December 2024 Investment Review:
December brought a mix of opportunities and challenges, with markets responding to the push and pull of political and economic forces. Global equities showed resilience despite lingering concerns about inflation and geopolitics, while local markets wrestled with the familiar pressures of a depreciating Rand and weak commodity prices. Below, we unpack the month’s performance through a global and South African lens, highlighting USD and ZAR returns to reflect the dynamics at play.
Global Overview: A Mixed Ending to a Strong Year
Global markets concluded 2024 on a divergent note, with developed and emerging markets showing contrasting fortunes. In USD terms, the S&P 500 returned -2.42% for December, capping a remarkable 24.50% YTD return. The NASDAQ 100, the standout performer of the year, gained 0.43% in December in USD, driving its annual return to 25.58% in USD. These gains were underpinned by strong consumer spending, resilient job growth, and a dovish pivot by the Federal Reserve.
The Fed’s 25-basis-point rate cut to a target range of 4.25%–4.50% was a key driver of sentiment. While inflation showed signs of moderation—core PCE inflation held steady at 2.8% year-on-year—the Central Bank signalled a slower pace of future cuts to navigate ongoing economic uncertainties. Nonfarm payrolls added 227,000 jobs in November, reinforcing the labour market’s strength and bolstering confidence in the US recovery.
Emerging markets, particularly in Asia, showed better performance in December relative to developed market counterparts. The MSCI Emerging Markets Index returned -0.14% in USD, buoyed by China’s economic stabilisation efforts. The Hang Seng Index surged 3.47% in USD, the highest monthly return among major indices, driven by optimism around policy stimulus. However, challenges persisted, with Chinese retail sales rising only 3% year-on-year in November and CPI growth remaining subdued at 0.2%. These figures highlight the delicate balance between stimulus measures and structural economic weaknesses in the region.
In Europe, indices delivered modest gains, with Germany’s DAX Index rising 1.44% and France’s CAC 40 up 2.01%. The European Central Bank cut its deposit rate by 25 basis points to 3.0%, its fourth reduction of the year, in response to ongoing growth challenges. Commodities markets, however, painted a sobering picture. Brent crude oil prices fell 0.30%, while gold slipped 0.71%, reflecting softening demand.
Local Overview: ZAR Weakness Amplifies Market Challenges
South African markets were marked by a subdued performance in December, with USD-denominated returns further impacted by the Rand’s depreciation. The FTSE/JSE All Share Index fell 0.29% in ZAR terms, translating to a steeper decline of 4.55% in USD terms. For the year, the index delivered a respectable 13.44% in ZAR, though the overall stronger Rand tempered USD-based returns to 9.94%.
The FTSE/JSE SA Listed Property Index managed a modest gain of 0.41% in ZAR for the month, reflecting the dual pressures of local economic uncertainty and currency weakness. On a year-to-date basis, the property sector was a standout performer, delivering 28.96% in ZAR, supported by stabilising interest rate expectations and attractive valuations.
South African bonds faced similar challenges. The FTSE/JSE All Bond Index fell 0.35% in ZAR for December, illustrating the impact of the Rand’s depreciation. Despite this, bonds remained a bright spot for the year, with a 17.18% YTD return. The high real yields on offer continued to attract local investors, though global appetite was constrained by concerns over fiscal sustainability and currency volatility.
The Rand depreciated by 4.35% against the US Dollar, averaging R18.84/USD in December. Factors driving the weakness included subdued commodity prices, global risk aversion, and concerns over South Africa’s fiscal position. The Business Confidence Index, however, provided a silver lining, rising to 118.1, its highest level in two years, reflecting optimism around governance reforms and coalition stability.
On the economic front, South Africa’s GDP contracted in Q3 due to drought impacts on agriculture, but other sectors showed resilience. Mining production rose 1.4% year-on-year, driven by increases in platinum group metals, chromium, and diamonds. Manufacturing also rebounded, growing 0.8% year-on-year in October, though the automotive sector remained under pressure due to global and local challenges.
Conclusion: Balancing Challenges with Opportunity
December’s market dynamics underscored the complexity of investing in a world of contrasts. In the US, equity markets ended the year strongly, supported by easing inflation and robust economic fundamentals. Emerging markets, led by China, showed pockets of strength, while Europe’s struggles persisted. Commodities faced downward pressure, reflecting broader global demand concerns.
South African markets told a similar story of resilience and challenge. Local equities struggled under the weight of declining commodity prices and a weakening Rand, while bonds provided a stable, income-generating alternative. Business confidence gains and mining resilience hinted at brighter prospects, though the road ahead remains fraught with uncertainty.
As we enter 2025, our investment team holds the following views:
- Global Equities: Although we trimmed some exposure in December, we are still slightly overweight developed market equities, particularly in technology and consumer sectors, where strong earnings and policy support create attractive opportunities.
- Emerging Markets: Selective exposure, with a focus on regions benefitting from stimulus, while remaining cautious on China’s structural vulnerabilities.
- South African Bonds: A preferred local asset class, offering high real yields despite currency risks.
- Flexibility: Reinforcing flexibility in tactical asset allocation to mitigate the impact of potential major drawdowns on the portfolios and to benefit from low valuations if and when they arise.
Investors are encouraged to remain disciplined, diversified, and aligned with long-term objectives as markets navigate an increasingly complex global and local environment.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness. MitonOptimal South Africa (Pty) Limited is an Authorised Financial Services Provider Licence No. 28160, regulated by the Financial Sector Conduct Authority (FSCA) – Registration No. 2005/032750/07.MitonOptimal Portfolio Management (Pty) Limited is an Authorised Financial Services Provider Licence No. 734, regulated by the FSCA – Registration No. 2000/000717/07.