MARKETS IN A NUTSHELL - APRIL 2022

The Foord SA and global funds performed well in relative terms in April as financial markets exhibited broad-based weakness. Conservative US dollar flagship Foord International Fund is up +3.3% in US dollars this year when global share markets have declined -12.9%. 

All major asset classes fell in April as markets confronted the implications of stubbornly high and seemingly accelerating inflation. Our base-case macro-thematic outlook has turned out to be largely on point, as the myriad capital market dislocations of the previous decade manifest as market volatility. Although the funds are broadly well positioned for the current environment, we recognise that it remains an uncomfortable period for investors.

Global bourses slumped as US Federal Reserve comments suggested larger than expected interest rate increases in the months ahead. Investors in US Treasuries are now pricing in additional interest rate hikes of 2.5% from May to the end of 2022. The spike in the US 10-year yield affected long-duration growth stocks most, with the tech-heavy Nasdaq Composite suffering its worst monthly performance since October 2008.

Emerging markets also fell, led by Brazilian equities which retraced after a strong commodity price driven first quarter. Chinese markets fell on the negative growth effect of its continued zero-covid policy. Bond market investors incurred heavy losses as developed market bond yields rose sharply. The US 10-year Treasury yield shifted up meaningfully on steep inflation prints and the increasingly hawkish Fed comments. 

South African equities fell in line with global equity markets and other merging market commodity exporting countries, with resources, industrials and financials in negative territory. South African bonds moved lower as the yield curve steepened on rising inflation expectations and net foreign selling. Property also fell on economic growth concerns as rising inflation and interest rates present headwinds to consumers.

The rand sharply retraced some of its recent gains on broad-based US dollar strength and weaker commodity prices. The currency is vulnerable to a reversal in the commodity export-driven terms of trade support.

While the macro backdrop is unfolding in line with Foord’s base-case expectations, performance on the South African funds year to date has been stunted to some extent by the unusually strong rand and stronger than expected commodity prices. The managers expect these phenomena to reverse in the months ahead.