The JSE All Share ended this quarter lower than the previous quarter, in line with a global selloff in most equity markets. A spike in global inflation has caused a rising interest rate environment with continued high inflation, which is now a focus of most central banks. Despite the negativity, the South African market has not performed as badly as some of its global peers.
In the United States, there was a significant selloff of shares from the NASDAQ, the technology-focused exchange. High inflation and subsequent interest rate increases have resulted in a substantial shift from the more volatile, high risk growth companies (such as tech shares) to blue chip companies that offer the security of value without high volatility. The Federal Reserve Bank’s (Fed) focus is on curbing rampantly high inflation by aggressively increasing interest rates. In the words of Jeremy Powell, the Fed will keep hiking interest rates until there is “clear and convincing evidence that inflation is on the way down.” So far the Fed has only increased its interest rate by 0.5% and US bond yields moved up sharply in anticipation of further increases. As a result, the US Dollar has strengthened and has proven to be a safe haven given the current global concerns.
Russia, and its protracted war with the Ukraine, has created significant volatility in commodities, specifically in oil and gas. Due to the escalation in hostilities and the continued invasion, further crippling sanctions have been imposed by the West in an effort to discourage this course of action. The increased oil price and global supply chain delays, as a result of shipping lines having been disrupted, have compounded inflationary pressures globally, particularly within Europe due to their historical reliance on Russia for these commodities and resources.
China’s zero Covid policy resulted in a number of provinces and cities being completely locked down. This further exacerbated supply chain issues and caused significant bottle-necks, which further increased global transport costs. The Chinese economy has come under extreme pressure as a result of these lockdowns, which has negatively affected their shipping ports. The continued regulatory oversight on certain Chinese tech stocks has also caused this sector to under-perform recently.
South African politics continues to dominate our news headlines and although we have recently seen a number of high profile arrests, it remains to be seen whether or not accountability and prosecutions will be forthcoming. Hopefully, the focus of local KwaZulu Natal municipalities will be on rebuilding some of the structural damage caused by the looting during 2021 and the recent flooding events which have caused devastating damage. It has been uplifting to see the social cohesion between all races within communities across the province and the outpouring of goodwill for those who have suffered as a result of these events.
Despite the rising interest rate environment in South Africa, the Rand has remained volatile over the last quarter, with a low of R14.45 and a high of R16.21 to the US Dollar in the latter half of the quarter before settling at R15.62 by quarter end.
As a result of these global headwinds, we could see markets retracing in the short term so it is imperative that investors stay invested during these periods of volatility, in order to provide for long term dividend and capital growth. If a significant pull-back occurs, it will provide investors with the opportunity to buy shares in good, quality companies at a far reduced price, particularly when compared to the elevated valuations that have been posted recently.
As you are aware from our recent correspondence, we have implemented a new online system and thanks, in particular, must go to Sherry Greiff for her endeavors in developing this system and getting it up and running effectively. This will alleviate the nightmare of password protected emails to a great degree and will help to handle the onerous compliance environment in which we find ourselves. The system is currently being rolled out and you will be contacted, if you have not been already, in due course to ensure that you can access and navigate the system at your leisure. As with any new system implementation it may take a little while for us to iron out any issues and we always welcome feedback and suggestions from our investment family.
Please note that Thursday 16 June is a public holiday and we have decided to close our offices on Friday 17 June 2022. The directors will however, be available on their cellphone numbers in case of an emergency.