Insights
South African Q3 2024 Investment Outlook
Summary
Domestic assets delivered strong returns in the third quarter, reflecting what could be the start of a tide change in investor sentiment towards South African markets. After returning 8.2% and 7.5% in the second quarter, the ALSI and ALBI indices rose a further 9.6% and 10.5%, respectively during the third quarter.
The South African rand ended the quarter 5.4% stronger against the US dollar. Over this period, the broad dollar index weakened by 2.5%, and 0.8% versus a basket of EM currencies. This implies a robust move for the local currency and reflective of optimism.
Having delivered the strongest 1-year return in over a decade, the South African bond market was one of the primary beneficiaries of investor optimism about the changing prospects of the economy. It has outpaced its emerging market peers and developed market counterparts by some margin.
A key question we constantly ask is what is in the price, and we now view SA government bonds to be close to fair value. That is, prior risk premia have been largely priced out by the market and, from here, it will depend on economic growth and further fiscal consolidation materialising.
We are on balance bullish in our outlook for SA equities in general, based on a more constructive backdrop and still undemanding valuations.
While longer-term (12-month) money market instruments are not paying what they used to (now around 8.2%), their yields are still high in real terms: the SARB forecasts inflation to average below 4.5% in 2025 and 2026. At that, these instruments continue to be a welcome asset to hold in our portfolios.
An improved political backdrop and potential for lower interest rates is reflected in both business and consumer sentiment starting to turn higher. We observe that consumer confidence is back to 2019 levels and that expected business conditions in six months’ time has been and continues to move in a positive direction. It is a source of optimism for improved economic growth.
In this note, we pen down our thoughts on key domestic economic, political, and financial market developments – both what transpired over the quarter and what lies ahead. We touch on how our multi-asset portfolios are positioned to participate in any further upside and to guard against potential risks.
South Africa is an open economy, with its financial markets driven by what transpires globally. At that, for our views on the global economy and financial markets, we invite you to consider our Global Quarterly Investment Outlook letter. Amongst others, the likelihood of a recessionary scenario in the US transpiring over the next year is considered, together with our thoughts on the recent developments in China (which has driven a lot of SA equity returns in the final week of the quarter).
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This document is intended to provide only general information and to highlight points of interest. The information does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions and you may wish to consult an independent professional. Our expectations and beliefs are based on reasonable assumptions within the bounds of what we currently know. Clients have an obligation to provide Stonehage Fleming with accurate information, material facts or statements and must inform Stonehage Fleming of any information relating to the client’s change in financial circumstance, investment objectives and risk profile to enable us to make the necessary adjustments.
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Download 'SFIMSA Quarterly Investment Letter Q3 2024'