The global market landscape witnessed significant shifts in March 2024, largely influenced by the Monetary Policies of major Central Banks and various economic indicators. In a year where election results of half the world could change the landscape in an instant, it is important to keep focus on what is relevant and try to cut out the noise of the market.
In March, Central Banks emerged as key drivers of market sentiment. The US Federal Reserve’s release of its quarterly “dot plot,” formally known as the Summary of Economic Projections, was a pivotal moment. This document detailed interest rate expectations, revealing anticipation for three rate cuts totalling 75 basis points within the year. Fed Governor Jerome Powell reinforced the expectation of lower rates, citing the trajectory of inflation towards the 2.0% target. Similarly, the European Central Bank signalled a potential rate cut at its June meeting, influencing market expectations. These announcements underscored Central Banks’ commitment to supporting economic recovery amidst evolving global challenges.
Against the backdrop of Central Bank actions, the S&P 500 continued its upward trajectory, reaching new record highs by the end of March. The index’s 3.1% gain for the month extended its year-to-date growth to 10.2%. This surge was underpinned by robust earnings growth, although valuations remained elevated. Expectations for positive earnings and revenue growth in Q1 2024 provided further support for market optimism. However, concerns lingered regarding the sustainability of the rally amid lingering uncertainties surrounding geopolitical tensions and potential shifts in Monetary Policy.
Despite overall market optimism, China presented a contrasting narrative. Hindered by the delayed recovery from COVID lockdowns and challenges in the property development sector, China’s economic growth remained subdued. With a target growth rate of “around 5%” set for 2024, investors expressed concerns over regulatory oversight and policy responses. Consequently, the impact of China’s economic slowdown reverberated across global markets, affecting industries reliant on Chinese demand. The cautious approach adopted by Chinese authorities aimed at balancing growth with structural reforms added to market uncertainties, particularly in emerging markets heavily dependent on Chinese demand.
Commodity prices exhibited mixed fortunes, driven by industry-specific dynamics. Iron ore prices faced downward pressure due to reduced Chinese demand, while oil prices remained buoyant, supported by production constraints by OPEC+ countries. Gold prices continued their upward trajectory, fuelled by expectations of lower interest rates and Central Bank buying to diversify reserves. However, platinum group metals experienced price declines amid surplus production and subdued demand from vehicle producers. The divergence in commodity prices highlighted the complex interplay between supply dynamics, demand trends, and macroeconomic factors influencing commodity markets.
In South Africa, the FTSE/JSE All Share Index marked its first monthly gain of the year, showcasing resilience amidst global economic uncertainties. The index’s performance was particularly buoyed by strong showings from mining companies reflecting the country’s significant presence in the mining sector.
Economic data released during the period provided a mixed picture of South Africa’s economic health. While the country narrowly avoided a recession in the fourth quarter of 2023, signalling some degree of economic resilience, inflationary pressures surpassed expectations. Core inflation jumped to 5% relative to the prior month’s print, exceeding the South African Reserve Bank’s (SARB) target midpoint. The spike in prices was primarily driven by the inclusion of the results of the bi-annual survey of medical health insurance costs, which came in at an annualized rate of 12.9%. These inflationary pressures prompted the SARB to maintain the current elevated repo rate at 8.25% p.a., reflecting the need to balance price stability with economic growth considerations.
Despite the relatively robust performance of the Rand against the US Dollar during the period, indicating some resilience in the currency markets, government borrowing rates climbed. This trend defied a relatively benign global interest rate environment and highlighted underlying economic challenges facing South Africa. The SA 10-year government borrowing rate advanced by 0.6% to end the month at 12.3%, signalling investor concerns over fiscal sustainability and sovereign risk.
The overall performance of the South African market and the ever-growing threat of an US correction and “reversion to the mean” underscored the importance of a diversified investment strategy tailored to flexibility. While certain sectors, such as mining, demonstrated strength, challenges in other areas, including inflation management and fiscal policy, underscored the need for cautious investment approaches. And with all the uncertainty surrounding local (and global) election outcomes, we feel that our funds and portfolios are well diversified, but positioned to take advantage of opportunities if inherent risks subside.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
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