Severe flooding in KwaZulu-Natal inflicted significant damage to infrastructure and loss of human life resulting in a state of disaster being declared by the president. Expected costs run into the billions amplifying fragility in the province still reeling from mass looting.

Inflation Rises

SA inflation rose to 5.9% in March from 5.7% in February, driven in large part by fuel price hikes. Although still within the target band of the SARB, pressure is to the upside with Moody’s expecting SA inflation to hit 8% in 2022 amid the global impact of the Ukraine conflict and rising U.S. interest rates.

Rand Hammered

The rand weakened 8% against the greenback over the month as the Fed turned up the heat by raising interest rates and signaling of quantitative tightening (QT) to begin later in the year. The U.S. dollar strengthened against most currencies over the month.

SA COVID Concerns

Increasing positivity rates raised fears of a 5th wave washing over the country as it moved closer to winter months. Although inevitable, concerns remain given low vaccine rates and a fragile health sector.



India Wheat Ban

India decided to halt exports of wheat as it tackles surging domestic food prices. Due to India being the world’s second-biggest producer, the news sent global wheat prices soaring and highlighted the real risks of the war in Ukraine affecting global food security for the most vulnerable.

Fed Takes Action–Interest Rates

The Fed increased rates by 50bps in May, largely in line with market expectations, with further 50bps hikes expected in June and July.

Fed Takes Action–QT

The Fed complemented its interest rate hike in May by starting to shrink its $8.5trn balance sheet as another step in the post-pandemic policy normalization path. This started on 1 June with the Fed no longer reinvesting proceeds of up to $30bn in maturing Treasury securities and up to $17.5bn in maturing agency mortgage-backed securities per month. Beginning September 1, those caps will rise to $60bn and $35bn, respectively, for a maximum potential monthly balance sheet roll-off of $95bn.

European Energy Supplies

Europe decided to embargo Russian seaborne oil, which raises the risk that Russia might retaliate by further reducing the supply of gas to Europe. Gas prices for winter futures contracts held steady at elevated levels.

‘Greenwashing’ risks

In an interesting test case of ESG investing, offices of Deutsche Bank were raided by German officials on suspicion of fraudulent advertising of sustainable investment funds at its DWS unit Given the complexity of sustainable investment and the fact the industry is still in its infancy the case will be closely monitored by the industry


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

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