VIDEO: Market Snapshot May 2023

Our Market Snapshot provides an overview of key events that influenced financial markets over the course of May 2023.

Global investor sentiment was mixed but broadly bearish in May, leading to diverging asset returns as investors digested both positive and negative news on the macro and micro fronts. Offshore investments outperformed their local counterparts for the month in rand terms, providing investors with excellent diversification benefits. The M&G Global Equity and Global Balanced Feeder Funds delivered rand returns of 8.9% and 8.3%, respectively, the strongest among our unit trust funds in May. And over the past 12 months these funds have returned an impressive 29.9% and 23.3%, respectively, helped by rand depreciation.

Amid the gloomy environment, diversification remains key to portfolio performance. For example, where appropriate, investors should take advantage of the fact that global bonds are now offering the best diversified real yields for SA portfolios in over a decade, as Sandile Malinga explains. Also, it’s important to remember that, with 75% of its listed company earnings sourced from outside of South Africa, the JSE offers diversification opportunities – its performance is only minorly impacted by the state of the South Africa economy. In our view there are attractive buying opportunities in the local equity market at current levels – read more about our view on SA banks in this month’s Investment Focus. We believe investor pessimism toward South Africa is unrealistically high and that long-term investors who stay in the market will be rewarded for their patience.  

Turning to May market performance, while the US Fed signalled that its rate hiking cycle might be coming to an end, helping buoy fixed income views, the political stalemate over raising the US debt ceiling put selling pressure on global bonds as the US came within a few days of defaulting on its debt, before reaching a compromise late in the month. Pessimism over US GDP growth worsened as well, as manufacturing data weakened despite a still-robust job market and resilient consumer services spending. This left US equity returns mixed as the tech-heavy Nasdaq posted good gains, while the S&P 500 was only marginally positive and the Dow Jones Industrial Index lost ground. Major European equity markets recorded losses of between 5%-7.2%, and Chinese returns were also in the red on the back of disappointing growth data, among other factors. 

Meanwhile, investor sentiment towards South Africa deteriorated as loadshedding continued to take its toll on growth prospects and more companies reported negative earnings impacts as a consequence. The impact on the government budget in the form of lower corporate tax collections also became more of a focus. This was compounded by escalating threats that the SA government’s seemingly pro-Russia stance could provoke trade or financial sanctions from the West.

SA and Namibian assets and the rand and Namibian dollar sold off across the board, with both currencies closing the month some 8.4% weaker versus the US$. The FTSE/JSE All Share Index was down 3.9%, and the FTSE/JSE Capped SWIX lost 5.8%. SA banks bore the brunt of the equity sell-off with Financials losing 7.9%, while Listed Property delivered -5.4%, Industrials -3.3% and Resources -2.2%. Finally, the SA All Bond Index lost 4.8% on worsening risk sentiment toward the country.  

Namibia’s NSX All Share lost 5.2% m/m in May and the All Bond Index was down 1.2% m/m. Namibian bonds did not sell off as severely and as a result, bond premiums decreased relative SA bonds. Credit extension in the private sector and for individuals were up 0.4% and 0.2% respectively from the previous month. CPI softened to 6.1%y/y in April which may signal the start of the disinflationary cycle and possibly the end of BoN’s monetary policy tightening cycle. This follows a 25bps rate hike to 7.25% by the BoN but still lags the SARB lending rate by 100bps. Healthcare posted the only positive return of 3.2% while Industrials lost 10.7%, Financials -7.3% and Resources -2.0%.