Markets In Focus: January market snapshot

January saw a notable divergence in performance between developing markets (DM) and emerging markets (EM). Generally, DMs delivered strong monthly returns, while EMs lagged.

Recent data releases indicate that the US economy remains resilient despite an extended period of high interest rates. In Q4 2023, US GDP grew by 3.3% q/q (annualised) and in December core inflation slowed to 2.9%. While this fuels investors’ hopes of a “soft landing” for the US economy and despite a strong dollar throughout the month, the recent data also suggests that the likelihood of the US Federal Reserve (Fed) cutting rates early in the year has decreased. In Europe, Q4 2023 GDP remained stagnant, and January’s inflation slowed to 2.8% from 2.9% in December. The European Central Bank opted to keep rates unchanged.

In South Africa, consumer inflation dropped to 5.1% in December, and the South African Reserve Bank held the repo rate unchanged at 8.25% at its January meeting. The rand weakened by 1.7% against the strong dollar in the month, marking a 6.72% depreciation over one year. It remained relatively stable against the euro for the month but has depreciated by 6.74% over one year.

Meanwhile, the US outperformed among DMs in January. Hopes for imminent interest rate cuts by the Fed ebbed in the first couple of weeks in December, but sentiment subsequently recovered on better-than-expected corporate reports. Technology shares continued to lead in US equities, with the exception of Tesla – the proxy for slowing global sales of electric vehicles (EVs). The MSCI World Index, which has a significant weighting towards US technology shares, gained 2.92% in January in rand terms and over one year it has returned 24.86%.

EMs, including South Africa, suffered from ongoing concerns about the slow pace of economic recovery in China, which is grappling with a real estate crisis and weaker commodity prices, apart from oil. The JSE All-Share Index shed 2.93% in January and is 2.61% weaker over one year. One notable bright point in domestic equities in January was the property sector, which reversed several years of negative returns: it was up 4.06% in January and after a very strong December, is showing a 15.78% gain over one year. The All-Bond Index was subdued, with a 0.71% return in January and a one-year return of 7.33%, slightly ahead of inflation but less than the 8.18% an investor would have earned from cash over a year. However, over five years, bonds have outperformed cash (7.78% vs 5.96%).

Table 1: Total returns to 31 January 2024