MARKETS IN A NUTSHELL - NOVEMBER 2022
Global equities had their best month of the year as investors drew cheer from the US Federal Reserve intimation that its unrelenting pace of interest rate increases may slow. Some early data pointed towards inflation rolling over in parts of Europe, while US CPI figures slowed more than expected. European bourses outperformed US counterparts.
Emerging markets rallied more, led by China’s marked rebound from October’s steep decline. Though non-linear and moderately paced, China has taken initial steps towards the relaxation of its austere zero-COVID policies.
Industrial commodities rose on Chinese stimulus of the infrastructure and property sectors, while the oil price declined as investors began to factor in decelerating global economic growth. Precious metals gold and silver rose in anticipation of near-peak nominal yields and dollar weakness.
The Foord global funds were well positioned for these market moves and are comfortably ahead of their benchmarks and relevant peer groups in November and 2022 year to date. Given the meaningful allocation to foreign assets, investors in Foord’s South African multi-asset funds also benefited.
In South Africa, the FTSE/JSE Capped All Share Index tracked global bourses higher, led by resources on the stronger industrial commodities and precious metals prices. Industrials were buoyed by the rebound in Naspers and Prosus, which were the largest contributors to returns from the domestic component of the Foord funds. Holdings in the less volatile financials sector delivered good returns but lagged the broader market index.
In fixed income markets, developed market bond yields declined as investors returned to sovereign bonds on signs of some deceleration in inflation. The Foord funds are underweight the global bond asset class given the continued inflation risks and still relatively low yields. This position is offset by an allocation to government bonds in the domestic component of the funds, which contributed positively as yields moved lower across the curve on the generally positive global investment sentiment. While local bond yields are attractive, the portfolio position is moderate given the rising country risk premium on elevated political and economic risks.
The rand strengthened against all the majors on positive global investor sentiment. Although relatively cheap at current levels, the unit remains structurally weak longer term and vulnerable to bouts of short-term volatility given mounting political and economic risks.
The Foord funds have a sizable allocation to select local and global equities that the managers believe are best placed to deliver real returns in a structurally higher inflation environment in the years ahead. This is balanced by meaningful hedges on the relatively expensive US equity market and investments in attractively priced, short to medium-term South African fixed income securities. The funds are well balanced between providing some capital protection against expected near-term market volatility and having access to attractive longer term inflation beating investment opportunities.