Market and Economic Summary
Global markets delivered strong returns in September, buoyed by a larger-than-expected interest rate cut by the US Federal Reserve and Chinese authorities’ policy support. This led to a strong risk-on sentiment towards most asset classes and led most developed equity markets to record highs during the month. Turning to China, the government’s stimulus plan sparked the country’s largest stock market rally in over a decade. In the last week of September, the Chinese stock market had its best weekly performance since 2008, advancing 16%. Nevertheless, China’s broader economic outlook remains clouded by challenges in the real estate sector, post-COVID recovery and labour market strains. These headwinds suggest the government’s 5% growth target may be difficult to achieve.
During the month the US Federal Reserve (Fed) reduced interest rates by 0.5% to 5% in September, ahead of market expectations of a 0.25% cut. Fed Chair Jerome Powell reiterated that the central bank would lower interest rates over time, while emphasising that the overall US economy remains strong. The European Central Bank reduced interest rates for a second time when they lowered the key deposit rate by 0.25% this month, in line with expectations. On the other hand, the Bank of England kept its key rate unchanged at 5% during its September 2024 meeting, following a 0.25% cut in August, the first reduction in over four years. This decision was in line with market expectations.
Inflation across most major developed market countries continued its downward trend this month. Annual inflation in the United States retreated to 2.5% (year-on-year to the end of August), marking the lowest inflation rate since February 2021. This represents the fifth consecutive month of declining annual inflation, highlighting a steady retreat from previous highs. In the Eurozone, inflation continued on its downward path. The annual inflation rate fell to 1.8% (year-on-year to the end of August), the lowest since April 2021, down from 2.2% in July and below market expectations of a 1.9% increase. Inflation in the Eurozone is now below the European Central Bank’s 2% target. In contrast, inflation increased marginally in China, with consumer price inflation moving to 0.6% (year-on-year to the end of August), the highest level since February.
Turning to other economic updates, the US economy continued to demonstrate resilience, growing at an annualised rate of 3.0% in the second quarter of 2024, in line with previous estimates. This growth rate is a notable improvement over the revised 1.6% expansion recorded in the first quarter. Additionally, the US labour market saw a slight improvement, with the unemployment rate easing to 4.2% in August 2024, down from 4.3% in July, and meeting market expectations.
South African (SA) assets maintained their strong momentum in September, delivering their second-best monthly return of the year and outperforming most developed market counterparts. This robust performance was largely driven by a combination of factors, including the South African Reserve Bank’s (SARB) interest rate cut, improved domestic sentiment, attractive relative valuations and supportive policy announcements from China. SA equities posted a strong +4.0% return, led by strong gains in the Resources (+3.7%) and Industrials (+5.4%) sectors. Market heavyweights BHP Group and Prosus were standout performers, advancing +14.5% and +14.3% respectively.
South African nominal bond yields continued their trend lower (leading prices higher), as the stronger rand, along with a third consecutive month of net foreign inflows into South African bonds, pushed yields lower. SA bonds delivered a sixth consecutive positive month, delivering +3.9% for September and +10.5% for the third quarter. South African listed property also continued its upward trajectory, with the property index rising +5.0% in September, bringing quarterly returns to +18.7% and is the best-performing local asset class on a year-to-date basis. The rand strengthened this month, breaking below R17.20 for the first time since January 2023, supported by China’s stimulus measures and a favourable interest rate differential between South Africa and the United States.
The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) reduced the repurchase (repo) rate by 0.25% to 8%, in line with market expectations. Inflation has continued its downward trajectory, falling below the SARB’s target range for the first time in over three years. Despite the significant downward revision of the SARB’s inflation forecast, the decision not to opt for a more aggressive 0.5% interest rate cut was somewhat unexpected. The SARB justified its cautious stance by highlighting several risks, including rising housing costs, higher electricity prices, wage growth, geopolitical tensions and policy uncertainty, which all contribute to economic unpredictability. South Africa’s economic growth remains sluggish, but recent business and consumer sentiment surveys suggest an improving outlook for the second half of the year.
In August, year-on-year headline inflation slowed to 4.4%, down from 4.6% in July, marking the first time in over three years that inflation has fallen below the SARB’s target. The inflation print was ahead of consensus forecasts of +4.5%. Lower annual inflation rates were observed across several product groups, most notably in transport given the firmer rand and pressure on the oil price. The annual core inflation rate, which excludes volatile items such as food, non-alcoholic beverages, fuels, and energy, eased further to 4.1% (year-on-year to the end of August 2024), the lowest since May 2022.
Major developed equity markets recorded modest gains, supported by generally positive global sentiment. The MSCI World Index returned +1.9% in September, although this lagged behind its emerging market counterparts.
Within emerging markets, China led the way with robust performance, contributing significantly to the outperformance of the broader index. As a result, the MSCI Emerging Markets Index ended +6.7% higher in September, reflecting the strong gains across key emerging economies.
Performance in major developed markets was more subdued. The UK’s FTSE 100 (+0.5%), Japan’s Nikkei 225 (+0.5%), and Germany’s DAX (+3.1%) all posted positive returns. However, China’s Shanghai SE Composite soared +18.6%, driven by the government’s broad stimulus measures.
In the US, the tech-heavy NASDAQ 100 rose by +2.6%, slightly outperforming the broader market. Meanwhile, the S&P 500 gained +2.1%, led by strong performance in defensive sectors such as Consumer Discretionary and Utilities.
Impact on Client Portfolios
From a portfolio standpoint, investors achieved solid returns for the month, largely due to strong performance across South African asset classes, with local equities, bonds and property sectors showing positive gains. On the global front, positive market sentiment fuelled a risk-on environment, particularly in emerging markets, further enhancing portfolio returns. However, the strengthening of the rand against the US dollar posed a challenge, as it dampened the performance of global assets in rand terms.
We remain comfortable with the current positioning of client portfolios, both from an asset allocation and a manager selection perspective. We will continue to follow our valuation-driven approach by allocating assets to the most attractive areas of the market from a reward-for-risk perspective and ensure we build robust portfolios. We are confident that we will continue to deliver on the specific investment objectives of each client portfolio independent of the prevailing market environment.
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