Market Overview Namibia – January 2024

Although January marked a return to investor risk-aversion from December’s bullishness, it’s important not to be caught up in the short-term negative news flow that we hear all around us. We want you to know that we remain optimistic that our funds are well-positioned to continue to deliver market-beating performances to our clients over the medium term, given the cheap valuations at which we have acquired many high-quality assets, as well as their strong diversification and our risk-sensitive approach to building our clients’ portfolios. Conditions are likely to be more favourable for both global and local assets before the end of the year, as tailwinds from falling inflation and interest rates boost consumer spending, borrowing and company earnings. As ever, patience remains key because these expansionary forces do take time to feed through economies and supply chains, and into growth, earnings and wallets.

Morningstar Awards 2024
We are exceptionally pleased that two of our flagship unit trusts have been named as finalists in the 2024 Morningstar Awards for Investing Excellence South Africa: The M&G Dividend Maximiser Fund for Best South Africa Equity Fund and the M&G Bond Fund for Best Bond Fund.

In announcing the finalists, Morningstar said the awards recognise those funds and asset managers that have served investors well over the long term and which Morningstar’s Manager Research team believes will be able to deliver competitive risk-adjusted returns over time. They are also designed to recognise the industry’s best fund offerings and investor-centric firms. This year sees the introduction of a new performance methodology on which the funds are judged, using a combination of risk-adjusted medium- to long-term performance track records and Morningstar’s forward-looking fund rating. The winners will be announced on 14 March 2024.  

Market overview
Financial markets in January experienced a pull-back from the gains of the previous two months, with many pundits reining in their expectations for the start of US interest rate cuts to mid-year 2024 from as early as March previously. Global asset returns were mixed: developed equity markets posed marginally positive results, while developed bonds and emerging markets were in the red. South Africa and Namibia followed their peers weaker, although SA government bonds delivered a small positive return thanks to their high absolute yields, while Namibian bonds ended the month weaker.

For January, the MSCI ACWI produced 0.6%, while the MSCI World returned 1.2% and the MSCI EM Index delivered -4.6%. Global bonds returned -1.4% (Bloomberg Global Aggregate Bond Index) and global property was the worst global performer with -4.1% (EPRA NAREIT Global Property Index).   

Economic news from the US was broadly positive, even as Fed Chairman Jerome Powell’s remarks on any coming rate cuts were cautionary, saying it was better to be “too late” with reductions than too early, in the fight against inflation. The Bank of England finally indicated it foresaw rate cuts in 2024, while the European Central Bank maintained its stricter stance and was less clear about the prospects for lower interest rates. In China, the pace of equity sales accelerated amid ongoing growth uncertainty – the MSCI China lost 10.6% in US$, for example – triggering new stimulus from the authorities. The PBOC lowered bank reserve requirements, while funding was injected into the capital market to stabilise conditions. Additional fiscal spending is also expected to further stimulate growth. In our view, Chinese equity weakness has created some excellent opportunities for astute investors -- read more about why we’re positive on China in our accompanying article.

Meanwhile, South African and Namibian equities were not as weak as their Chinese counterparts, with the FTSE/JSE Capped SWIX index delivering -2.8% and the Namibian Stock Exchange (Overall) with -3.6% for the month. SA listed property (All Property Index) propped up the market with a 4.4% return, while Industrials delivered -1.2%, Financials -3.2% and Resources -5.9% as commodity prices remained under pressure. The rand and Namibian dollar were slightly stronger against the major currencies, up 2.8% versus the US dollar, 1.9% against the UK pound and 2.4% versus the euro.

Fund performance
Despite the challenging conditions over the past three years*, we’re pleased to share that the M&G Namibian multi-asset and fixed income funds continued to deliver market-beating returns.

The M&G Namibian Balanced Fund beat its peer group average with a return of 10.3%, surpassing the benchmark of 9.8%. The M&G Namibian Inflation Plus Fund also fared well, delivering 9.8% compared to its benchmark (CPI + 4%) at 9.6% over three years and delivering 1% benchmark outperformance since inception (return of 10.3% versus the benchmark's 9.3%).

Additionally, the M&G Namibian Enhanced Income Fund slightly outperformed its benchmark over three years, with a return of 6.4% compared to the benchmark's 6.1%.

In the fixed income space, the M&G Namibian Money Market Fund continued to deliver pleasing performance, delivering a return of 5.8% over three years, in excess of its benchmark’s 4.7%.

From an investment management perspective, we have increased our global equity exposure in our houseview portfolios to a slightly overweight position, while remaining underweight specifically the more expensive US market. We are also holding 30-year US Treasuries and UK gilts for the attractive real yields they offer. We remain overweight in SA equities and bonds given the very attractive valuations at which they continue to trade.

*three-year period to 31 January 2024.