Market Report

Global Equity

Technology benefits from strong results, while defensive stocks fall as bond yields rise

Global equity markets delivered a positive return in August, with the MSCI All Country World Index gaining 2.7%. Markets were supported by generally strong corporate earnings and resilient economic activity, although concerns around inflation, higher bond yields and renewed geopolitical tensions remained in the background. US equities were particularly strong, with the S&P 500 reaching a new record during the month and technology shares recovering from their weakness in July.

Information Technology was one of the strongest sectors, gaining 6.0%, as investors returned to artificial intelligence and technology-related shares. Strong corporate results helped reinforce confidence in continued demand for AI infrastructure, semiconductors and cloud computing. The technology-heavy Nasdaq consequently outperformed broader equity markets during the month.

The strongest performance, however, came from Materials, which gained 10.5%. The sector benefited from a broad rise in commodity prices, including strong gains across precious and industrial metals. Energy (+4.4%) also outperformed as oil prices remained elevated amid continued tensions in the Middle East, while Healthcare (+3.9%) and Financials (+1.3%) made positive contributions.

Performance was weaker among the more defensive and interest-rate-sensitive areas of the market. Utilities declined 3.1%, as rising government bond yields reduced the relative attractiveness of high-dividend shares. Consumer Staples fell 1.2%, while Telecommunications, Consumer Discretionary and Industrials recorded modest declines. Overall, August was a positive month for global equities, but returns were concentrated in technology and commodity-related sectors, against a backdrop of rising bond yields and continued geopolitical uncertainty.

Global Fixed Income

Yields continue to rise on debt concerns

Global bond markets delivered a modest positive return, in US Dollars, during August. Bond yields moved higher across several major developed markets as investors reassessed the outlook for inflation and interest rates. Rising energy prices, concerns about government debt levels and heavy sovereign bond issuance all contributed to upward pressure on yields and, consequently, weaker bond prices.

In the United States, Treasury markets experienced considerable volatility. Longer-dated yields initially rose on concerns about the size of the US fiscal deficit and the volume of government borrowing, with the 30-year Treasury yield briefly moving above 5.3%, its highest level in almost two decades. Towards month-end, Federal Reserve Chair Kevin Warsh adopted a relatively hawkish tone at the Jackson Hole symposium, emphasising the Fed’s commitment to its 2% inflation target and raising expectations that monetary policy may need to remain restrictive. This placed particular upward pressure on shorter-dated bond yields.

Bond-market weakness was more pronounced in parts of Europe and Japan. The German 10-year government bond yield rose to around 3.3%, its highest level since 2011. Japanese government bond yields also increased, with the 10-year yield approaching 3%, reflecting growing expectations that the Bank of Japan would continue normalising monetary policy.

Overall, August highlighted the challenges facing global fixed-income investors. Although inflation has moderated considerably from its post-pandemic highs, higher energy prices, large government funding requirements and uncertainty over the future path of interest rates have kept upward pressure on longer-term bond yields. Credit markets proved more resilient, however, as strong investor risk appetite resulted in tighter corporate credit spreads, partially offsetting the impact of higher government bond yields.

Commodities

Geopolitical risk and inflation concerns continue to drive commodities

Commodity markets delivered mixed returns during August, with precious metals significantly outperforming energy markets. Gold rose approximately 10% to end August at around US$4,440 per ounce. The rally was supported by a combination of geopolitical uncertainty, persistent concerns around inflation and US fiscal policy, and a weaker US dollar. Gold received an additional boost after the US Treasury announced plans to increase purchases of longer-dated government bonds, which temporarily lowered bond yields and reinforced demand for gold as a store of value. Continued safe-haven demand associated with tensions in the Middle East also supported the precious metal.

Platinum also performed strongly, gaining approximately 8% during August to around US$1,790 per ounce. The metal benefited from the broader rally in precious metals, while concerns around constrained supply and continued demand for platinum-group metals provided additional support.

Oil was considerably more volatile. Brent crude traded between below US$80 and above US$94 per barrel during August as markets reacted to changing expectations surrounding tensions between the US and Iran and the potential impact on oil flows through the Strait of Hormuz. Renewed military activity towards month-end pushed Brent back above US$90 per barrel. Despite these large intra-month movements, Brent ultimately gained only around 0.4% in August, ending the month at approximately US$90.50 per barrel.

Overall, August was an exceptionally strong month for precious metals. Gold and platinum benefited from geopolitical uncertainty, inflation concerns and a softer US dollar, while oil remained caught between geopolitical supply risks and uncertainty over the outlook for global demand.

Currencies

US Dollar weakens as bond yields rise

The US dollar weakened modestly during August, with the trade-weighted dollar declining approximately 0.5%. Currency markets continued to be influenced by changing expectations for US monetary policy, movements in bond yields and geopolitical developments. Despite relatively high US interest rates, the dollar struggled to make progress against most major currencies during the month.

The euro strengthened by approximately 0.5% against the US dollar, with EUR/USD increasing from around US$1.15 to US$1.16 per euro. The euro benefited from the broader weakness in the dollar as well as expectations that the European Central Bank may need to maintain relatively restrictive monetary policy in response to renewed inflation pressures.

The Japanese yen weakened modestly against the dollar, with USD/JPY rising from approximately ¥159 to ¥160 per US dollar, representing a depreciation of around 0.7% in the yen. For South African investors, the rand strengthened by around 2.7% against the US dollar, supported by a weaker dollar, strong precious-metal prices and improved demand for South African assets.

Overall, August saw a moderately weaker US dollar against most major currencies, although the yen was a notable exception. The euro benefited from dollar weakness and expectations of relatively tighter European monetary policy, while the yen remained under pressure despite the prospect of further Bank of Japan rate increases.

South Africa

Rising commodity prices support Resource companies, while local consumer stocks struggle

South African equities performed strongly during August, with the FTSE/JSE All Share Index gaining 4.6%. However, the headline return was driven overwhelmingly by mining shares. The strong performance of both gold and platinum prices was particularly beneficial for South African mining companies and contributed significantly to the strong performance of the local resources sector during the month. The Resources sector surged 23.5%, while other areas of the market struggled. Financials declined 1.6% and Industrials fell 5.1%, highlighting the narrow nature of the market’s advance.

The South African bond market produced a more modest positive return, with the FTSE/JSE All Bond Index (ALBI) gaining 0.7%. Bond yields were volatile but ultimately ended the month little changed, with the benchmark 10-year government bond yield finishing around 8.75%. Local bonds were supported by a stronger rand and foreign investor demand, while easing headline inflation provided some encouragement. These positive factors were partly offset by higher global bond yields and continued uncertainty regarding the outlook for domestic monetary policy.

Major Asset Class Performance (South African Rand)

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