Monthly Commentary April 2023

There was a wide dispersion in performance amongst Global equity indices in April. The S&P 500 was up 1.6%, but the Russel 2000 was down 1.8%, and the Nasdaq Composite ended the month flat. Outside of the US, the MSCI ACWI was up 1.5%, but this stood in stark contrast with certain regional indices, amongst them Hong Kong’s Hang Seng, which fell almost 2.5%.

In the US, inflation continued to fall with the CPI print for March coming in at 5% YoY, slightly lower than expected. The production side was even more encouraging, as both PPI (Producer Price Index) and Core PPI came in lower on a month-over-month basis. Finally, retail sales are also falling faster than estimates, which is encouraging as it means demand-pull factors impacting inflation are receding.

That said, not all news was good, as the US banking crisis roared back into the headlines with First Republic Bank becoming the latest to fall victim to high interest rates and paper losses. As was the case with those before it, First Republic had a wealthy client base, with more than 66% of accounts holding more than the FDIC insured limit of $250k. This led to depositors pulling more than $100 billion in just 3 months, reducing the bank’s asset base by 40%.

On the political front, the battle for the US elections in 2024 is starting to take shape. Joe Biden has officially announced that he will be running again, while Republican frontrunner Donald Trump was officially indicted on fraud charges.

Lastly, the evolution of Artificial Intelligence (AI) continues at a rapid pace, and of the men widely seen as one of the founding fathers of AI, Geoffrey Hinton, has become the latest to state that he now regrets his work, and that some of the dangers posed by AI were quite scary.

South African Investors enjoyed a relatively strong month as the JSE All Share was up 2.8%. Local inflation remains stubbornly high, increasing to 7.1% YoY from 7.0% at the previous reading. Higher prices are leading to strain on consumer budgets as evidenced in the financial results of Capitec – by far South Africa’s largest bank in terms of number of clients – where credit applications are soaring, while their approval rating sits at its lowest-ever level.

Lastly, confusion reigned supreme as the ANC issued several contradictory statements regarding South Africa’s intent to withdraw from the International Criminal Court (ICC). There is no doubt that this is being driven by our seemingly inexplicable loyalty to Putin’s regime. Notably, even if we confirm our withdrawal, we would still be “obligated” to arrest Vladimir Putin upon arrival for the BRICS summit later this year.

James Hayward BEng (Civil)
Equity Analyst

James, or JD as he prefers to be known, is an equity analyst in the global investment team, having joined Flagship in 2021. At the completion of his degree, JD worked in the engineering and fintech start-up industries while pursuing further studies in investments. JD holds an Engineering degree from Stellenbosch University and has passed all 3 levels of the CFA exams.