Weekly Market Overview | 09 February 2022
South African market overview
South African stocks hit a two week high this week on the back of optimism caused by substantial gains in commodity prices. This exuberance is set to persist as market analysts forecast that the global demand for commodities will increase and remain at high levels for the remainder of the year ahead, which is great news for the Rand and the economy because the South African economy is largely driven by commodities.
As a result the JSE All Share Index broke above 76 000 points this week, gaining a total of 1,3% by the end of the midweek trading day. Minning and Metals companies were the main drivers of these gains with South32 gaining 4,5%, AngloGold Ashanti gaining 3,49% and Sibanye-Stillwater closing with a 1.61% gain.
Brent Crude Oil
The Price of Brent Crude Oil was hovering above the $91 mark per barrel by midweek. This pullback from a seven-year high comes as investors turn their attention to the current ongoing bilateral talks between Iran and The U.S. If a nuclear deal is struck between the two nations it could lead to the resumption of official crude exports from the Persian Gulf producer, which would mean more supply entering the market and this will have a significant effect on the demand level as well as pricing.
The yellow metal is poised for a significant move this week ahead of U.S inflation data that could shed some light on the positioning of the Federal Reserve’s Monetary policy. The Consumer price index is expected to have risen by 0.5%, and if this is how the numbers play out, it will constitute a 7.3% annual rise and this would be the highest increase since 1982 according to a Reuters study. If all goes as is forecast, then this will make Gold an even more attractive hedge against inflation, but on the flip side, if the trend of interest rate hikes continues amongst the world central banks, it will effectively nullify this hedge. Our recommendation is the “wait and see” approach before making any decisions.
Asian Market overview
Asian stocks were buoyant and ended mostly higher on Thursday on the back of a Tech-fueled rally from the U.S session. Chinese shares were the big movers, with upbeat earnings from Honda motors offering much-needed impetus as shares ended in positive territory after reports of state-backed funds intervening in the stock market. The Benchmark Shanghai Composite index rose by 0.17% and the Hang Seng Index gained 0.38% by the end of the trading day. Markets are however muted as investors await the release of U.S consumer price data for further analysis of inflation.
U.S Market overview
U.S markets have found their bullish sentiment again after record losses sustained in the previous week and in January. The Tech-heavy Nasdaq saw the biggest gains this week with a more than 2% jump at the end of Thursday’s trading day, which pushes the index more than 8% above its low in the previous month.
This comes as stock futures wavered and bond yields rose ahead of the inflation data that is expected to be released this week, which is already running at its highest in 40 years. A study found that the current level of inflation is costing the average U.S citizen roughly $250 every month or R 3 774-84.
The key report coming out that all investors are watching is the Core CPI Report and this is expected to put a bit of pressure on the U.S Federal Reserve, policymakers as well as the global economic environment because ultimately what happens to the dollar affects the rest of the world.
European Market overview
The European stock market traded higher from midweek as major corporate earnings results were released. The German DAX traded 1.4% higher while the French CAC 40 climbed 1.6% and the UK’s FTSE rose by 0.7%.
The sentiment from investors is still tentative while they keep their eyes on the situation between Ukraine and Russia. The rising tensions at the Ukraine border are the main concerns in the short term as worries that an invasion from Russia could impact the economic stability of the whole region.
While one eye is looking at Geopolitical factors the other will be fixed on the release of key inflation data from the U.S which is anticipated to cement the likelihood that the FED will raise interest rates in March.
Private Equity Funds
The South African economy is undoubtedly the biggest and most diverse in the Southern African Region, and as such, it continues to appeal to a vast amount of private equity investors that are looking to acquire high-quality assets that have become significantly more attractive because of the reduced pricing following the Covid-19 pandemic. Collaboration with strong management teams and the formulation of a good exit strategy are going to be the key drivers in the post-pandemic economic recovery phase that we are entering and will ensure that private equity funds keep being resilient and outperform other asset classes.
According to a study by Deloitte, asset valuations have been adversely affected due to the current economic environment, and this is providing a plethora of opportunities for investors in South Africa to purchase high-quality assets at attractive prices, including new innovative opportunities to deploy capital effectively with the onset of the fourth industrial revolution (4IR).