March 2022 market review

Internationally, the Ukraine-Russia crisis dominated headlines during March. Sanctions and supply chain disruptions continue to put upward pressure on energy and food prices. Euro-zone inflation has risen to an all-time high, with consumer prices jumping 5.8% from a year ago. US inflation also hit a staggering 7.9%. Mid-March, US policymakers voted 8-1 to lift their federal funds target range to 0.25-0.5%, the first increase since 2018. In the Fed’s so-called dot plot, officials’ median projection is for the benchmark rate to end 2022 at about 1.9%. A week later, SA’s MPC increased our repo rate by 25 basis points to 4.25%, despite SA unemployment hitting a new record high of 35.3%.

Some good news is that SA reported its largest current-account surplus on record during March. Last year imports were suppressed by the impact of the pandemic, while gold exports rose. The surplus on the current account widened to 3.7% of GDP.

In March, strong rand hurt SA investors

During March, the rand strengthened 5.44% against the US dollar and 6.32% against the euro, which hurt SA investors with offshore exposure. The MSCI World index (developed market global equity) lost 2.84% in rand terms for the month. This is the third consecutive month of substantial losses for South Africans investing globally. The local equity market had a mixed experience, with financial companies benefiting from rising inflation, but mining and manufacturing companies witnessing share price weakness. All in all, the FTSE/JSE All Share Index (ALSI) ended flat for the month. The local listed property index (SAPY) gave a return of 5.05%. SA bonds (ALBI) gained 0.45% during the month and cash (STeFI) returned 0.36%.

Over the past 12 months property had the strongest recovery

Over the past 12 months, all major market indices delivered good returns. Property was the best performing main asset class at 27.06%, followed by the ALSI at 18.61%. The ALBI returned 12.37% for the year, and cash gave 3.94%. The rand strengthened 1.04% against the US dollar and 6.32% against the euro. Looking towards international markets, the MSCI World Index gave South African investors 8.97% in rand terms over the past 12 months.

Despite a difficult quarter, world stocks outperformed over 5 years

The first quarter of 2022 was a tough one for world stocks. First came the tech correction, soon after followed by the Ukraine crisis with its negative impact on food and energy inflation, and by implication the risk that interest rates will rise faster than anticipated, dampening economic activity. If we instead focus on long-term performance, global stocks as measured by the MSCI World Index returned a rewarding 14.34% p.a. on average over the five years to 31 March in rand terms. In comparison, the ALSI returned 11.39% per year. SA bonds gave 8.92% per year and cash 6.08%. Listed SA property (the SAPY) is underperforming other asset classes significantly over the long term at -4.85% per year, on average. After five years, investors in the local property index are left with less than the capital they invested.

Table 1: Total returns to 31 March 2022

Source: Morningstar | Total returns annualised to 31 March 2022