Satrix Reports on market trends in China and South Africa, emphasizing the importance of diversification and introducing new ETFs for broad market exposure in their February 2024 newsletter below.
Single Market Exposure Can Be a Drag
The MSCI Emerging Markets Index was down 3% in January, and its top holding, China, has had a drag of a start to the year – down 9.1% in rand terms. According to Morgan Stanley, China and Hong Kong equities experienced $2.6 billion in net outflows in January from active managers. The MSCI China Index closed 2023 down 4.5%, with an annual return of -12.3% per annum in the last 3 years to December 2023. This highlights the risks that come with single market/country exposure unless it is part of an overall investment portfolio spanning different asset classes or markets.
A broader index, like the one that the Satrix MSCI Emerging Markets ETF tracks, provides cushioning against localised volatility, as countries like India which are held by this ETF have done the exact opposite of the Chinese equity market. In January, the India equity market was up 4.2%, with the MSCI India Index punching in 20.5% per annum to end of December 2023, in rand terms. In the Satrix MSCI Emerging Market ETF, China makes up 25% of the fund while India is 18%. The next highest holdings in the ETF are Taiwan (16%), South Korea (12%), and Brazil at 6%.
Local Jitters
Local markets also started the year on the back foot, with the FTSE/JSE All Share Index down 2.9% for January, while the FTSE/JSE Top 40 Index was down 3.5%. The underperformance was mainly due to Resource stocks which were down 6.0% for the month, followed by Financials down 2.9% and Industrials which were down 1.4%.
Diversification across asset types proved to be the lesson for January, as the rand appreciated 1.7% against the dollar which cushioned some of the negative returns from offshore assets. The local listed property shares closed the month up 4.1%, with the STeFI Index and the All Bond Index both up 0.7%.
Broad Index Exposure - a Love Language
Investing in funds that replicate the performance of broad market index exposure helps with diversification and potentially cutting investment costs as well. Funds that are constructed with simplicity and consistency at their core lend themselves well to transparent long-term investing. These funds help mitigate constituent concentration and country-specific risks.
Satrix extends its product range in the month of love (February), offering investors more choice in achieving broad market exposure. On the global front, we introduce the Satrix MSCI ACWI ETF, which caters to long-term investors. Its global diversification also reduces the risk associated with investing in a single market or country. Investors not averse to short-term volatility while investing for the long term will find this ETF attractive. This ETF will be launched at a TER of 0.35% and will list on the JSE on 22nd February.
On the local front, Satrix has launched the all-new Satrix JSE Global Equity ETF. Now in its Initial Public Offering (IPO) period, this fund tracks the FTSE/JSE Global Investor Index and offers an alternative for investors investing in JSE-listed companies with a higher exposure towards rand hedge stocks. At rebalance it will hold a maximum of 50 of the largest JSE-listed companies and will be overweight companies that have their primary listing offshore, capping its constituents at 10%. The ETF will launch at a competitive TER of 0.15%.
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