On the global front…
- Equities continued to climb in Q2, with the MSCI World Index up 7.9% in USD. The conditions for risk assets remained supportive, with most economic indicators pointing to strong global growth.
- Global property posted another quarter of good gains.
- As in previous quarters, central banks kept interest rates broadly unchanged at very low, accommodative levels.
- In the US, bullish sentiment was further stoked by the bipartisan approval of a 5-year, USD1.2 trillion infrastructure spending plan. At its June policy meeting, the US Federal Reserve left interest rates unchanged – easing investor concerns over rising inflation, while also signaling two 0.25% interest rate hikes by the end of 2023.
- Over in the UK, the rapid spread of the Covid-19 Delta variant – in the face of the country’s successful implementation of its vaccination programme – proved to be a setback for the economy’s anticipated full reopening in June, and dampening market sentiment to some extent.
To local shores…
- The JSE All Share Index was flat for the Quarter. However, there was a significant variance of sector returns. The resources sector was down 5%, while domestic sectors had a strong Quarter with retailers and financials up 14% and 8% respectively. The decline in the resources sector should be seen in the context of the strong performance witnessed over the past 12 months (29.6%).
- A stronger rand against the USD of 3.3%, combined with an increase in P/E multiples from historically cheap levels, supported the outperformance in domestics.
- The South African Reserve Bank (SARB) left the repo rate unchanged at 3.3% in May.
- The USD/Rand rallied strongly in Q2 from USD/Rand15.00 at the start of April to a low point of USD/Rand 13.4 in early June, underpinned by strong commodity prices and a surging trade surplus. Notably, concerns about US inflation prompted some sell-off in June, and the currency pair ended the quarter at USD/Rand 14.3.
- The property sector maintained its momentum from Q1 2021, delivering a quarterly return of 11.1% for Q2-2021.
Source: Coronation Fund Managers / Prudential Investment Managers / Obsidian Capital