October 2024 unfolded as a classic market balancing act, with investors caught between optimism and caution on the high wire of economic and geopolitical uncertainty. Equity markets globally were pulled in different directions, with the US showing a surprising level of resilience, while other regions struggled to keep pace. Overall, the MSCI World Index slid by 1.98% in USD, and the broader MSCI All Country World Index (ACWI) fell by 2.24%, revealing the prevailing mood of scepticism across developed and emerging economies alike. Emerging markets took the brunt of the impact though, declining 4.45% in USD, as currency volatility and geopolitical pressures added weight to the existing economic headwinds in these regions.
In the United States, large-cap stocks weathered the storm fairly well, with the S&P 500 posting a slight 0.93% decline after strong early-month earnings in the banking sector gave the index a needed boost. However, this optimism was dampened later in the month, as major tech players—Microsoft, Meta, and Apple—warned of high costs tied to the insatiable demand for AI infrastructure. Despite a third-quarter GDP growth of 0.7%, the Federal Reserve kept its cards close to its chest, hinting at only one more rate cut this year. With a looming presidential election that pits contrasting fiscal strategies against each other, uncertainty is set to remain the US market’s shadow partner.
Across the Atlantic, Europe sent mixed signals. The Euro area posted a 0.4% GDP growth, its best in two years, yet inflation concerns kept the European Central Bank on edge, prompting a rate cut to 3.25%. Geopolitical instability continued to influence European markets, with rising conflicts in the Middle East prompting investors to retreat to safe-haven assets. Gold prices surged by 3.2%, and Brent crude oil prices hovered at the lower end of their range as traders weighed energy market risks.
In Asia, Japan’s Nikkei 225 Index was the standout, edging up with help from local stimulus efforts, though momentum faded by month’s end. China faced a more challenging backdrop as fiscal sustainability and waning consumer confidence overshadowed pro-growth policies, while military posturing around Taiwan added to regional jitters. The uptick in global demand for energy—driven largely by AI infrastructure investments—boosted utility stocks, illustrating how tech-driven shifts in energy consumption are reshaping traditional sector dynamics.
On the local front, South African markets rode the same waves of volatility, with most indices ending October in the red. The FTSE/JSE All Share Index dropped 0.92% in ZAR, reflecting both internal and global factors that kept investors on guard. Real estate suffered, after record returns year-to-date, with the FTSE/JSE SA Listed Property Index falling 2.84% in October. The pullback was one of external influence, as the expectation of rate cuts going into 2025 should see the asset class regain some momentum. Similarly, the FTSE/JSE All Bond Index declined by 2.20% as South African bonds felt the pinch from heightened yields—mirroring the challenges faced by bond markets worldwide.
Large caps in the FTSE/JSE Top 40 Index posted a 1.15% decline, signalling that South Africa’s largest companies were not immune to global slowdowns. However, it wasn’t all gloom and doom—resource-heavy stocks provided a much-needed bright spot. The FTSE/JSE Resources 10 Index gained 2.54% as global commodity demand held strong, positioning resources as a favoured hedge amidst global unrest, especially with escalating conflicts in the Middle East adding to uncertainty. The steady performance of the resources sector highlights its enduring role as a “safety anchor” for South Africa in volatile times.
From a policy standpoint, South Africa continued to face challenges similar to other major economies: high interest rates driven by global inflation, adding pressure to both equities and bonds. The South African Reserve Bank, taking a cautious yet necessary stance, stayed aligned with international Central Banks focused on reining in inflation without stifling growth. The weakening Rand against the US Dollar further complicated matters for local investors exposed to international assets, intensifying the need for diversified portfolios to manage currency risk.
October 2024 underscored just how tightrope-like global markets have become, balancing between the potential rewards of risk-taking and the defensive allure of safety. South African markets echoed these sentiments, with the resources sector proving a resilient bastion while property and financial sectors bore the brunt uncertain global events. Global developments—whether from Central Banks or geopolitical hotspots—will continue to shape the landscape, making diversification and adaptability key strategies for investors looking to weather the storms ahead.
As we head toward the year’s end, Central Bank policies, the US presidential election, and geopolitical developments loom large, holding sway over both local and international markets. In this environment, we remain overweight South African risk assets while keeping the rest of the portfolio agile and liquid leading into the US election early in November.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
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