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After the first six months of this year, the S&P 500 has returned a very healthy 15.9%. The American market’s gain is despite much higher interest rates and declining quarterly corporate earnings. With the earnings season for the second quarter set to kick off in mid-July, expectations are for a 6% y/y decline in earnings. From the next quarter onwards and for the year as a whole, earnings are expected to improve, with even greater growth in 2024. At this point in time, the market is focusing on the positives: a resumption in earnings growth from Q3, a peak in interest rates during the second half of this year and slowing but still positive US economic growth. The more bearish school is pointing to a sharper decline in economic activity to come, higher interest rates for a more sustained period, an overvalued equity market (and technology stock bubble), a more-attractive bond market and a slower return to corporate earnings growth than is currently being considered. It does look like earnings need to catch up with prices, but markets are forward-looking and at this point are painting a positive picture of future corporate profits. What we do know is that views on the market will chop and change as we move from indicator to indicator and as earnings results overdeliver here and underwhelm there. Shorter-term market movements are always difficult to predict and that’s why investment is always and everywhere a pursuit for the longer-term.


After the first six months of this year, the FTSE/JSE All Share Index just held on to its meagre gain of 4.1% (or -5.9% in US-dollar terms). Some of the retailers and supermarkets and banks experienced something of a reprieve in June from very oversold levels but the underlying fundamentals remain weak. Pick n Pay gained almost 23% in the month but was down 27% in May and remains 31% down for the year. The precious metals miners were the biggest losers in June with the platinum miners topping the list and remaining amongst the biggest losers on the market this year. Shares of the gold miners lost between 10% and 20% in June as gold pulled back from above $2,000/oz but gold stocks remain amongst the biggest gainers in 2023 to date.

The Sasfin Equity Fund outperformed in June, driven by the holdings in Banks, Richemont (extremely overweight after the rebalancing) and a strong recovery in MTN. For the full quarter the fund outperformed its benchmarks by some margin and were up 3.34% compared to the JSE All share Capped Index up 0.60%. The strong quarter brought us back in line with YTD returns.

The fund is underweight commodities, with the Sibanye position now only 0.7% of the fund. Platinum is very
oversold and any Chinese stimulus in the next few weeks will bring some stability back into commodity markets. Glencore is the best performing commodity stock in the fund.

The ETF holdings in the models also added to the positive performance with the Satrix Fini up 5.61% and Satrix Indi up +2.94%

Fixed Income

With the massive selloff in our bonds in May on top of the recent rate hikes we saw the R2032 reaching MTM yields of 11.76%. June seemed to usher in a more positive picture and the yield on 10-year government bonds improved by about three quarters of a percentage point. Eskom managed to reduce loadshedding meaningfully and stabilise the electricity supply. Also, concerns around the potential fallout from the Russia scandal receded into the background. This saw our bond market recover most of the losses of the quarter and closed only 1.5% down.

The two holdings in the models, the Sasfin Flexible Income Fund and the Satrix SA Bond Portfolio ETF, 3-month returns were 0.6%. and -4.8 respectively.

South Africa specific risks that could present significant headwinds, include the upcoming BRICs summit, the
potential exclusion of South Africa from the AGOA trade agreement, and our volatile and uncertain electricity
supply. Anecdotal evidence around private electricity generation and resilient manufacturing numbers seem to point to a slightly healthier economy than has been forecast by many commentators. Our inflation rate is trending back to within the target range which should finally and hopefully allow the SARB to pause their hiking cycle (probably after hiking another 0.25% at the next meeting in July).

With regard to our nearer term outlook, we think it is likely our yields will remain range-bound until there is more certainty and a meaningful catalyst, whether positive or negative, that will drive a more clear outlook.

We have forecast numerous scenarios and return expectations and the range of returns based on this exercise
indicates that our bond market could return between 5% and 18% (annualised) over the next 6 months. Our Flexible Income Fund is expected to return between 7% and 15% in those scenarios.

Real Estate

High interest rates, effect of loads shedding and low economic growth is continuing to put pressure on the property market. We do not see this changing unstill one of the aforementioned factors improves. The models hold the Satrix Property Portfolio ETF which ended up 0.83% for the quarter.


For the second quarter of 2023 our selection of infrastructure position continued to perform in line with our
expectations. Quarterly returns, however, were contrasting indicating some volatility experienced within the quarter. Our holding in the Satrix Global Infrastructure ETF jumped during April and the beginning of May but gave some growth back during June ending up 5.15% for the quarter.


Since 2020, investors have preferred to own economically sensitive commodities, such as oil, but in recent months, less economically sensitive commodities, such as gold, have taken price leadership. This coincides with market participants’ concerns about financial strains in the banking sector, and the tightening of credit that will follow.

Commodity prices generally remained at softer levels in June as economic activity and demand continued to slow around the world and as China’s economic recovery failed to gather momentum. The oil price did trade a little higher during the month (Brent closed just above $74 a barrel) but the OPEC+ consortium will likely be
disappointed with that outcome after they announced plans to cut production to bolster prices. Saudi Arabia
announced that they will cut their own production by 1m barrels per day in July and that could provide a pricing floor for oil in the shorter-term.


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About the Author

Michelle Bester
Business Unit Head: Portfolio Manager, Portfolio Management & Stockbroking

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