Gold Surges, Equities Dip, and SA Property Shines

October brought a series of market movements, from global equities facing pressure to local South African developments shaping investor sentiment. Here’s a breakdown of the key highlights and what they mean for your portfolio.

• US, European, and Emerging Markets equities declined, with weak Chinese stimulus and geopolitical tensions driving gold prices up 4%.
• South African markets dipped, but higher gold prices boosted resources stocks, while SA property surged 51.6% over the year.
• Falling global interest rates may support equities, but South African government debt and rand pressure demand careful stock selection.

Global Markets

US Equities Hold Back
October was a rather uneventful month for developed markets equities with market participants focused on the US elections in November. US equities ended the month down 0.7% in USD, giving up the gains they experienced in September.

Europe Struggles with Growth and Currency Pressure
European equities ended the month down a whopping 5.9% as growth prospect continue to decline and the dollar continues to gain strength – this is a worrying trend.

Emerging Markets Feel the Pinch
Emerging markets had a tough month (MSCI Emerging Market down 4.3%) after the stimulus announced by the Chinese Government in October proved to be insufficient to reignite growth. 

Chart 1: Summary of Chinese Government Stimulus Package (Source: ThinkChina)

 
Global bonds had a poor month with the Bloomberg Barclays global aggregate bond index ending the month down 1.5%. Strong US economic data, including a Q3 2024 GDP reading of 2.8% and a decrease in the unemployment rate to 4.1% contributed to higher real yields. The dollar strengthened by 1.8% on the back of higher treasury yields and declining investor sentiment towards emerging markets equities and bonds.

Gold Shines Amid Geopolitical Risks
The gold price continued to rise in October, finishing the month up 4% at $2,734 an ounce despite the stronger dollar and higher bond yields. The higher gold price was driven primarily by higher geopolitical tensions in the Middle East, and speculative retail demand from China. Central Banks, China and Russia in particular, continue to buy gold to diversify away from the US dollar. 

Chart 2: Gold vs (inverted) Real 10-Year Treasury Yield (Source: Longtermtrends.net)


Local Markets: Mixed Performance in October
Local equities fell 0.9% in ZAR during the month of October. The Financials 15 Index ended the month down 0.7%, while the Industrial 25 Index ended the month down 3.0%. The Resources 10 Index ended the month up 2.5% on the back of a higher gold price.

SA Property’s Stellar Year
SA property ended the month down 2.8%. After a spectacular rerating over the past few months, SA property is now up 51.6% over one-year. 

Chart 4: SA Property Recovery

Debt Concerns Cloud Fiscal Outlook
In economic news, Finance Minister Enoch Godongwana delivered the GNU’s first Medium Term Budget Policy Statement in October. Unfortunately, it did little to address the country’s burgeoning debt problem. Debt to GDP remain forecasted to reach 75% by 2027/2028. Markets did not react well to the MTBPS. The JSE All Bond Composite lost 2.8% for the month and the rand lost 3.8% to the dollar for the month.

Chart 5: Consolidated Budget Framework (Source: Nedbank)

 Energy Reforms Offer Hope
The National Energy Regulator of South Africa (NERSA) granted four new energy trading licenses within Eskom service areas. NERSA has now issued a total of ten trading licenses. Effectively, private (renewable energy) power producers with licenses will be able to supply electricity to businesses directly via Eskom transmission lines, undercutting Eskom. In time, this move should bring down the cost of electricity significantly, and support more renewable energy investments in the country. Both South African businesses and consumers stand to benefit. Eskom is now challenging NERSA’s decision in court.

Chief Investment Officer, Duane Gilbert’s Commentary
Our market outlook for 2024 remains bullish. Falling interest rates globally will be supportive of equity markets. Bond yields remain under pressure as investors rotate their portfolios into equities.

The US remains our destination of choice – growth stocks and small caps in particular. Growth rates in Europe, China and Japan continue to disappoint.

Emerging markets, South Africa in particular, have been the flavour of the day for the past few months but this trend is reversing. We expect the rand to remain under pressure as our government continues to accumulate debt.

South African equities are particularly cheap but vulnerable to global sentiment. One needs to carefully pick companies that can grow their earnings in a low growth environment. We maintain a low exposure to South African government bonds. We prefer exposure to high-quality secured credit. We maintain a modest cash position, which gives us the dry powder we need to take advantage of bargains that may arise from any market sell-off. 

Discover more insights in our blogs

Why Defensive Stocks Can Be Your Best Bet for Stability and Income

What Sectors Usually Perform at the End of the Year?

Two Years of a Raging Bull Market

How to Spot Shares That Are on the Rise

How to Create Powerful Prompts for AI Baskets on EasyEquities

So, When Do You Actually Sell Shares?

How to Customise Your Viewing Experience on Easy 3.0

Are AMETFs the Next Big Thing in Your Portfolio?

Have You Tried These Saving Tips to Hit Your First R50,000?

Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an external contributor as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.