MARKETS IN A NUTSHELL - AUGUST 2022

Developed market equities retraced after Fed Chairman Powell’s hawkish comments at the Jackson Hole economic symposium held in the last week of August. Any near-term hopes for a dovish Fed pivot were dashed by the Fed governor’s commitment to tighten financial conditions despite knowingly causing “pain” to households. 

Emerging markets outperformed led by Brazil, where oil’s strong 12-month gain continues to propel the economy, despite the recent declines. Indian markets also rebounded on stronger economic activity.

Developed market bond yields moved higher as the US yield curve further inverted, with yields on short-term US Treasuries rising to levels not seen since before the Global Financial Crisis. Bellwether industrial commodities oil and copper declined as recession fears rose on Powell’s inflation fighting resolve, while soft commodities were mixed. 

Precious metals gold and silver fell sharply on rising expectations for higher real interest rates, given the increasing opportunity cost to holding these non-interest-bearing assets. The US dollar again strengthened against the other majors as the interest rate differentials between the US and other developed economies continue to widen.

In the Foord International Fund, the short S&P 500 futures hedge contributed most to fund returns in the falling market. Foord Global Equity Fund’s outperformance was driven by positive information technology sector stock selection and a lower-than-index allocation to the underperforming sector. 

In South Africa, the JSE tracked global bourses lower with pro-cyclical resources falling most, followed by financials and industrials. The All Bond Index posted positive returns as the yield curve moved lower despite the rand weakness. Listed property stocks were lower on continued economic growth concerns and the rising cost of borrowing. 

The rand weakened sharply on broad-based dollar strength. The currency remains structurally vulnerable in the longer term given South Africa’s lack of global competitiveness, low economic growth and strained sovereign balance sheet. 

In the South African multi-asset funds, the meaningful allocation to foreign assets contributed most to performance given tailwinds from the weaker rand and positive sector and stock selection. Domestic equities also contributed positively while bond investments in the short to medium-term maturity buckets outperformed longer duration securities. Property was the only detractor on weakness in London property stock, Capital & Counties. 

There were no material changes to the diversified and relatively defensive portfolio setting in the month. High levels of liquidity have also been maintained to maximise flexibility given expectations for further market volatility and the long-term investment opportunities that this typically presents. The funds are well positioned to build on year-to-date outperformance as our base case investment thesis continues to unfold.