South African equities came under significant pressure in September, reversing much of August’s strong performance as precious metal prices corrected sharply and global bond yields moved higher. The FTSE/JSE All Share Index declined -6.7% MoM, while the Resources 10 Index fell -11.0% MoM as gold and PGM miners bore the brunt of the sell-off. Gold declined -6.3% MoM, while platinum and palladium fell -4.5% and -11.5% MoM respectively, as rising global interest rates and a stronger US dollar increased the opportunity cost of holding non-yielding assets. Financials declined -4.4% MoM and industrials fell -5.9% MoM, although selected retailers proved more resilient. Local bonds outperformed equities as the FTSE/JSE All Bond Index closed the month flat MoM, while SA-listed property edged +0.3% higher. In US dollar terms, MSCI South Africa declined -10.0% MoM, significantly underperforming both MSCI World (-1.3% MoM) and MSCI Emerging Markets (-0.8% MoM).
South Africa’s inflation backdrop remained relatively contained in September, although rising oil prices and tighter global monetary conditions increased risks to the outlook. Headline inflation edged up to 4.4% YoY in August from 4.3% in July. Against this backdrop, the South African Reserve Bank unanimously raised the repo rate by 25 basis points to 7.25%, reversing July’s decision to leave rates unchanged. The SARB highlighted the persistence of the oil-driven supply shock, sticky services inflation and a more hawkish global interest-rate environment as reasons for adopting a more restrictive stance. Local bond yields moved higher alongside global yields, with the South African 10-year government bond yield rising above 9.0%. The rand weakened -1.9% MoM against the greenback, reflecting a stronger US dollar, higher global yields and a more cautious risk environment.
Global equity markets weakened in September as sharply higher bond yields, renewed inflation concerns and elevated oil prices outweighed resilient economic activity and corporate earnings. The MSCI World Index declined -1.3% MoM, while MSCI Emerging Markets fell a more modest -0.8% MoM. Government bond markets were particularly volatile as central banks returned to monetary tightening and investors reassessed the outlook for inflation and government borrowing. The US 10-year Treasury yield moved above 5% for the first time since before the Global Financial Crisis, while yields across Europe and Japan also reached multi-year highs. Commodity performance diverged sharply. Brent crude gained +14.4% MoM to close above US$100/bbl as continued tensions in the Middle East renewed concerns around global energy supply. In contrast, higher real yields and a stronger US dollar weighed on precious metals, with gold declining -6.3% MoM, platinum falling -4.5% and palladium losing -11.5%. Despite these headwinds, global economic activity remained resilient, with September purchasing managers’ indices indicating continued expansion across several major economies.
US equity markets delivered mixed returns in September as continued strength in AI-related shares masked considerably weaker performance across the broader market. The S&P 500 declined -0.5% MoM and the Dow Jones Industrial Average fell -4.3% MoM, while the technology-heavy Nasdaq 100 gained +3.2% MoM. Market leadership remained exceptionally narrow, with semiconductor and mega-cap technology shares continuing to benefit from strong AI-related demand even as higher interest rates weighed on most other sectors. The Federal Reserve raised the target range for its policy rate by 25 basis points to 3.75–4.00% and maintained a hawkish stance, prompting investors to increase expectations for further tightening. The US 10-year Treasury yield rose to 5.3%, adding further pressure to equity valuations. Inflation remained sticky, with headline CPI and core PCE unchanged at 3.4% YoY and 3.0% YoY respectively in August, although core inflation eased to 2.4%. Despite tighter financial conditions, economic activity remained resilient, with second-quarter GDP growth revised higher.
European equity markets weakened in September as higher borrowing costs, renewed inflation concerns and elevated energy prices weighed on investor sentiment. The MSCI Europe ex-UK Index declined -2.6% MoM as Germany’s DAX fell -4.0% and France’s CAC declined -4.4%. The European Central Bank raised interest rates during the month and cautioned that inflation could remain elevated, contributing to higher sovereign bond yields and pressure on equity valuations. Eurozone inflation accelerated to 3.8% YoY in September from 3.2% in August, driven primarily by higher energy prices. UK equities also lost ground, with the FTSE 100 declining -2.0% MoM as rising bond yields offset some of the index’s relative support from its exposure to energy and commodity-related companies. The Bank of England left its policy rate unchanged at 3.75%, while UK inflation increased to 3.1% YoY in August, its highest level in five months, reflecting renewed pressure from transport and fuel costs.
Emerging market equities proved relatively resilient in September despite a challenging backdrop of higher developed-market bond yields, rising oil prices and a stronger US dollar. The MSCI Emerging Markets Index declined -0.8% MoM, outperforming developed markets as renewed strength in the global AI trade supported technology-heavy Asian markets, particularly Taiwan and South Korea. Both benefited from continued demand for semiconductor hardware and expectations of persistent supply constraints. Chinese equities, however, remained under pressure. The Shanghai Composite declined -3.6% MoM, while Hong Kong’s Hang Seng Index fell -3.7% MoM as weak macroeconomic data and geopolitical concerns continued to weigh on sentiment despite ongoing policy support. Encouragingly, China’s official manufacturing PMI improved to 50.1 in September from 49.8 in August, returning to expansionary territory, while the non-manufacturing PMI increased to 50.2 from 49.0. Nevertheless, underlying domestic demand remained fragile and Chinese equities continued to lag their regional peers.
The hedge fund slipped into negative territory in September, as detractors from both the long and short books weighed on performance. On the long side, contribution from Grindrod was more than offset by detractors across gold mining (Gold Fields and Barrick Mining), technology (Tencent and Oracle) and PGM mining (Northam Platinum and Impala Platinum) positions. Grindrod contributed positively as record Port of Maputo volumes, strong interim earnings and continued progress on terminal expansion and South Africa’s rail reforms reinforced confidence in its growth outlook. Gold Fields and Barrick Mining came under pressure as rising global bond yields and a stronger US dollar drove a sharp correction in the gold price, while Gold Fields was additionally weighed down by concerns around its proposed Northern Star acquisition. Tencent weakened amid deteriorating sentiment towards Chinese equities while Northam Platinum and Impala Platinum also detracted as weaker platinum and palladium prices triggered profit-taking across the PGM sector.