Global Market Overview
June presented global markets with a defining test of resilience. The month’s dominant event was a geopolitical energy shock, as Middle East tensions caused Brent crude oil to spike above $120 per barrel before collapsing back to the low $70s following a ceasefire that reopened the Strait of Hormuz. This sequence injected significant uncertainty into global markets at a point where equity valuations were already elevated and market leadership had become increasingly narrow.
US equity markets came under pressure, with the S&P 500 returning -0.99% in USD for the month, while the Nasdaq Composite declined -2.81%, as big-tech leadership softened. The energy-driven inflation spike pushed US CPI to 4.2%, a three-year high. The investment team assessed this inflation episode as primarily fuel-driven rather than structural, with the Federal Reserve’s next move still viewed as more likely to be a cut than a hike — provided the ceasefire holds and oil prices remain contained. This assessment supported the team’s decision to avoid reactive tactical changes during the month.
The picture was more constructive outside US technology. The Nikkei 225 returned +5.63%, benefitting from Yen weakness and improving corporate earnings sentiment. The Dow Jones gained +2.52% and the FTSE 100 +0.85%. In total return terms, the MSCI World NR returned -0.72% in USD, the MSCI ACWI -0.80%, and the MSCI Emerging Markets Index -1.41%, with the Hang Seng among the weakest markets globally, declining -9.14%. Despite the June pullback, year-to-date returns remain materially positive: the MSCI World +9.69%, MSCI ACWI +11.25%, and S&P 500 +10.01%.
The AI and technology investment narrative retained credibility during the month, underpinned by actual earnings growth rather than purely multiple expansion — a key distinction from the speculative dynamics of the 1990s internet boom. However, market leadership remained narrow and highly concentrated, with capital rotating aggressively between semiconductor, memory and AI-related names. The investment team retained exposure to global equities without chasing the most crowded positions, consistent with the view that the S&P 500 could continue to perform even if current AI leaders stop leading, provided market participation continues to broaden.
Global listed real estate was the standout performer, with the S&P Global REIT Index returning +2.10% in USD and +12.24% year-to-date, as stabilising rate expectations renewed investor appetite for yield-bearing real assets. This shift benefitted portfolios that maintained diversified exposure beyond concentrated equity themes.
In the Central Bank arena, the Bank of Japan raised its policy rate by 25 basis points to 1.00%, its highest level since 1995. The investment team identified the Japanese Yen as one of the most important macro risks globally — the risk of carry-trade unwinding has the potential to generate spillovers across global bond and equity markets. The People’s Bank of China held its loan prime rate unchanged for a 13th consecutive month, while the European Central Bank delivered its first rate hike since 2023, responding to HICP (Harmonised Index of Consumer Prices) inflation of 3.2% even as Eurozone growth forecasts were lowered to 0.8%. Europe was viewed as lacking meaningful growth drivers, facing weak growth, fiscal strains from defence spending and competitive pressure from China.
Commodities experienced broad and sharp declines. Gold fell -11.72%, platinum -19.11%, Brent crude -20.65% and iron ore -5.71%. The team noted a persistent divergence: commodity fundamentals — including depleted US and Chinese strategic oil reserves and apparent supply deficits in precious metals — remained supportive, yet prices continued to weaken. The US Dollar strengthened materially during the month, which created additional headwinds for commodity-linked and emerging market assets. The team maintained its longer-term constructive view on commodities, preferring gradual accumulation over reactive positioning.
June’s market action reinforced the team’s conviction that a measured, risk-aware stance remains appropriate. Cross-asset divergences are widening, and the risk/reward of increasing equity exposure is not compelling at current valuations.
South African Market Overview
South African markets had a difficult June. The FTSE/JSE All Share Index returned -3.68% in ZAR for the month, bringing its year-to-date return to -2.96%. The JSE’s resource-heavy composition proved a meaningful headwind as commodity prices declined sharply following the oil price collapse and broader US Dollar strength. The platinum sector was particularly hard hit — platinum declined -19.11% globally, a significant negative for an index with material exposure to South Africa’s mining sector.
Domestic economic data offered a mixed picture. South African CPI rose to 4.5%, while core inflation remained contained at 3.8%. First-quarter GDP growth came in at 0.5% quarter-on-quarter, consistent with an economy expanding modestly but not gaining meaningful momentum. The South African Reserve Bank was expected to hold the repo rate at 7.00% at the upcoming July meeting, with core inflation providing limited justification for near-term tightening.
The South African Rand held up remarkably well against expectations. Despite a strengthening US Dollar, falling commodity prices and foreign selling of domestic equities, the Rand remained resilient — a dynamic the investment team described as difficult to reconcile with the underlying fundamentals. This resilience provided some protection for offshore-exposed portfolios when measured in ZAR terms.
South African listed property was the standout domestic performer, with the FTSE/JSE Listed Property Index returning +3.74% in ZAR for the month and +4.61% year-to-date. The asset class benefited from stabilising domestic interest rate expectations and renewed investor appetite for income-generating assets as energy-driven inflation fears began to unwind.
Domestic bonds delivered a positive month, with the FTSE/JSE All Bond Index returning +1.50% in ZAR and +4.25% year-to-date, reflecting the contained core inflation environment and the SARB’s measured policy stance. Cash, as measured by the STeFI Composite, returned +0.55% for the month and +3.35% year-to-date, continuing to provide reliable and predictable returns.
The year-to-date performance differential between South African asset classes is notable. Bonds, listed property and cash have all delivered positive returns, while domestic equities remain in negative territory. This pattern has rewarded the team’s diversified, income-anchored approach to local allocation and validated a cautious stance on domestic equity risk.
Key Insights from Weekly Investment Team Meetings
- Energy shock, inflation scare and a sharp reversal: The Middle East energy spike and subsequent ceasefire created a volatile but temporary inflation scare during June. The team assessed this as fuel-driven rather than structural and maintained existing positioning rather than making reactive changes — a decision that proved appropriate given how quickly the shock reversed.
- US Dollar strength and Yen risk: The US Dollar broke higher on a technical basis, creating headwinds for commodities and emerging markets. The team identified the Japanese Yen as a significant global macro risk — a disorderly carry-trade unwind has the potential to generate broad market spillovers. Portfolios retained their diversified global exposure while monitoring this risk closely.
- AI earnings story intact, but concentration a concern: Global equity gains continued to be supported by real earnings growth in AI-linked companies, distinguishing this cycle from the speculative 1990s internet boom. Market leadership remained narrow, however, and active stock selection became increasingly difficult. The team retained global equity exposure without adding to the most concentrated positions.
- Commodities: fundamentals constructive, prices weak: Oil, gold, platinum and industrial metals all declined despite supportive supply-demand fundamentals, partly driven by Dollar strength and the removal of geopolitical risk premiums. The team maintained a longer-term constructive view on commodities and preferred gradual, conservative positioning rather than chasing near-term price weakness.
- South African income assets outperformed domestic equities: Bonds, listed property and cash all delivered positive returns in ZAR during June, while domestic equities declined materially. This outcome supported the team’s balanced, diversified approach to South African allocation and reinforced the value of maintaining exposure across multiple asset classes rather than concentrating in equities.
- Risk/reward does not justify increasing equity risk: The investment team maintained a broadly neutral risk stance with elevated cash levels throughout the month. Valuations remain stretched, market leadership is narrow, and the global macro backdrop is complex. The team remains invested but not complacent — diversification and adequate liquidity continue to govern portfolio construction at this stage of the cycle.
Portfolio Implementation and Strategy
The investment team entered June with a broadly neutral risk stance and maintained that positioning throughout the month. The decision to avoid large tactical calls in response to the Middle East energy volatility proved appropriate — markets rewarded patience over reactivity, and the inflation shock reversed faster than many anticipated.
Cash and short-duration instruments continued to serve a meaningful stabilising function across portfolios, providing both liquidity and a genuine return alternative at a time when the incremental risk of adding equity exposure could not be justified by a compelling risk/reward case. Cash levels were maintained above neutral, reflecting the team’s view that the carry advantage of holding cash remains meaningful in the current environment.
Global equity exposure was retained without material alteration. The team remained selective in its approach to the AI-driven technology complex, preferring diversified exposure to companies supported by genuine earnings growth rather than concentrated positions at elevated valuations. Global listed real estate contributed positively to performance during the month, consistent with the team’s view that real assets supported by stable income streams deserve a place in a diversified portfolio.
Within South African portfolios, a modest underweight to domestic equities was maintained, while exposure to bonds and listed property was retained. Both contributed positively to returns during June, validating the portfolio construction approach. The balance between domestic and offshore exposure continues to reflect relative valuation assessments and the team’s measured view on currency and macro dynamics.
The team will conduct a formal strategic asset allocation review in the coming period. In the interim, the governing principle remains clear: stay invested and diversified, maintain adequate liquidity, and resist the temptation to chase concentrated market themes at elevated valuations. June’s cross-asset divergences reinforced that conviction.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
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