The JSE All Share Index ended this quarter lower than the previous three quarters, taking us back to levels last seen a year ago.  South African equities remained resilient up until a late sell-off of risk assets near the end of August, which followed the announcement by the US Federal Reserve of their intention to aggressively increase interest rates until inflation is brought back under control.

Global equity markets traded weaker with most economies retracting as a result of lower demand for goods and services.  Massive energy and commodity price increases also contributed to the slowdown, along with continued supply chain issues further compounding the situation.  Contracting economies are seen as indicators of deteriorating conditions to come, with rising interest rates and high inflation continuing to put pressure on consumers and economic growth.

The rising interest rates in the United States has seen the US Dollar strengthen significantly against most currencies as cautious investors look for safe havens in which to invest. The Rand has surprisingly been one of the better preforming emerging market currencies and with the sanctions levied on Russia by the West, we have seen demand for South African equities increase.

The hostilities between Russia and Ukraine show no signs of easing in the near future and are likely to continue to hinder economic growth in the short term. The resulting surge in energy prices continues to negatively affect business activity and put further strain on economies and individuals, pushing them closer to recession.  The UK economy is also under pressure as rising inflation hit a 40-year high and interest rate hikes have, and will continue to, seriously impact consumers, which may in turn result in slowing economic growth.

The Chinese economy also slowed in the last quarter, highlighting weakening consumer demand and causing the People’s Bank of China to cut rates in an effort to stimulate economic activity.

In South Africa, mining and manufacturing production fell, largely as a result of load shedding.  The devastating effects on local economic growth will continue to be felt and major sectors of the economy will continue to decline until serious efforts are made to resolve the Eskom crisis. Despite this, the agricultural and construction sectors have had a much better period and significantly added tax to the fiscus.

The local economy and consumers are currently faced with increases to the cost of living in the form of rising electricity and water prices, increased fuel costs and subsequent food prices, rising interest rates that affect debt repayments and rising inflation, topped with extremely high unemployment which are all very concerning for the recovery outlook going forward.

ANC infighting and political discourse continues to dominate our news headlines with very little being done to resolve service delivery issues as the struggle for power before the ANC’s Policy Conference in December, at which the next President of the ANC will be nominated. KwaZulu Natal municipalities have received a lot of attention with further claims of sabotage and corruption while those accused have yet to be convicted.  We note that the National Prosecuting Authority have begun taking very positive steps with regard to opening cases against a number of government officials implicated in the State Capture Commission report. We can only hope that the increase of criminal cases being lodged, with an increase in successful prosecutions, will act as a deterrent to those wishing to benefit illegally from state funds going forward.  Successful prosecutions may also lead to the recovery of pilfered state funds, which will benefit the local economy significantly.

A highlight over the last quarter, for those of us living in KZN in particular, was the Comrades marathon, which although quieter this year than in previous years, gave the province and local tourism industry a small boost. It was both inspiring and encouraging to witness the comradery and general good spirits of the competitors and supporters. This and the reopening of tourism bode well for the recovery in these areas after the devastating Covid restrictions.

With a constant focus on compliance, we note the recent comments about the potential “Grey listing” of South Africa by the global regulators as a direct result of corrupt money flows and the lack of convictions of those known to be guilty. It remains to be seen if the local powers can do enough by the end of October to prevent SA from being downgraded as this would make the flow of funds and global investing more difficult going forward.

As always the team at Ewing’s will do our utmost to keep the compliance “paper work” to a minimum and we appreciate the efforts of all the investment family in helping us to get updated documents as they are required.

The difficult economic times we are seeing, and that may continue to prevail, will provide good long term investment opportunities and the cyclical nature of markets are well known to the team. As always its time in the market that allows for growth and the investments we associate ourselves with on behalf of clients have historically weathered and profited during both good and bad economic cycles.

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