Risk and uncertainty continue to characterise 2022, from both geopolitical as well as financial market perspectives. An intra-year low for the S&P 500 was reached on 12 October, while the FTSE/JSE reached its low point on 29 September. Yet from these points of pessimism, there have been encouraging announcements and data that the aggressive rate hiking implemented by the US Federal Reserve may finally be bearing fruit. In response to the smallest improvement in the inflation numbers, the S&P 500 had rebounded by 12.8% by Wednesday’s close, while the JSE has gained 16.2% as at the time of writing.
Although stock markets have undeniably underperformed this year — the S&P 500 was down 17.1% year-to-date as at 21 November — this is nowhere near its 34% landslide correction in March 2020 or its 50% crash in the 2008/2009 Global Financial Crisis.
Looking ahead, there is no shortage of risk or uncertainty that will determine market directionality in the near term. Major influences will include inflation, corporate earnings, geopolitical events, the path of crypto’s, oil shocks and supply chain disruptions.
But in the meantime, disciplined investors can gain some comfort from the significant shift to “risk-on” market sentiment as manifested in the recent market rebounds!
“History provides a crucial insight regarding market crisis: They are inevitable, painful and ultimately surmountable.”
– Shelby Davis, former American investor, and founder of Davis Selected Advisers
Global News
- Global shares were buoyed this week as the Federal Reserve’s minutes published on Wednesday indicated a switch to smaller interest rate increases “soon”. Markets had largely expected a dial-down in the intensity of monetary tightening policy.
- According to UBS, US October durable goods orders data, which showed that the cost increased 1.03% from last month and 5.98% from one year ago, comes as the slowdown in consumer durable goods demand is producing rapid price deflation. The Michigan consumer sentiment survey should continue to show a huge gulf between Democrat and Republican views of the economy. This was not the norm until President Trump was elected.
- The UK, battered by rising electricity prices and tax increases as it faces a recession, is regretting its decision to leave Europe through the Brexit deal. There is now another debate over the issue, which has been nicknamed Breget.
- China’s electricity generation from solar power was up by more than 30% in the period between January and October compared to the same timeframe in 2021, as it sets new records in clean power use and coal-fired power stations. Electricity from wind power jumped 25% to cement the country’s status as by far the world’s largest deployer of renewable energy.
- Chinese cities have enacted more lockdowns to try and control rising coronavirus cases, adding to investor worries about the economy, as fresh unrest at the world’s largest iPhone plant highlighted the social and industrial toll of China’s strict Covid measures. The worker revolt erupted over unpaid wages, isolation fatigue and fears of spreading Covid-19 infections.
- New York’s Manhattan has overtaken Hong Kong’s priciest district as a luxury-shopping hub, as Hong Kong struggles to recover from its downturn in the aftermath of some of the world’s strictest Covid-19 measures in China. A closed border with mainland China had slashed its number of visitors.
- Elon Musk’s losses for 2022 topped $100 billion (R1.7 trillion) and shares in Tesla declined to the lowest level in two years. Musk is, however, still the world’s richest person with a fortune of $169.8 billion, according to the Bloomberg Billionaires’ Index.
- Amazon’s Alexa division faces significant job cuts after failing to turn the voice assistant into a money maker, Business Insider reports, Alexa falls under Amazon’s “Worldwide Digital” group, which recorded a loss of $3 billion (R52 billion) in the first quarter of 2022 and is on track to lose $10 billion (R173 billion) this year.
- As at Wednesday’s close the S&P 500 was up 1.56% for the week.
Local News
- ANC branches have nominated leader Cyril Ramaphosa by an overwhelming majority for a second term with 2,037 nominations. Former Health Minister Zweli Mkhize only managed to get 916 votes. Meanwhile, outgoing ANC treasurer general Paul Mashatile currently leads the deputy president race with Justice and Correctional Services Minister Ronald Lamola coming in with the second largest nomination. ANC Eastern Cape chair Oscar Mabuyane came in third place. Those who failed the cut included cabinet ministers Lindiwe Sisulu, Mmamoloko Kubayi, Senzo Mchunu and Enoch Godongwana.
- Parliament’s legal advisers are looking into potentially applying to the Constitutional Court for an extension of the December 10 deadline for parliament to adopt the Electoral Amendment Bill. The Constitutional Court ruled in June 2020 that the Electoral Act was unconstitutional as it did not allow independent candidates to contest national and provincial elections and gave parliament two years to adopt a bill providing for this.
- The South African Reserve Bank’s Monetary Policy Committee on Thursday raised borrowing costs by 0.75bps, taking the benchmark rate to 7% – a level last seen more than five years ago when the MPC was trying to guide inflation back below the 6% ceiling of its target band – although the rand was little changed in response. The central bank has front-loaded rate hikes in its fight against inflation, with the inflation rate already close to the 6.36% level that its model projects it should be at the end of next year.
- Tourism data for September indicates that third-quarter gross domestic product may come in stronger than expected, as the total income for the tourist accommodation industry increased by 79.3% in September on an annual basis.
- 2020’s lockdowns caused a big fall in lending across all credit types, but the recovery since has shown a surprising outperformance of mortgages. Secured credit (largely vehicle finance) has resumed its pre-Covid trajectory and unsecured credit granting has lagged. But mortgage levels are beating records from before the global financial crisis. Read an analysis here.
- Naspers’ interim results showed that core headline earnings fell almost three quarters to 74.1% year on year to $372 million (R6.42 billion). This was partly because the contribution from Tencent, the Chinese internet giant and Naspers’ largest investment, was 29.5% lower at $2.1 billion in the period under review. Despite the falloff in revenue, Chinese internet giant Tencent’s share price has enjoyed its best month in ages, gaining 35% in November so far.
- Old Mutual, which recently spun off Nedbank, has been given the greenlight to compete with its former subsidiary and is set to open its own bank in 2024. Integrated into a cloud-based technology stack, the group’s new bank aims to deliver scalable, value-for-money client-centric solutions. The cost of building the transactional capability is estimated to be R1.75 billion.
- Telkom, which is pulling in costs after reporting a 17.9% fall in half-year core profit, is open to further conversations with MTN Group about a transaction. This comes a month after MTN terminated discussions about an MTN-led proposal to buy Telkom after Telkom said it was entertaining an offer from small rival Rain.
- As at the time of writing, the rand was flat for the week and the ALSI was up 0.91%.
Sources: Dynasty, BizNews.com, BusinessLIVE, Reuters, Bloomberg, CNBC, BizCommunity, TechCentral, MyBroadband, New York Times, Daily Maverick, Business Insider, UBS, etc.