Global equities performed well in the first quarter of 2023, as the rate of headline inflation continues to ease, and recession worries receded somewhat. This despite the collapse of Silicon Valley Bank, which certainly caused significant volatility in the market and particularly the banking sector. Global equities rallied by 7.3% in the quarter, with Europe performing well, up 10.6% and China lagging, up 4.8%. The S&P 500 index was in line with global equities, up 7.5%. Global bonds were up 2.9%, encouraged by the inflation outlook and potential rate cuts in reaction to the banking crisis. Global property is still under pressure, down 1.8%. Tracking the global trend, local equities increased by 5.2% and bonds up 3.4%. Interesting, gold shares were very strong, well over 30%, as the sector regained its ‘safe haven’ status in adverse inflationary times.
Considerable uncertainties remain which will impact sentiment and further market volatility can be expected. Core inflation is generally sticky and may keep monetary policy tight for now. We all know that the cost of living is higher. Inflation is real. The chart below is a good illustration of how the price of your English Breakfast basket, in GBP, has increased over the past few years. Measured in ZAR you may lose your appetite or desire to travel.
Source: ONS Bloomberg and Anchor April 2023
The (US) banking sector is likely to see further regulation and tightening of lending standards, which can further slow growth in developed economies. At least China’s economic recovery is (eventually) underway, providing some cushion. The geopolitical backdrop is tenuous, with no resolution in sight in the Ukraine and renewed tensions between the US and China.
Global growth is slowing, and earnings should come under pressure. Asset classes in general are not overpriced. A shift from an expected mild recession to something more severe, particularly in the US, will be negative for global equity markets and favour bonds. Domestic economic growth remains evasive as loadshedding is the new reality. Domestic bonds cannot be overlooked, currently yielding double digit returns and certainly justify a position in a balanced portfolio.
An investment objective to provide inflation beating returns over time remains more crucial than ever. Diversification across asset classes will be key. It is essential to focus on your unique investment horizon and financial requirements and optimise your portfolio accordingly.
The table below highlights the performance of selected markets and asset classes to 31 March 2023
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The BAYMONT team