Monthly Commentary August 2023

Equity markets experienced a sharp turn-around in August, with most major indices ending deep in the red. In the US, the S&P 500 declined by 1.6%, while the Nasdaq fell by 2%. London’s FTSE 100 fell by 2.6% and in the East, Hong Kong’s Hang Seng Index was down a whopping 8.2%. On a global basis, the MSCI All Country World Index declined by 2.7%, while the MSCI Emerging Markets index fell by 6.1%. On a relative basis, the commodities market was fairly subdued, with Brent Crude oil trading 1.5% higher and gold 1.3% lower. The notable standout here being copper, which fell by 5.8%.

US economists are starting the attach a higher probability to the US potentially escaping a recession, despite the Fed’s remarks that the economy is not cooling, and monetary tightening may not be over. Ratings Agency Fitch struck a less optimistic tone, downgrading US debt from its triple A rating on the back of ever-increasing fiscal deficits. On the political side, Donald Trump seems to be expanding his lead over Republican hopefuls, despite being the first former president to officially have a mugshot.

The news flow from China continues to be ample, and mostly negative. The property slump continued in August as Country Garden Holdings also ran into financial difficulty. Given the fact that they have 4 times as many developments as Evergrande, this is potentially a major economic headache. Concerns were also raised after certain large asset managers missed payments on high yield investment products, and the government stopped releasing youth unemployment numbers after this measure hit a record high earlier in the year. Most recently, it emerged that Xi Jinping would not be attending the September’s G20 summit, marking his first ever absence from the event.

Despite all this doom and gloom, China’s largest ETF saw the largest monthly inflow on record with local investors presumably trying to “buy the dip”.

Local equity investors were not spared from the pain felt around the globe in August, as the JSE All Share index declined by 4.8%, while the local resources index fell 8.3%. Further adding to the pain was the Rand weaking by 5.7% against the US Dollar to close the month just South of R19/USD.

Local news was a mixed bag in August, with the biggest item being the announcement the BRICS would be expanded to now include Ethiopia, Egypt, Argentina, Saudi Arabia, Iran and the United Arab Emirates. Given the inclusion of Ethiopia, South Africa has been “up” graded from being the group’s economic minnow.

On the political front, Jacob Zuma was reincarcerated, only to be freed less than 2 hours later under a new deal that provides clemency for non-violent offenders. The investigation into the South African National Defence Force’s involvement with the Russian cargo ship, Lady R, took a concerning turn after a Hawks officer investigating them was assassinated with military precision while driving his car in Johannesburg. Nothing suspicious here…

As is often the case, the goods news came from the Western Cape, as Cape Town added more jobs during the 2nd quarter than all the other metros combined.

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.