The month of April was a relatively good month for risk assets in general, with no meaningful difference between returns of the various indices. Looking at the global space, returns were muted when looking in US Dollar terms. This was, in part, because of the prevailing narrative of a possible recession on the cards for the US. But probably the most interesting development was the stance of the FED after a 25bps rate hike. Although remaining “data dependant”, it seems like the FED is adamant to stop the hiking cycle, with rates remaining at this level for quite a while. The market, however, is pricing in some rate cuts sooner rather than later. This sentiment put the US Dollar on the back foot by the end of the month.
Overall, global indices had muted returns compared to SA indices (in local currencies). With [in US Dollar terms] the MSCI World Index returning 1.75% and MSCI EM Index edging lower (-1.13%) versus the JSE ALSI up 3.38% in ZAR terms. This makes sense given the recession fears and the various Reserve Banks’ reactions to the fact. Although the month was mostly bullish, there is still uncertainty around the probability and severity of a global recession and the impact that it will have on global markets. With some countries in a better position to deal with such a blow than others. A study done by Bloomberg shows that the UK, New Zealand and the US are leading the way in terms of recessionary probability with South Africa not far behind with a 45% chance of a recession. This figure (for South Africa) feels rather low considering the difficulties we are dealing with and inflation seemingly heading in the wrong direction.
Looking at South African assets, it was a good month for risk assets in general. With all the various indices doing well, it was no surprise that the JSE ALSI Index was up 3.38% for the month. True to its nature, SA Listed Property was the loser of March and the winner of April going from -3.39% to 5.36%.
There are still many factors causing a tough economic enviroment in South Africa. Loadshedding ramping up to stage 6 again, infrastucture and distribution lacking in quality and politicians more concerned with their seats in parliament than solving real issues. These factors (amongst others) are keepng the ZAR below the fair value calculations, and it’s difficult to see the pressure reverting anytime soon.
Our asset allocation positioning over the last month added value to clients’ portfolios, although we are still slightly underweight risk assets both locally and globally. The risks seem too prominent to ignore, but we need to be able to capture the upside when it presents itself.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
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