Looking Back on Q1, 2022

We’ve had a volatile start to the year, to put it mildly!

Let’s look at the key events driving market movements…

Russian forces invaded cities across the Ukraine.  The economic impact of which has been significant.  Russia is the world’s 11th largest economy and a large exporter of oil, gas, nickel, palladium, grains and fertilizer.  Prior to the conflict, its businesses and financial markets were fully integrated with the rest of the world.  The scale of Russia’s military action –  and the severity of the sanctions imposed –  resulted in a significant increase in volatility in financial and commodity markets. 

Additionally, concerns about higher inflation and interest rates remained.  

South African markets were relatively unscathed due to large resources exposure, a stable Rand and undemanding initial valuation levels (see article Tracking the Rand in 2022).

Taking a closer look on the local front…

  • SA reported its largest current account surplus on record. Last year, imports were suppressed by the pandemic, while gold exports rose.  The surplus on the current account widened to 3.7% of GDP.
  • SA’s Monetary Policy Committee (MPC) increased the repo rate to 4.25%.
  • Inflation for 2022 was revised to 5.8% due to higher food and fuel prices.
  • The Covid-19 Social Relief Grant of R350 a month for unemployed adults was extended for another year.
  • The Minister of Finance announced no hikes of the main taxes investors pay, such as Capital Gains Tax (CGT), Dividend Withholding Tax (DWT) and Estate Duty.

On the international front…

  • The US announced sanctions on Russian oil, coal and natural gas imports.
  • The European Union Commission announced plans to reduce demand for Russian gas by 75% before year end. 
  • Oil surged to USD 129/barrel.
  • The US raised rates by 0.25%.
  • US inflation was up 7.5%.
  • Record inflation in the European Union.

Source:  Coronation Fund Managers, Sanlam Investments