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Investor report and newsletter for the second quarter of 2023

Global equities continued to perform well in the second quarter of 2023, up 5.6%, the third consecutive quarter of positive returns. The lead coming from the USA, up 8.7%, with a concentration of returns in a few sectors. Technology, fuelled by the excitement over artificial intelligence, telecommunications, and consumer discretionary accounted for about 80% of the returns. Apple made history by becoming the first company with a market value of over $3trn. Emerging markets were flat in general, but China was down 9.4%. Emerging markets lagging the developed markets materially over the past two quarters due to slowing economic growth and weaker commodity markets. Global bonds were marginally down as the Fed indicated a pause in rate hikes and the yield curve inverted. Global property remains under pressure, down 1.1%.

Economic activity has slowed a bit but has remained more resilient to rate hikes than expected. Inflation has improved since the peak last year but the focus on ‘core’ inflation, excluding cyclical products such a food and energy, is moving lower at a much slower pace.

Source: Morgan Stanley Research, June 2023

The concern remains that interest rates stay high because of stronger economies, which may then lead to a recession. Markets have enjoyed the fact that the economy has slowed down less than feared. For this to be sustained will require clarity on how the rates move from here and confidence on the pace of earnings growth into 2024. Global equity valuations are mixed, with the US trading well above average, while Europe and China are more attractive. Considerable uncertainties remain which will impact sentiment and market volatility can be expected. The geopolitical backdrop remains tenuous.

Domestic asset classes were muted for the quarter, with equities and property both up 0.7%, bonds down 1.5% and cash steady at 1.9%. The rand weakened further, influenced by foreign policy uncertainty. Sentiment is depressed. Consumer confidence has reached all-time lows, driven by ongoing loadshedding and rate hikes. While economic growth is close to zero, inflation is declining which is pleasing and may suggest the end of the rate hike cycle soon. Both equity and bond valuations look attractive based on historical averages and compared to our emerging market peers.

The table below highlights the performance of selected markets and asset classes to 30 June 2023

Source: MSCI, Datastream, Bloomberg, Visio and Factset

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 to optimise your portfolio accordingly.

Thank you for your interest and ongoing support.

We welcome any feedback or questions.

Kind regards

The BAYMONT team


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