MAANDVERSLAG

Monthly report

The month that was…

April was a good month for equities and most funds benefited from this surge.  The big surprise was the SARB hiking local interest rates with 0.5% while only 0.25% was expected.  This is an indication that higher inflation is expected and that the SARB wants to make sure it controls the curve.  The repo rate is currently at 7.75% and has almost doubled over the last year, as can be seen below.  Expectations for two more 0.25% hikes for this year are on the table.  As a result, the consumer is under dire financial stress.

Source:  Trading Economics

This rate hike supported the rand, which at some stage was trading at more than R18-60/US$ (yellow marking below).  The dollar also seems to come under pressure as expectations of further rate hikes are waning.  Local inflation has unexpectedly come in at 7.1%, higher than expected.

                                                                                                                                Source:  Fund Focus

The big driver of the inflation basket was food (14%), and it is expected that it will continue to pressurise inflation for some time yet.

Source:  Stats SA, Anchor

The rand was supported by an unexpected trade surplus of R16.1bn.   Eskom weighs heavily on the local economy, and it is estimated that it costs us 2% of GDP growth per annum.  The current wage negotiations and possible strikes might have a larger impact as the demands are more than inflation.  Current GDP forecasts by Fitch and the SARB is that the South African GDP will only be 0.2% for the year.

The fifth Investment Conference was held, and president Ramaphosa managed to get commitments of R1,5 trillion rands of investments.  This is more than the original 5-year objective of R1,2 trillion.  Should this play out, it might lead to more fixed investments and job opportunities.  This is a drive to lure more private sector capital into government driven projects.  This is nothing more than privatisation, but the current government has difficulty using that word.

It seems as if the economy in China is gaining momentum after Covid restrictions were removed.  The annual GDP growth rate is up to 4.5% (graph below) and consumer confidence is returning.  The pent-up capital in households is starting to seek its way into the market and this bodes well for their economy.  Inflation is at a low 0.7%, but as spending increases, we might see this tick higher.

Source:  Trading Economics

This should be good news for the prevention of a global recession, as well as for commodity-based countries like South Africa.  It also seems as if the South African harbours are gearing up their effectiveness and hopefully our infrastructure will allow us to benefit from this cycle.

The United Kingdom has just managed to dodge a technical recession and their inflation rate is ticking lower at 10.1%.  The UK economy is almost back to the size it was before Covid.  Most of the developed world sees inflation edging lower, which will alleviate the interest rate pressures.  US inflation has slowed to 5% but is still above the target of 2%.  The following graph gives the latest inflation rate, as well as the previous figure of various countries.

Source:  Trading Economics

Many local and international companies are currently declaring their revenue figures and markets seem to wait for some direction from these figures.  The direction of US inflation and interest rates are also watched closely.

Snippets from the market

• The US year-on-year CPI number eased last month to +5%, the lowest level since May 2021.
• Consumer confidence from China is starting to return in one of the most important markets in the world for luxury items.
• The Chinese government is positioning Hong Kong as its gateway to crypto and the wider digital assets space.
• Electricity generation fell by a further -9.7% y/y in February, according to Stats SA.
• February 2023 tax receipts were surprisingly robust with high-single or low double-digit growth across the most important categories.
• One Google search uses the same amount of computing power it took to send the Apollo 11 astronauts to the moon.
• Every 5 years, average life expectancy increases by roughly 1 year.
• Training a single AI model could emit as much CO2 as 5 cars emit during their entire lifetime.
• Apple launches a high yield savings account from Goldman Sachs offering 4.15% interest rate, meanwhile the average savings account interest rate in America of 0.37%.
  • The Apple savings account has no fees, no minimum deposits, and no minimum balance requirements.
• A court ruling cuts off Free State municipality’s (town of Frankfort) access to solar power on the same day that Eskom is forced to implement stage 6 loadshedding.
• Japan’s government invited the African Union to the forthcoming G7 summit and excluded regular attendee South Africa because it believes that SA can no longer speak on behalf of the continent on international affairs.
• Homeowners are struggling to pay home loans due to the 425bp cumulative increase in the repo rate.
• China’s gross domestic product grew by 4.5% in Q1 from a year ago, as consumers went on a spending spree after 3 years of strict pandemic restrictions ended.
• UK inflation dipped to 10.1% (consensus expectations, however, was for 9.8%); a further 25bp rate hike appears highly likely in May.
• India set to overtake China as the world’s most populous country by mid-2023.

I trust this will help.

Rocco Carr (Glacier)