The third quarter of 2024, to the end of September, produced bumper returns for South African investors, with the JSE having its strongest third quarter in 11 years and local bonds also performing strongly. Returns from global equities and bonds, however, were muted.
The quarter also saw the rand strengthen against the US dollar, inflation continue its downward trend and, to the relief of consumers paying high interest on their loans, a reversal in the interest-rate cycle in September. The drop of 0.25% in the repo rate, although not making a big difference by itself, signalled more rate cuts to come.
The quarter was marked by a surge of optimism in South Africa’s future, not unlike the “Ramaphoria” of early 2018, following the relatively amicable formation of the Government of National Unity (GNU) in June. In her quarterly Market Observations report, Alet Fick, senior multi-asset analyst at M&G Investments, writes: “In South Africa, improving sentiment from a market-friendly election, better economic conditions, and easing monetary policy led to gains in asset prices and the rand, with the FTSE/JSE All Share Index (Alsi) rising 9.6%. Key contributors included listed property (19.1%), and financials (13.7%) while resources declined by 1.1%. South African bonds performed strongly, with the FTSE/JSE All Bond Index rising 10.5% over the quarter. Bond yields continued the downward move we have seen since the conclusion of the GNU election results. The rand strengthened to the end of September to the best levels since the start of 2023, having gained 5.6% against the US dollar and 1.7% against the euro, but it depreciated 0.1% against the British pound.”
Over the 12-month period to the end of September, the Alsi was up a healthy 23.9%, local bonds up 26.1% and global equities, as measured by the MSCI World Index, up 21.7%, according to the Corion Report for September, quoting Morningstar data.
But the star performer over the 12 months has been listed property, up 51.3%, as measured by the South African Listed Property Index. Having been in the doldrums for several years, listed property has made a remarkable comeback, reversing the heavy losses it suffered during the Covid pandemic, but not quite back to its record highs of late 2017.
Also enjoying a boom, as a result of factors mentioned below, was gold, up 13% in US dollars for the quarter and 44% for the 12 months.
Global environment
South Africa was the place to be in the third quarter, because globally the investment environment was more tenuous. Slowing inflationary pressure led to general agreement among central banks to begin cutting interest rates, and it appears more likely that a US-led recession is off the table. However, rising geopolitical tensions, particularly in the Middle East, have increasingly weighed on investors’ shoulders.
M&G’s Fick reports: “The third quarter witnessed notable fluctuations in global financial markets, driven by diverse economic signals, a shift among major central banks toward easing monetary policies and geopolitical tension. In mid-September, the US Federal Reserve implemented a sizable interest rate cut of 50 basis points, lowering the target range to between 4.75% and 5.00%.
“This shift propelled global equity markets to new heights, while weakening the US dollar against major currencies. The European Central Bank also continued the easing trend, cutting its rate by 25 basis points to 3.5% in September. Improved economic data and interest rate cuts in Europe and the US contributed to a recovery in European stocks following a sell-off earlier in August. Significant market movements were also driven by substantial stimulus measures from the Chinese central bank aimed at bolstering the economy.
“The International Monetary Fund reported a stabilisation in global economic growth as the effects of previous interest rate hikes faded and falling inflation enhanced consumer disposable income. A US ‘soft landing’ appears increasingly likely following the worst inflation surge in a generation, but it is not guaranteed.
“Middle East tensions have reached even higher levels. The market reaction to these events have been short-lived, but as the situation escalates, we would expect to see moves to lower-risk assets”.
Collective investment performance
Quoting the Corion Report, here are 12-month returns to September 30 for unit trust funds in the three most popular fund categories:
• SA Equity General: Funds returned between 10.9% and 41.2%, with an average return of 22.1%. The top-performing fund was the Ninety One Value Fund (41.2%). The largest fund in this category, the Allan Gray Equity Fund, with over R46 billion in assets under management (AUM), returned 16.6%.
• SA Multi Asset High Equity: Funds returned between 5.1% and 37.9%, with an average return of 18.8%. The top performing fund was the Granate BCI Balanced Fund (37.9%). The largest fund in this category, the Allan Gray Balanced Fund, with over R198 billion in AUM, returned 14.2%.
• Global Equity General: Funds returned between 0.5% and 38.4%, with an average return of 15.8%. The top performing fund was the Sygnia FANG.AI Equity Fund (38.4%). The largest fund in this category, the Ninety One Global Franchise Feeder Fund, with over R36 billion in AUM, returned 8.8%.
* Hesse is a former editor of Personal Finance.
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