We have highlighted a few major impacts to markets as we start the year off, to give you a sense of what is affecting the performance of your investments.
Global equities were buoyed by signs that the highly transmissible Omicron COVID-19 variant appears to be substantially less virulent than previous variants. Optimistic investors rotated back into more cyclical European markets, despite lockdowns across several EU countries while the tech-heavy US market underperformed.
Emerging markets also rose, but fared worse than their developed market peers as continued regulatory pressure and property developer worries weighed on Chinese bourses. Energy-centric Russian markets also declined, despite a sharp increase in the dollar oil price.
Interestingly, the US 10-year bond yield was little changed despite indication from Fed Chairman Powell that retraction of current policy stimulus would happen faster than expected. An acknowledgement that inflation is likely to be more persistent than previously thought (the Fed dropped the much talked about word “transitory” from its communication) also had little impact on bond yields.
Industrial commodities copper, iron ore and oil rebounded as investors re-engaged with economically-sensitive cyclical commodities. Precious metals, silver and gold, also rose, with negative real interest rates decreasing the opportunity cost and increasing the attraction of holding them as an alternative store of value.
Locally the FTSE/JSE Capped All Share Index rose on broad based strength with resources, industrials and financials all stronger into the year end. The relatively limited domestic economic impact of the Omicron variant provided some support.
The All Bond Index gained on lower bond yields with holdings in the medium-term 7–12 year sector contributing the most. South African government bonds continue to offer relatively attractive real yields at comparatively low risk, in addition to balancing the meaningful allocation to international companies.
The rand weakened in line with the weaker global emerging market sentiment. The longer term fundamentals for the currency are poor.
Based on the above, we feel comfortable in the holdings in our portfolios and look forward to the bumpy year ahead!