South African Market Update Global equity markets ended the month in positive territory, despite rather modest gains in certain major markets, as global economies continued to show signs of recovery despite new Covid-19 restrictions in certain countries. There continues to be optimism around the US economic recovery, as strong economic data and the high likelihood of further stimulus measures continues to bode well for risk appetite. This, despite Republicans in the Senate unveiling a $928 billion infrastructure proposal, well below US President Joe Biden’s original $1.7 trillion plan. Inflation continues to be a talking point for investors, as the US Federal Reserve’s (Fed) preferred inflation measure, core personal consumption expenditure (PCE), advanced 0.7% month on month in April, bringing the year-on-year figure to the end of April to 3.1%. The Fed continues to reiterate its belief that inflation pressures are transitory and that they intend to keep monetary policy conditions accommodative for the foreseeable future. South African equities ended higher for a seventh consecutive month, largely driven by strong performance from Financials, gold and retail counters. Local bonds had a strong month, as foreigners returned to the SA market (foreigners bought R9.3 billion of local bonds in May) and the yield curve flattened following strong performance from long dated SA government bonds. Local listed property gave back some gains during the month, as the asset class took a breather after strong performance in April. Uncertainty caused by the implications of a third wave of Covid-19 infections acted as a headwind for the asset class. The rand continued its impressive run,finishing the month stronger against most major developed market currencies, supported by strong commodity prices and a weaker US dollar. The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) left interest rates unchanged for a fifth consecutive meeting in a unanimous decision, with the MPC revising its growth forecast higher for 2021 from 3.8% to 4.2% following the strong rebound in Q1 2021. SA headline CPI moved significantly higher to a year-on-year figure of 4.4% for April (from 3.2% in March), the largest monthly change in annual inflation since 2009. The increase was largely driven by the base effects of higher fuel and food prices. SA’s trade surplus continues to provide support to the rand, with the surplus for April (R51 billion) following a revised surplus for March of R52.5 billion. Following higher daily Covid-19 cases across the country, President Cyril Ramaphosa announced that South Africa would move to a level two lockdown (effective 31 May), largely in response to a third wave of infections in certain provinces across the country. The JSE All Share Index (+1.6%) ended higher for a seventh consecutive month, largely driven by positive moves in banks, gold counters and retailers. Local equity sectors had mixed performance for the month, with Financials (+9.3%) outperforming both Industrials (+1.6%) and Resources (-1.2%). The top performing shares amongst the largest 60 companies on the JSE in May were Mr Price Group (+28.3%), Gold Fields (+26.5%) and Pepkor (+24.0%). The worst performing shares in May were Sappi (-11.6%), Prosus (-9.7%) and Quilter (-9.5%). Listed property (-2.9%) ended the month lower, with weak performance from some large index constituents and profit taking (after strong performance in April) acting as a headwind for the asset class. Local bonds (+3.7%) had a strong month, supported by foreign buying of SA bonds and a flattening of the yield curve. Cash delivered a stable return of +0.3% for the month. The rand was stronger against most major developed market currencies for the month. The rand appreciated against the US dollar (+5.7%), the euro (+4.1%) and the pound sterling (+3.0%) over the month. Click here to read more. Global Market Summary
Global equity markets had another good month, largely on the back of continued optimism over a recovery in the US economy. Vaccination efforts remained apace, with estimates suggesting that over 50% of the US population has now been vaccinated. The picture was similar in other developed markets (DM’s), where the vaccination rates continue to improve. Emerging markets on the other hand, continue to lag DM’s in the inoculation drive and there has been a resurgence in new cases in countries such as India and South Africa. From an economic data point of view, May releases were a bit mixed. The Chicago PMI came in higher than expected at 75.2, reaching its highest reading since 1973, whilst consumer confidence on the other hand, as measured by the University of Michigan marginally declined to 82.9 in May from the previous reading of 88.3. Personal income declined by 13.1%, lower than the 14% estimate, as the effect of the stimulus measures started to diminish. The savings rate, however, remained elevated at 14.9%, highlighting the robustness of the US consumer. Turning to inflation, the Core PCE (the Fed’s preferred measure of inflation) surprised to the upside, with May’s reading surpassing the market estimate of 2.9%, as it reached 3.1%, its highest annual reading since 1996. Despite continued evidence of a sustained economic recovery and the ensuing inflationary surprises, the Fed remained steadfast in its monetary policy stance, maintaining the mainstream central banking view that the current inflationary pressures were transitory and attributable to supply bottlenecks. Moves in the bond market were also largely muted following the inflation data releases. Turning to equity markets, the US continued to trail its European counterparts, despite the end of an impressive earnings season. In the US, the S&P 500 (+0.7%) outperformed the technology heavy NASDAQ 100 (-1.2%). The UK’s FTSE 100 (+3.8%) had a very good month, whilst Germany’s FSE DAX (+3.5%) was a standout within the major European markets. In Asia, China’s Shanghai SE Composite (+6.7%) was amongst the best performing markets for the month and Japan’s Nikkei 225 (+0.1%) fared better than the previous month. Emerging markets had another good month, with the MSCI Emerging Markets Index (+2.3%) ending on a strong footing. Overall, global equities ended marginally higher, with the MSCI World Index delivering a return of +1.5% for the month, reflective of the broad positive performances across its constituents. On the commodities front, performance was mixed for the month. Gold (+7.5%) and Oil (+3.1%) built on the performances from the previous month, whilst Platinum (-3.9%) gave up some of its gains from the previous month. The performance of the US dollar was mixed against most of the major currencies for the month. The greenback depreciated against the pound sterling (-2.6%) and the euro (-1.5%), but was largely flat against the Japanese Yen (+0.1%). Click here to read more Source: Morningstar
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