The local equity market enjoyed a welcome upswing in the second quarter to June 30 after lacklustre performance in 2023 and early 2024. The FTSE/JSE All Share Index (Alsi) closed at 79 707 points at the end of June, up 4.8% from 76 027 points at the end of March and up 6.9% from 74 535 points at the end of June last year.
According to the Corion Monthly Report for June using Morningstar data, the All Share Total Return Index, which includes reinvested distributions and is more relevant to longer-term investors than the Alsi, was up 8.2% for the quarter and 9.1% for the 12 months.
The top-performing sectors were listed property and financials. Industrial shares showed modest gains, while resources shares recovered from their recent negative performance to end the 12 months flat.
- Listed Property: The property index rose by 5.5% during the quarter and was up a whopping 26.3% in the 12 months to June 30, giving investors much to smile about after a sustained period of underperformance in this sector.
- Financials: The Financial 15 Index reflects the second-quarter comeback of the big financial firms, boosting returns over the year: it was up 17.1% for the quarter and 24.5% for the 12 months. In June alone, Capitec was up by 23.4%, Discovery 22.8% and FirstRand 18.3%.
- Industrials: The Industrial 25 Index, which reflects the share-price performance of South Africa’s largest industrial companies, was up by 4.8% for the quarter and 4.4% for the 12 months, meaning that it was flat until the end of last year and that it made some gains only from January to March.
- Resources: This highly cyclical sector (it’s either on a roll or on a losing streak, seldom in-between), as reflected in the Resources 10 Index, rose 3.4% over the quarter, but was down 1.3% for the 12 months.
According to the Corion report, local bonds outshone equities over the quarter and the year, returning 7.5% and 13.7% respectively.
The rand traded mostly between 18 and 19 R/$ for the 12 months, rarely breaching that trading band. It closed the quarter at around R18.20 to the dollar.
Global equities, as measured by the MSCI World Index, were slightly down for the quarter (−0.9%) but in rand terms have given investors impressive returns over a year (16.7%), three years (16.5% a year, on average), and five years (18.5% a year, on average). Compare the figures with the local equity market, which returned 9.1% over the 12 months, 11.0% a year over three years, and 10.6% a year over five years.
Unit trust performance
Looking only at annual returns in the major categories to the end of June, quoting the Corion report:
- SA Equity General Funds: The average return was 9.5%. The best performing fund returned 28.0%, the worst 2.9%.
- SA Multi Asset High Equity Funds: The average return was 10.2%. The best performing fund returned 27.5%, the worst 1.9%.
- SA Multi Asset Low Equity Funds: The average return was 9.8%. The best performing fund returned 14.8%, the worst 4.1%.
- Global Equity General Funds: The average return was 12.6%. The best performing fund returned 42.6%, the worst – 7.9%.
Inflation and interest rates
South African Consumer Price Index inflation remained steady through April and May at 5.2% year-on-year, down from 5.3% in March and 5.6% in February, according to Statistics SA. The repo rate set by the Reserve Bank (SARB) remains at 8.25%, with the prime lending rate at 11.75%.
Economists are expecting one or possibly two rate cuts later in the year. Reuters news agency quoted David Omojomolo, an Africa economist at Capital Economics, as saying it would be a close call, but he expected the SARB to cut rates by 25 basis points (bps) in September.
Casey Sprake, an investment analyst, Fixed Income, at Anchor Capital, said the Bureau of Economic Research’s second quarter 2024 survey of inflation expectations revealed that the expectations had gradually started to decline.
“The central bank has remained steadfast in communicating that it will not move the policy rate lower (and thus essentially usher in a rate-cutting cycle) until inflation is under control and sustainably hitting that target.
“As such, we foresee potential rate cuts materialising towards the end of 2024, depending on the inflation outlook (locally and abroad) and global interest rate developments as we progress further into this year.
“At this stage, we expect an initial rate cut of 25bps in November, followed by a further 50 to 75bps worth of cuts in 2025 and leading into 2026,” Sprake said.
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