As we navigate through May 2024, global markets have shown a mixed bag of performance, reflecting the interplay of various economic, geopolitical, and technological factors. As the global economy continues its recovery trajectory, albeit at a slower pace than anticipated, major economies such as the United States and China are grappling with balancing economic growth and inflation control. The US Federal Reserve has adopted a cautious stance, signalling a reduced appetite to lower interest rates just yet, which has caused some volatility in equity and bond markets. We also saw prolonged negotiations over the US debt ceiling reaching a resolution in early May, averting a potential government shutdown. This agreement has temporarily alleviated market anxieties but also highlighted underlying fiscal challenges that could resurface later in the year.
China’s economy, on the other hand, is facing headwinds from its real estate sector, with efforts to deleverage continuing to impact overall growth. However, China’s focus on transitioning to a consumption-led economy and advancements in technology sectors provides a silver lining. In mid-May, China announced a relaxation of regulations on its technology sector, aimed at fostering innovation and supporting economic growth. This move has provided a boost to Chinese tech stocks and has positive implications for global tech supply chains.
In other parts of the world, Europe faced renewed energy challenges as geopolitical tensions in Eastern Europe led to disruptions in natural gas supplies. This has driven up energy prices and raised inflationary pressures across the continent, affecting industrial production and consumer spending.
The MSCI World Index showed resilience in May despite the mixed global economic signals. The index posted a strong gain of 4.47% for the month, supported by strong earnings reports from key sectors such as technology and healthcare. However, volatility was evident, reflecting investor uncertainty over future interest rate hikes and geopolitical tensions. This was, however, mostly because of the tech-heavy NASDAQ outperforming the broader market (6.36%), recovering from its earlier losses as regulatory pressures on tech firms eased.
Our funds and portfolios benefitted from an overweight allocation to Developed Market risk assets relative to Emerging Markets, with the MSCI EM Index returning a mere 0.56% for the month of May.
*Figures for May 2024 in USD
The South African economy in May 2024 has demonstrated mixed signals, reflecting both opportunities and challenges. The economic landscape continues to be shaped by global macroeconomic conditions, domestic political dynamics, and structural economic issues. Inflation remains a concern, with the annual rate holding steady at 5.2% year-on-year in April. Although within the SARB target range, there is still inflationary pressure, largely attributed to rising fuel and food prices. In response, the SARB has maintained a cautious stance, keeping the repo rate at 8.25% to balance between curbing inflation and supporting economic growth.
But all focus was on the election at the end of May. It is now clear that we are heading into unchartered territory, with coalition politics a certainty. It is, however, still very uncertain what exactly the political landscape will look like, causing a lot of nervousness and volatility for investors both locally and globally. This volatility extended to the ZAR, but eventually ended the month at ZAR 18.80 against the USD. The All Share Index (ALSI) ended the month marginally higher, with a 0.96% gain, driven mostly by the Industrial Index returning 1.69%.
The relative out performance of global assets helped our funds and portfolios (on a relative basis) as we remained cautious going into the election. Looking ahead, the uncertainty is still just too high to make any moves into (or out of) SA risk assets, and we prefer to stick to our cautious view on asset allocation for now.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness. MitonOptimal South Africa (Pty) Limited is an Authorised Financial Services Provider Licence No. 28160, regulated by the Financial Sector Conduct Authority (FSCA) – Registration No. 2005/032750/07.MitonOptimal Portfolio Management (Pty) Limited is an Authorised Financial Services Provider Licence No. 734, regulated by the FSCA – Registration No. 2000/000717/07.